One really interesting thing about investing and personal finance is how important the emotional component is.  For example, say you buy a house for $400k.  You can easily afford the payments for the duration of the loan, you have no need or desire to move any time soon, and you have enough money left over after the mortgage payments to live the lifestyle you want.

Case A: One year later the market increases 20% and your house is now worth $480k.  You think you're a genious and you say to yourself, "I'm really happy I bought when I did."

Case B: One year later the market decreases 20% and your house is now worth $320k.  You think you made a mistake and you regret your choice.

The interesting thing is that in either case, you're financially fine.  You can make the payments and live the lifestyle you want.  But the behavior of other people, which is out of your control, makes the difference between pleasure and regret.  Ideally, you'd emotionally prepare yourself for both cases at the point at which you buy the house so that what the market does has no affect on your emotional state after buying the house.

Emotional preparation is really important now that we're clearly in a bear stock market and flirting with a possible economic depression.  So how do we prepare, and what happens next?

Well, it's no secret what happens next.  By the way, the events of this past week were no secret either, if you were hooked up to the right information sources.  One principle of investing is that you can generally tell *what* is going to happen, but you don't know *when*.  Robin and I have been fully prepared for this past week...for about 3.5 years.  Just as the .com boom was a mania that had to end sometime, so it was with the housing mania.  But no one knew if it was going to happen the next week or the next year.

The challenge now is to prepare emotionally for the next phase.  At some point, we're going to reach a time when it's a great buying opportunity.  We'll reach a point where if you have the attitude of investing in something for the long-term (for several years) and only investing when the odds are substantially in your favor (when you have a decent margin of safety), it will be a great time to invest, be it in stocks or in a new house.

But, we don't know *when* that point will be.  It could be next week, or it could be 3 years from now.  However, emotionally preparing now is important.  Because, just as some people laughed at those 3 years ago when they said they had most of their assets in cash (with it's seemingly paltry 4.7% interest rate), at the point at which it's good time to buy others will probably laugh at you when you say that's what you're doing.

But first we have to get there.  First the credit markets have to get unstuck, and then all the sellers have to be exhausted.  That may take a month or several years, but that time is coming.  So we prepare.  And we read our sources of high quality information (which do not include *any* mainstream media sources) to help us judge when the time is right.