Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific advice on successful investing. Each Investor Toolkit update gives you a fundamental piece of investment advice, and shows you how you can put it into practice right away. Tip of the week: “The 4-year rule is one of the most valuable rules you can use as an investor.” One of our long-standing pieces of investment advice is the 4-year rule. It goes like this: an attractive buying opportunity appears in North American stocks about every 4 years, usually within a few months of the U.S. mid-term election (the last one of these took place in November 2010). Investors who buy around this time tend to make substantial profits over the next couple of years. To put it another way, most North American market gains generally occur in the second half of the 4-year U.S. presidential term. Big gains can occur at other times, but this is the most reliable recurring pattern in the North American stock market. President Obama was elected in November 2008, and the next presidential election is set for November 2012. So he is now in the second half of his term. The market is rising and could keep going up overall for the next year or two.
- Why this investment advice works: The U.S. presidential election brings out many “swing voters” who might not vote in less important elections. These voters favour the current officeholder when things are going well for them.
U.S. political office holders, regardless of party, all want to get re-elected. So, consciously or not, they work together to make swing voters contented during U.S. presidential elections. They start work toward that goal around halfway through the 4-year term.
[ofie_ad]
- That’s why most investor-unsettling news—wars, tax increases and costly new government programs, such as the Obama health-care reforms—tends to appear in the first half of the 4-year presidential term. That leaves the good stuff (tax cuts, for example) for the second half. This isn’t a conspiracy; it’s just politicians looking out for their own interests.
- The 4-year rule could bring even greater gains in 2011: For the first half of President Obama’s term, the Democrats controlled both houses of Congress. However, that changed with the November 2, 2010 U.S. midterm election. Now that the Democrats have lost control of the House of Representatives, they’ll need Republican votes to pass any more legislation.
It seems to us that in 2011, U.S. tax rates and regulation are likely to be much less onerous than they might have been if the Democrats had won the November 2 election.
This is just one more reason why we’re optimistic about the stock market in 2011. Next Wednesday, January 26, 2011, Investor Toolkit will give you our investment advice on the pitfalls of “averaging down.” You can get our latest investment advice on dozens of high-quality companies in the fast-changing U.S. market in our Wall Street Stock Forecaster newsletter. What’s more, you can get the latest issue absolutely free when you subscribe today. Click here to learn how.
