Last week, I was honored to give a speech at a conference in Tampa for more than 200 money market managers. It was good to escape the 35 inches of snow that we were getting in Massachusetts -- I owe my wife for this one -- but it was also good to be in the company of some extraordinary managers in one of the areas in which I used to compete.

With the stock market seemingly in free fall, I thought that taking a look at how these professionals keep things in perspective might be beneficial. Money markets and bonds are traditionally viewed as safe havens during times of equity meltdowns, but the thought processes of these managers can be helpful for investors of all types. Whether you are investing on the short end or the long end of the yield curve, or whether you are in fixed income or equities, the ability to dispassionately analyze the past, present and future can be crucial to successful investing.

Learn From the Past, But Don't Dwell

One big insight I took home from the conference is not to dwell on the past. Dwelling on mistakes can lead to despair and irrational decisions; celebrating good calls can lead to overconfidence. So, it's important to look back to see where things have come from and to learn from one's successes and mistakes. After that, let the past go.

In that vein, I didn't hear much criticism of Alan Greenspan last week. I'm sure there were people who felt that he tightened too much during 2000 and didn't ease early enough. And I'm also sure that there were people who felt we would not have had as much of a bubble if he had started to tighten sooner. The important thing is that it wasn't a major topic. Most successful investors that I know are concentrating on figuring out where we are now and where we are likely to go.

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Keep an Open Mind

Professional investors spend a lot of time trying to figure our how good or bad the current situation is. I know people who believe the economy is worse than is commonly believed, and who would point to last week's announcements by Intel (INTC:Nasdaq - news - boards) and Yahoo! (YHOO:Nasdaq - news - boards) as evidence. I also know people who believe that things aren't quite so bad, and cite stronger-than-expected personal consumption and employment numbers as evidence.

The true pros in both camps realize that, though their own positions are well thought-out and rational, not everyone agrees. To a degree, they view divergent opinions as a buying opportunity, but also recognize that their own opinions might be incorrect.

To keep from having their heads handed to them, they watch for evidence that contradicts their own opinions. Rather than ignore data that conflict with their view, they analyze it rationally. If presented with enough contradictory evidence, they change their opinion. This open-mindedness and dispassionate analysis allows them to stay in the game.

I've written that I believe that bond investors are underestimating the weakness in tech fundamentals. I've increased my holding in bonds in the past few weeks because I believe that economic weakness will outweigh inflation worries. I'm not betting the farm on this view, though.

While I view inflation as likely to move lower, I'm not in the deflation camp and I'm cognizant that bonds will get hurt if investors start to worry about price hikes. If tech fundamentals deteriorate more and bond prices fail to rally, I'll have the capital to commit more to fixed income. If the evidence shows that the economy is accelerating, I'll be able to re-evaluate while knowing I won't be wiped out.

Spread Things Around

Not only do pros keep open minds about the present, but also about the future. Everyone has an idea of where things will go, but good investors take into account a wide range of scenarios.

Take the dilemma faced by a money fund manager. A manager might feel the Fed will be cutting rates well into this year, but it might not make sense for that manager to extend maturities. Markets are discounting mechanisms, and the expectation for future cuts is already priced into them.

By extending out and buying a six-month piece of commercial paper, the manager could now get a yield of about 4.75%. This is well below the 5.5% that overnight paper is yielding. If the Fed cuts by 50 basis points next week, and 25 basis points on May 15, and if the economy responds to that and brings the easings to an end, the manager would be better off by staying in overnight paper. On the other hand, if the economy continues to slow and the Fed cuts by 50 in both March and May, the manager would be better buying the longer issue.

So even though the manager has a view on rates, acting on it might not work out. In practice, the manager is not faced with an either/or scenario.

What the manager would most likely do, after some mathematical exercises, is to spread things around. A combination of long, short and in-between maturities in a combination that maximizes return while minimizing risk would be the most likely result. As the market changes, the portfolio can be adjusted to account for changing prices and opinions.

How can this process translate to your own portfolio? First of all, don't panic. Evaluate where you stand. If the Dow dropping 436 points in a day is too much for you, then you have too much equity exposure. Rather than dump into a declining market, it might make sense to wait for a rally to scale into. The next question is what to do with the proceeds.

Money market funds offer safety, but the risk is that the Fed will cut rates so low as to make them unattractive. Treasury bond yields are low, but will continue to do well if equities continue to falter. Corporate bond yields offer the highest yields, but are subject to credit risk. There is no reason to buy just one of these, nor do you have to buy all three. The thing to do is figure out what combination best fits your risk profile, and begin moving into them in a calculated fashion.