You, the Stock Market, and Your Election Fears

presidential-party-24-hour-usePresidential party affiliation does not matter when it comes to the stock market.

Presidential party affiliation does not matter when it comes to long-term stock market performance.

This perhaps provocative notion was advanced in the Dimensional Funds Advisors article below. They wrote, “….over the long run, the market has provided substantial returns regardless of who controlled the executive branch.” Part of Dimensional’s proof is a graph showing the growth a dollar invested in the S&P 500 index since 1926. Investment growth under Democrats is highlighted in blue and Republicans in red. Some may argue that performance is better under Democrats. We know that performance under a couple of Republican Presidents was poor. But under Democrat Presidents, better performance coincided with periods of more volatility or risk. Investors expect greater rewards for greater risk, so better performance should be expected. This is what the Federal Reserve Board staff working paper, “Alternative Estimates of the Presidential Premium,” found. After adjusting for risk, the authors concluded: “the apparent discrepancy between the stock market performance of Democrats and Republicans is largely reduced.”

The emotions of market timing

Today, stock prices are fairly high while growth is widely expected to be slow. Should equity owners sell? I did, prior to the crash of 2008, and I now regret my decision every time the market hits a new high. I’m also afraid to get back in. It’s difficult to time the market, even if behavioral finance teaches us that the price is not always right.– Laurence B. Siegel, The Inventor of Behavioral Finance Looks Back (A book review of Richard Thaler’s Misbehaving: The Making of Behavioural Economics).

Morningstar fund ratings foster short-term investment focusFrom quick bucks to fast dollars, our common lingo is filled with expressions reflecting a short-term mindset about investing our hard-earned wealth. Many within the financial industry and popular press further fan the flames of our worst, reactionary investment habits – the kind that causes us to chase yesterday’s news rather than position ourselves for future expected growth. In other words, taking a short-term outlook in one’s investment strategy is a fast path to achieving buy-high, sell-low results – exactly the opposite of your true goals as an investor. Fortunately, by recognizing the problem, we can begin to consider preferred solutions.

Market Timing: Wall Street Week Technical Indicators

The investment community lost one of its more colorful characters two weeks ago with the passing of Martin F. Zweig, a prominent market pundit, author, and chairman of Zweig-DiMenna Associates LLC, a New York investment firm. His death at age 70 also marks the close of another chapter in the long-running debate on the virtues of market timing.

Zweig predicted the Dow’s October 1987 one-day crash of 29.2%.

Zweig, who earned a PhD in finance from Michigan State University, began writing investment newsletters while teaching in New York. He also wrote numerous articles for the weekly investment publication Barron’s and favored statistical measures of monetary policy, investor sentiment, and market momentum in managing portfolios.