When Wall Street nearly collapsed

Would panic prevail? That was the question gripping the world in the days surrounding the fall of Lehman Brothers on Sept. 15, 2008. One year after that terrifying Monday, the people who struggled to cope with the financial crisis share what they were thinking as chaos broke out.

Mohamed El-Erian: Hit the ATMs

Chief Executive and Co-Chief Investment Officer of PIMCO

On the Wednesday and Thursday after Lehman filed for Chapter 11, I asked my wife to please go to the ATM and take as much cash as she could. When she asked why, I said it was because I didn't know whether there was a chance that banks might not open. I remember my wife sort of pausing and saying, "Are you serious?" And I said, "Yes, I am." We had long felt that the world was increasingly in disequilibrium, and by March of 2008 we decided that things were critical and that the unthinkable was thinkable. We went so far as to cancel everybody's holidays for the year, and as the Lehman weekend approached, it was all hands on deck.



The actual weekend that Lehman filed, the investment committee worked every day round the clock. I remember boxes and boxes of doughnuts and pizza all over the conference table because we were always there, going through the different possible outcomes.
The firm had been preparing for catastrophe for a long time, but even so, there was a sense of apprehension because things were accelerating very, very quickly.

Don't! Conduct business on the toilet

Or at least wait until the conference call is over to flush.
"My feeling was, `Oh! Tell me that is not what I think it is!'" remembers Dan Chmielewski, owner of Orange County, Calif.-based Madison Alexander PR.

Chmielewski was on a call with several high-level people and an engineer, who was working remotely. At the very end of the conference call, during a break in the conversation, they all heard a toilet flush.

"There was a little pregnant pause," says Chmielewski, as they realized what the engineer had done.

The next time Chmielewski had a conference call with people from that fated phoner, one of the non-flushers teased, "I have about 45 min for this call -- let's see what we can flush out here."

How to Find Stocks for a Recession?

Investors are as worried about recession as the Federal Reserve is about inflation, and at the first signs of a slowdown, stock pickers and regular investors start thinking about how to protect their portfolio from the incipient slowdown. While a recession doesn't necessarily mean all sectors perform poorly, it is a challenging time to hold stocks. However, if you know how to invest during rough patches, you can survive, if not thrive, during a recession.

Instructions

Step 1 - Pick stocks that have huge double- or triple-digit growth. In spite of other drawbacks a company may have, if you invest in stocks with massive growth, a slowdown will not affect the growth of the stock very much. Make sure this growth, however, is not at the expense of other factors.

Step 2 - Look for stocks that are undervalued based on the company's assets and cash flows. Find good stocks that are disliked during a recession because of external factors and not because of the viability of the company.

Step 3 - Opt for companies that have economic independence and are not vulnerable to the fluctuations of the U.S. economy. Good examples are debt collection agencies and companies that have a good part of their revenues coming from overseas.

Step 4 - Select defensive stocks that focus on drugs or food. These goods are necessary even in down times, and people don't stop eating just because there is a recession.

Step 5 - Protect yourself with dividend stocks. Companies that offer a high dividend yield will be like shelter in a storm and will give you income even in difficult times.

Tips & Warnings

- Know that even in a recession, there is always a part of the economy that is working. Try to find the sector that is healthy in downtimes.