Rule #1

Stock markets are risky. According to Bespoke, I count about 8 that are down more than -40%.

How long is that going to take you to get back to even? From a great article at designing better futures (here is the chart).

“Rule #1 in all investment allocation decisions is don’t lose money. Risk management is the name of the game at the asset and portfolio level. If you are a European and invested in US shares you have lost 50% of your money after the currency conversion. You would need a 100% return to break even.

The acceleration point for losses requiring greater gains is around a 13% loss. Think of it as inverting the power of compounding returns. Currently the S&P is 26% below its highs. To get back to the previous high point for domestic investors the S&P 500 needs to gain a little over 35%. The long term +80 year historical average return for equities is around 7-8%, so back to break even then in around 4 years. Based on historical average return would be 2012-2013.”


What if the candidates listened to the economists?


Why even hold an election? Obama futures at Intrade are currently trading around 70…I think a good strategy would be to buy McCain futures right around the time (or right after) the Democratic National Convention.


I wrote about the Congressional Effect back in January of 2007 and January of 2008, and here is an excerpt:

“According to two economists, Mike Ferguson of the University of Cincinnati and Hugh Douglas Witte of the University of Missouri at Columbia (paper link here) , if you had invested $1 in the Dow Jones Industrial Average back in 1897 when the index first started and invested only when Congress was in or out of session until the year 2000, here’s how much money you would have:

Invested When Congress is In Session:

Invested When Congress is Out of Session:

Here is a link to another paper, the Congressional Calendar.

Link to when Congress is in session.

With only 27% of the population approving of the job Congress is doing, my proposal is that we simply eliminate Congress and watch the market go to the moon!

There is now a mutual fund trading on the strategy, although it has a somewhat ridiculous 2% annual fee for a transparent strategy – here is the homepage for the Congressional Effect Fund.

Fund Fact sheet here
Morningstar quote page here.