RE:Trying to pick a bottomGreat post as usual...
In answer to your question, I think most of the people here who follow my posts aleady know my answer.
The bottom line mrrb (lol) is "It depends"...
For me, I try to keep things simple and if I can't figure it out on the back of an envelope then it's too complicated for me.
First...I try to put together a macro scenario and then adjust my overall asset allocation to that scenario. So right now, that scenario is higher interest rates and a recession sometime in the first half of next year. So I am around 30% cash (a number which may well grow as we move into next year) and the companies I own shares in are solid and conservative.
Second...I try to find companies that have a clear path to growing their business and hence their profits.
Three...execution is key. So I try evaluate the management of a company to see if I think they can be successful. Without great management, even a company with the great growth prospects will flounder.
Four....I recognize that I am not very smart and so I take my cues from the market itself as to when it appears that there is a green light and to move towards being fully invested and when there is a red light and I move to a defensive stance and wait at the traffic stop until the light turns green.
Five....I recognize that the market is as much about sentiment as it is about analytics. So I try to step back from the herd, and try to see whether the herd has got it right or whether everybody is running hellbent towards the cliff. There are times when the market sentiment is overly optimistic or overly cautious. Recognizing these situations provide opportunities to make lots of money in the market. The rest of the time the market is in what I call the "I don't know phase".