Your friend, the financial news
Now they say, "Sell."

You know, the pudding-headed TV and radio pundits who, mere weeks ago, were telling everyone that the subprime mortgage problems wouldn't become a crisis, and that even if all those mortgage securities become worthless, "global liquidity" would certainly be enough to stop further damage to credit markets. Stocks were set to continue the record runs.

They have the runs, all right.

Today, the headlines are all about a global "credit crisis." Across the world, financial institutions are leading the market-poundings. People are worried about whether the end of the housing party will lower the boom on fine little banks like Motley Fool Global Gains pick Allied Irish Banks (NYSE:AIB). Now, finally, they wonder just how much damage bad U.S. loans will do on the books at firms like BNP Paribas or Allianz. Alas, the crummy mortgage malady that mauled Bear Stearns was not contained to U.S. shores.

And now, everyone's got an action plan for investors, based on this "late-breaking" (visualize my e-sarcasm here, folks) news: Get rid of your stocks. Head for the hills. I'm not kidding -- I actually heard some little weasel on the radio this morning telling everyone to sell everything, because hey, things might get worse.


I won't belabor the "I told ya so" today, though I've been warning investors to be careful, and stashing away a large load of my own cash. It feels good to be right.

Instead, I'll belabor the proper response for a real investor.

You heard me. Three little letters. B-U-Y. Start buying now, and keep buying. Everyone's shouting "sell," and the red tickers confirm that people are listening. That means plenty of babies are being thrown out with all the dingy bathwater.

I think you should be buying now, and getting ready to buy even more. (And I'm eating my own cooking here, FYI. I've been getting a crack at stocks I've wanted to own for months.) But I'm not advising that we just throw our money at anything, simply because things are down. Let's take a quick look at the facts, and formulate the basics of a Foolish game plan.

Get real
Things are not actually that bad, people. Take a quick look at this chart. The major indexes here in the U.S. are still well above their levels from one year ago -- anywhere from 15% to 25% better. Global markets are sitting even prettier. That may mean they've got more room to fall, especially in the bubbly Asian exchanges, but it ought to help put the recent drops into perspective. The hackneyed, ear-stinging cliche "correction" seems like an appropriate description.

And let's get over the hype about a credit "crisis." There's no evidence of anything as bad as the six-letter c-word. Instead, proof abounds that banks and other big lenders are simply stopping the irrational lending practices that inflated so many speculative bubbles across the globe over the past few years, especially housing in the U.S., Spain, U.K., Australia, and elsewhere.

Worldwide financial institutions, via recent rate increases, have clearly been aiming to dry up what can now be seen as an unhealthy level of liquidity. As a result, we're seeing a conniption fit from hedge funds and other big players who were, until recently, living fat off all that free money. But I firmly believe everything is under control, well-publicized whining to the contrary (cough Cramer! cough).

The Federal Reserve has opened up the spigot a bit, just enough to inject a couple dozen billion bucks, and it issued a bland statement to placate jumpy investors today, pledging to inject enough money into the economy to keep things healthy. The Japanese and European central banks have reportedly done the same thing. Credit isn't gone, it's just doing what it should have done all along -- getting choosy and demanding decent, risk-adjusted returns.

The real problems, if any are on the way, would come from worldwide consumer spending dips. But employment numbers have been decent in the U.S., and they've been improving in most of the European countries I watch. As for American consumers, they may be stretched thin, often too thin, but consumer confidence moved up recently to a five-month high. They'll be getting jittery now, I imagine, but they're certainly not shutting their wallets completely. And I don't expect them to do so.

The world isn't ending; it's just returning to normal. As a result, I fully expect slower consumer spending growth, and the associated pullbacks in profit growth. We will even see (gasp) some unsightly shrinkage. That, too, is normal.

Make hay while the sun's not shining
But the fear that things will get even worse can sicken a market Ebola-style. That's why I expect more pain in stocks. But to me, it's exactly the right kind of pain. It's indiscriminate, occasionally severe, and well-publicized. The fear will drive more people to run for the hills, creating some vicious sell-off cycles. Those kinds of price cuts separate real investors from fair-weather pretenders.

I know, I know. "How can I be so callous? People are losing money!" Hey, unlike most of those crocodile-teared financial reporters out there, the ones with no stocks but lots of late answers, I'm watching my holdings drop, too. But I'm doing so with full knowledge that some of the pullback is well-deserved and long overdue. Let's be honest -- are my Chipotle Mexican Grill (NYSE:CMG-A) (NYSE:CMG-B) shares really worth 70% more than when I got them a few months back? Were they worth 10% more than that a few days ago?

Of course not. Am I going to sell them now, in the hopes that I can avoid a near-term loss, then try to buy them back later at a lower price? Not on your life. There's simply no way to know how long the panic will last. Therefore, trying to time markets like that will only get you burned. If you're in this for the long run, hold the good stuff, buy what's cheap, and keep buying all the way down.

Be choosy
I know, that sounds like a familiar recipe for disaster. You may be remembering all those people who kept buying Cisco (NASDAQ:CSCO) as it lost four-fifths of its value during the tech bust. So let's go back to what I said: Buy what's cheap. Cicso wasn't then, just like Crocs (NASDAQ:CROX) isn't now.

During times like these, you can't buy just anything. I think the last couple years, in which any dart-tossing monkey could find winners, are gone.

Buy strong
Look for strong balance sheets and a history of increasing margins. Sure, a year or two of pain (if it comes to that) will deleverage some of these businesses, but you can be nearly certain that they'll bounce back when the panic ends.

For a great place to start, consider what I think of as "inevitables" -- consumer staples, airports, low-end must-have retailers, many quickserve restaurants. In short, it's the stuff that continues to make money (albeit less than the year before, from time to time) even when consumers try to stop spending. Companies like Procter & Gamble (NYSE:PG) or Wal-Mart are good places to take shelter from a storm, but in my opinion, they don't offer the best potential, because investors seeking safe havens have been eyeballing them for some time.

Buy down
My recent buys have been in smaller-cap stocks, and firms that were already pounded before the recent general market drops. Why? Because, quite simply, these stocks are more likely to have already reached what should be the ever-elusive "bottom." Sure, these recent purchases have dropped along with everything else, but less severely so. Much of the risk was already "priced in." And by my math, further drops will just bring bigger bargains.

Get out of town
Given the number of foreign companies trading in the U.S., and the ease with which we can buy foreign shares via U.S. brokers, we can expand our search overseas. The carnage is sometimes worse over there, and consumers are arguably not so thoroughly wracked by credit problems.

In fact, just yesterday, I recommended that readers of our Motley Fool Global Gains newsletter check out a certain European small cap. It's already seen its share of woe, but it sports a rock-solid balance sheet and insider ownership. In other words, it's exactly the kind of firm I like to buy low, buy down, after getting out of town.

Foreign markets are more correlated to the U.S. now than ever before. It only makes sense to cast your net over the entire globe as stocks drop everywhere -- whether they're taking a well-deserved beating, or being discounted beyond sense.

We feel the pain now, too, but I know my colleagues at Global Gains are as excited as I am by the opportunities out there, both current and upcoming. As my colleague, lead advisor Bill Mann, put it today:

Remember that old adage about 'buying when others are fearful?' Look around you. People are running around like they've got wolverines sewn into their bellies. They're terrified. If you believe that this adage holds merit, it's time to prove it. Buy something.

We'll be combing through dozens of world markets to find something a bit friendlier than a ravenous wolverine. If you'd like to join in the hunt, a free trial is just a click away.

At the time of publication, Seth Jayson, a top 10 Motley Fool CAPS player, held shares of Chipotle but of no other company mentioned here. See his latest CAPS blog commentary here. View his stock holdings and Fool profile here. Wal-Mart is a Motley Fool Inside Value pick. Fool rules are here.