"Guess what?" said Robert Shiller in an exclusive Reuters interview. "For those of you who thought house prices would find their bottom in 2008 - think again."

According to the Yale economist and co-developer of the S&P/Case-Shiller Home Price Indices, "The bottom is hard to predict. I do not see it imminent and it could be five or 10 years too."

"The housing situation that we got in is unique in history because there was an investor psychology that developed that was stronger than we have ever seen before," Shiller said. "We have seen housing bubbles many times in history, but they have been much more local than this one."

Sometime a mass delusion will plague an entire nation…in this case, Americans looked at their homes as an investment - not a residence. They believed that the value of their home would always go up, forgetting a very basic theory: what goes up…must come down. There is always a correction…not unlike the one that we are seeing in the gold market right now.

"America's financial turmoil is far from over," says The Daily Telegraph, "if, as Bill Bonner and Addison Wiggin assert in Empire of Debt 'the force of the correction is equal and opposite to the deception that preceded it.'"

The markets are a bundle of emotions - just take a look at Jim Cramer's now infamous meltdown. Or, just check out today's Financial Times: "'Hysterical' US bond investors threaten commercial property".

While that headline conjures up images of bond investors decked out in Brooks Brothers wielding spray paint cans and shaking their fists at buildings, if you read on, you'll see that "market turbulence is also raising the cost of commercial mortgage borrowing."

"The difference in rates on AAA-rated CMBS and the so-called risk-free rate has more than doubled since June, reaching its highest level since October 1998," continues the FT.

"Investors have fled the CMBS market, in part because of worries that riskier lending practices in commercial real estate would lead to higher defaults, industry executives say."

In markets where emotions are running high, obviously the risk to your investments will be greater. But portfolio disasters happen - in fact, they are an unavoidable fact of life in the investment world. Even the investment greats, like Warren Buffett and Peter Lynch have run into their investment speed bumps, points out Chris Mayer.

"However, there are ways to guard against these disasters," Chris tells us.

"1. Buy only companies with extremely strong financial conditions. I'm proud of the fact that I've not compromised on this point in Capital & Crisis. I believe all of our companies enjoy strong finances. Of course, you can still get snookered and bad things can happen. But going in, we've always had super-strong companies.

"2. Buy companies that seem well managed from a shareholder point of view. The easiest way to do that is to buy companies run by owners. A management team that owns a big chunk of stock is a lot less likely to screw you over.

"3. Buy only companies you can understand. That means that the disclosures should be good. That means understanding how cash flows through a business. It also means that certain sectors will be harder to invest in than others, depending on your expertise.

Biotech, for example, is pretty much off-limits for me.

"4. Buy only at a discount. The standard here is what deal makers (i.e., private buyers and control investors) would pay for the business. Buying cheap covers a lot of sins. You can be wrong and still get your money back. That's why it's so important.

"Beyond these four points, I have a preference for tangible assets. I like to buy things at a discount to some tangible net asset value."

Kate "Short Fuse" Incontrera
The Daily Reckoning

Kate "Short Fuse" Incontrera is the managing editor of The Daily Reckoning. Each Saturday, she also brings you The Daily Reckoning's Views From The Fuse, a weekly wrap-up of contrarian insights and ideas. Kate studied literary theory and writing at Towson University and the University of Cambridge. After receiving her degree in English, Kate joined The Daily Reckoning team in 2004. Copyright © 2007 Kate Incontrera