An understanding of how asset classes and investment styles perform over different stages in the economic cycle can help limit the damage to a portfolio wrought by a severe downturn. Specifically, judging when a slowdown becomes a contraction and when contraction mutates into recovery will help investors choose the appropriate allocation among asset classes such as bonds, equities or commodities.
What performs best during each phase of the business cycle?
John Templeton, said in February 1994, "Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell."
"A good forecaster is not smarter than everyone else, he merely has his ignorance better organised. " Anonymous
Prediction involves maximising the ratio of signal to noise, with the signal being the predictable component and the noise been unpredictable events.