My strategy is to get defensive when our forward-looking ChangeWave Research surveys show that consumer and corporate aggregate demand and sales are headed 20% or more south.

In other words, I went on the defensive when our survey data unequivocally showed that an economic recession was coming (e.g. January 2001 and January 2008).

By going defensive, I mean that I sold 50% or more of my equity positions, getting out of any stocks that are close to full-value calculations or not performing up to expectations, and hedging my portfolio with double-short bear market ETFs.

I did this because I know that investors will not be willing to pay the same multiple for growth and cyclical stocks going into -- and during -- the upcoming recession. When an economic contraction is coming, an earnings recession is coming, too. And my goal is to buy stocks when an earnings wave is ahead of us, not behind us.

Remember, the most value is created in stocks when the prospect for earnings growth is the easiest to forecast. The most value is taken out of stocks when earnings growth is hardest to forecast.

Utilizing our proprietary ChangeWave research, we are able to look ahead 90 to 120 days via our forward-looking sales pipeline and spending surveys.

Until the financial system meltdown that started with the Bear Stearns debacle, we were forecasting a relatively normal recession that would bring the Dow (DJI) to around 9,000. However, when the financial system collapsed, we were forced to change our outlook.