re: "the ultimate driver of markets, (is) emotion":
On a time-frame of 5 years or more, the ultimate driver of markets is profits and interest rates. For any given market, or sector, or company, the longterm increase in stock prices correlates very well with the long-term increase in profits. And the longterm change in interest rates correlates very well with market PEs.
However, on a shorter time frame (less than 5 years), you are correct. The balance of fear and greed, and herd behavior, control the week-to-week and month-to-month market movements.
This is what gives rational people an opportunity to beat the market. It disproves the Efficient Market Theory.
What I do is print out 5 to 10 year log charts of various companies. I draw a trendline, based on the expected EPS increases and expected PE range. If those expectations are based on a track record, they are very reliable. Then I extrapolate that line into the future. I buy when the actual stock price is well below the line, and sell when it is well above. If, for tax reasons, I don't want to sell, then I create an appropriate hedge position. When I've sold a lot, and can't find anything to buy, then I hold cash. This amounts to timing the market, although I'd be willing to be fully invested, no matter what market conditions, if there was any buyable stocks.
This is a GARP and contrarian style, and I've had a better than 100%/Y return for the last 3 years. This method also made me 70% cash in early January, so it seems to work OK in a down market also.
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