Here are some highlights from James Picerno's 2010 book entitled Dynamic Asset Allocation - Modern Portfolio Theory Updated for the Smart Investor.
(1) Diversification is for managing risk, not nor managing returns
(2) Risk management should begin with the global market benchmark weighted by market values and then varying those weightings based on your personal goals and perceived risk.
Just to give you an idea of what the global market looks like:
In 2008, that global portfolio had 39% in stocks, 30% in government bonds and 22% in corporate bonds. The rest: REITS 4%, Tips 2%, High-yield 1%, commodities 1% and natural resources 1%.
(3) Improving the stock/fund selection process and then owning the best picks is the wrong approach.
(4) Business and economic cycles really do exist. An inverted-yield curve signals lower future expected returns and, in recessions, a steep, upward sloping yield curve signals higher future expected returns.
(5) Since 1857 (there have been 35 recessions). That is about one recession every 4-5 years.
(6) When the economy is in recession, stocks go down pricing in the higher risk. More importantly, that perceived higher risk signals that future returns should be higher because higher returns are correlated with higher risks.
(7) Historical data suggests rebalancing a portfolio every 2 to 5 years.
(8) Small-cap Value companies make up slightly more than 7% of the U.S. market capitalization and are, indeed, a good diversifier for a portfolio.