This from Today’s Financial News:

Investors are scared. Nearly everywhere you look there are signs of economic calamity.

What is an investor to do?

First, do not panic. Those kinds of reactions are how markets topple and huge sums of wealth are lost.

The key to success right now is remembering there are two major factors that control the markets. They are fear and greed. This concept is one of the first things taught in Investing101.

Let’s Get Emotional

Greed makes prices go up and creates financial anomalies like tech bubbles and credit crunches. Without excessive amounts of greed on Wall Street, we would not be in the current crisis. But we would also never have seen the Dow reach 13,000 in May. Everything in investing is a trade-off.

The days of greed are gone, for now. Fear is overwhelmingly controlling the market, just as it should be. When former ultra-bulls like Lehman Brothers (NYSE:LEH), AIG (NYSE:AIG), and Bear Stearns are lying dead on the Street getting picked to nothing by vultures, investors have good reason to be fearful.

Use that healthy fear to make solid investment decisions. Invest in companies you are not scared to be part of.  Throw away the rest.

Start looking for undervalued companies now and start buying. The market has made a tremendous slide in the last few days. Many companies that do not deserve discounting saw huge price cuts.

One of these is Nortel (NYSE:NT). Shares of the telecommunications manufacturer made a precipitous plunge today, down nearly 45% to levels unseen since the early 1980s, nearly three decades ago.

Normally, news that revenues will be slightly lower than analysts forecasts (Nortel expects a drop of two to four percent in annual revenues) calls for a small share price pullback, maybe 10% or 15% at most.

In a fearless market like we had just a few months ago, a 45% drop was reserved for the most speculative of companies, not a $2-billion multi-national powerhouse.

When it comes to investing, a little greed is never a bad thing. Go ahead and start your value search by grabbing shares of Nortel.  It deserves a hit to its share price, but not one of this magnitude. You should not plan on owning shares for more than a week or so.

The malfunction of some of the world’s largest financial institutions is scary stuff.  It is no wonder many investors are running in fear. Fortunately, if you know where to look and how to control your emotions, there is big money to be made.

PS: In yesterday’s Hidden Value newsletter, Andrew recommended three Russian stocks oversold in the recent market crash. One of those – Rostelecom (NYSE:ROS) – has already made over 35% gains. Andrew says its a good time to book these profits, but recommends readers continue to hold his other Russian picks: Mechel OAO (NYSE:MTL) and Vimpel Communications (NYSE:VIP).

Source: Market crash: Time to Buy Nortel (NT)?

You can be sure of one thing: This crisis has a ways to run yet.

Fortunately, there is a way investors can make money out of this crisis. Andrew Snyder in Today’s Financial News says the Vanguard Short-Term Bond Index ETF (AMEX:BSV) high-yield bond fund is a great safe-haven investment right now. 

Let’s face it, it is going to be nearly impossible for AIG (NYSE:AIG) to find a $75 billion loan. With a collateral offering that is nowhere near the size of the loan request, the company’s executives would be better off buying a handful of scratch-off lottery tickets. Now, if the Fed is dumb enough to get involved again, all bets are off.

As of right now, AIG is likely to be in big trouble this time tomorrow. Executives could be standing behind their buddies from Lehman Brothers (NYSE:LEH) in bankruptcy court.

Even if the company does get the loan (or should we call it a donation), all its lender would be doing is feeding a powerful and deadly addiction. Do you realize what the interest payments would be like on a $75 billion loan? Figuring on a 2.5% interest rate and depending on how you compound the interest, it would be somewhere in the range of $1.5 billion… per year.

See what I mean about feeding the addiction?

If we give the company the money it needs today, it is no different than giving a hundred bucks to the crack addict down the street. He will get high today, but be begging again tomorrow.

The problem is if AIG goes bankrupt, investors across the globe will be reeling in pain. But that is what happens when we let a dozen or so greedy CEOs control the world’s markets.

Fortunately, I have a solution.

Hide in the lee of the storm

What if I told you about an investment that pays you a dividend nearly twice as good as average, plus is filled with appreciation potential? You would invest in it, right? You had better say yes.

The Vanguard Short-Term Bond Index ETF is one of a just a handful of investments that is in positive territory over the past few days.

Why?

There are plenty of reasons. As interest rates drop, bond prices rise. Investors are fleeing to the safety of the bond market in droves. Plus, where else can you find a chance to make 4% on your money when the equities market is hitting two- and three-year lows?

The Vanguard ETF tracks one of the company’s indexes of short-term bonds (typically three years or less to maturity) with investment-grade credit ratings. Right now, many of its holdings are U.S. Treasuries with coupon rates between three and six percent, a great choice as most government debt is trading near multi-year highs thanks to this credit debacle.

Nobody knows what is next

Today, the equities markets are treading water, waiting to see what will happen with AIG. If bad news strikes, bond prices will soar, making this ETF jump in value. As we have seen, the fallout from the credit implosion is nowhere near its end.

I am not recommending this ETF to count out the equities market. It is merely a temporary play to force your investments to keep working for you.

After all, many stocks are trading for a great discount. Bargain hunters will be on a buying frenzy later this week. You should be one of them. Right now, however, protection is key.

If you have not already done it, invest in a high-quality, high-yield bond fund. The Vanguard Short-Term Bond Index ETF is my choice.

When everybody else is calculating their double-digit losses, you will be able to cash in for sizeable gains.

Source: Wall Street Implosion: Protect Your Assets With This Pick