Long-term investing in the wake of the mortgage crisis/recession/bank failures

Berkshire Hathaway is probably your only good bet.

Here's what you should think about - value and price are two separate things. Prices have changed, but value is something independent of the movement in price and you will never know what the true value is. We may have a range of estimates, but that's all we have.

Second, the challenge with the question of a long term investment is that you not only have to start with a good business, you have to also get it at a good price. You can lose money on the best of businesses. If you think about the value of a drug that could cure cancer, that will drive the point home. You can lose money by investing in the company that cures cancer. A good business and a good investment are not always synonymous. I've invested in companies with fraudulent accounting because the investment itself was good - crappy company, great investment, and I made money.

What is risky for one person can be safe for another, because they actually know what's going on, because they took the time to understand it. This is why we can't just recommend by Coca Cola. Purchased in 1998 at $85, you'd still be underwater on the stock price itself. As a business, it's great, but the price you pay for it matters too, and is exactly why you can make money on a bad company and lose money on a good company.

The only suggestion I ever really have is Berkshire Hathaway. Buffett operates with very clear disclosure - he states that he has 98% of his net worth in the business, he only takes a $100,000 salary, and he avoids the stock market. Most of his investments are in companies that he could buy entirely and doesn't plan on ever selling them. Even when he passes away, the work he did will have an impact for the next 100 years, because he made decisions today for the future, it's already based on sound principle and decided.

Regarding Fannie... the reason they didn't go into bankruptcy is that the government keeps extending them debt to pay off previous debt. That's normally called a Ponzi scheme, but when you're the government, it's considered a right. If they ever stop this, it will go into default and the equity won't be worth a penny. Stay far away from Fannie unless you really know what you're doing.

Cliffnotes: Berkshire Hathaway, or something you know of run by a reputable person is your best bet. The easiest way to know that you're paying a fair price is to make sure it isn't too far above book value when you buy.