With the S&P 500 index having fallen 40% from its peak, it's time to prepare for the next bull market in the best-performing industry this decade: energy.

The previous bull market started in mid-2003, and China and India were hot topics. As China and India, sometimes referred to as "Chindia," are home to a third of the world's population, it was likely that oil prices would rise as those nations' economies boomed. That's exactly what happened.

With that sort of backdrop, it made sense to aggressively build up positions in the energy, natural resources and mining sector. In 2003, energy comprised about 9% of the S&P 500. I went overweight at 12%. I bought British Petroleum ( BP), Chinese refiner Sinopec ( SNP), exploration and production company Murphy Oil ( MUR) and Statoil ( STO), the big oil company of Norway. Each was weighted at 3%.

As oil prices climbed, I made changes. First, in March 2005, I swapped Murphy Oil for Marathon Oil ( MRO) because it was less volatile, as it was a refiner with gas stations and had a generous dividend. In May 2006, oil made its first run up to $75, so I reduced Statoil by about 25%. Later that year, I sold British Petroleum and bought the WisdomTree International Energy Fund ( DKA). The energy investing theme had been several years old, and the risk-to-reward ratio of holding individual stocks became less compelling.

As energy kept rallying, the industry came to have a larger weighting in my portfolio, so I sold Sinopec in 2007. In May 2008, I sold some more Statoil, when times were still good for oil, dumped Marathon as the bear was starting to bite and finally bought a little Statoil a couple of months before the price of crude bottomed. Today, I only own the WisdomTree International Energy Fund and Statoil, leaving me underweight in the sector.

Before the energy bull market returns, the quickest way to get back in would be to swap the WisdomTree International Energy Fund for any stock in the sector, most likely a large, foreign, integrated company. I would also want to add a couple of names that I thought offered the potential to capture the benefits of volatility.

The oil-sands group would seem to offer promise. When the price of oil increases, the economics of oil-sands extraction becomes more viable. An easy pick in this part of the world would be Suncor ( SU). I have always been intrigued by South African energy company Sassol ( SSL). In addition to oil and mining coal, the company is working on turning coal into synthetic fuels. I also would plan to look at companies that will benefit from deepwater oil discoveries like the Tupi and Carioca oil fields off the coast of Brazil. Petrobras ( PBR) will benefit, and so too might deepwater oil-rig companies such as Transocean ( RIG).

As a matter of logic, take more risk earlier in the cycle, when there's a better chance for the market to move up. After four or five years of a bull market, there's a higher risk of a downturn. A stock like Suncor will move more than an ETF like the WisdomTree International Energy Fund. If the overall market is rising, Suncor is likely to rise more. If the stock market is declining, Suncor will probably drop more. Calling tops and bottoms isn't realistic, but getting more aggressive or defensive is doable.

At the time of publication, Statoil and the WisdomTree International Energy Fund were client holdings.

Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback; click here to send him an email.