October 25, 2010

Presidential Stock Market Cycle

History shows us that there is some correlation between the election cycle and stock market (S&P 500) results.
Typically, the 3rd year of the Presidents term, regardless of party, is the strongest, followed by the 4th, the 1st and the 2nd.  There is a great deal of theory as to why this is so but nothing concrete.  It should be noted that there are huge variances in these results as well. 
Since 1942, the 200 days following the midterm elections have produced an average of 18% gain. 
What does this mean to you?  NOTHING.
If I told you that the first day of the month produces more than average returns (which it seems to), would you go out buy stocks because of that?  I hope not.
Bottom line is that as tempting as it is to time the market, its just simply foolish to try
Stick to buying a very low cost index fund or ETF and adding to it as often as you can and with that simple strategy, you will beat over 95% of investors and over 90% of professional money managers who try.  Why?  Because fees are everything, not timing the market and not which stocks you buy.

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