First let me say that nothing in life, not even life, is guaranteed to any of us. And of course, let’s all say it together: Past performance is no guarantee of future results. Period. End of story.
But then tell me, What is a better predictor of the future than the total of what we can learn from history and our past experience? I have not found anything worth consideration about a particular field such as investing except history with logic applied to determine the probable effect of variable factors upon the present state of affairs. Please forgive me the foregoing philosophical excursion.
Now let’s look at something practical. What are the probabilities that 2015 will give us a positive gain in the general stock market? If you pay a lot of attention to my column and have a fantastic memory, you might remember that the third year of the presidential term cycle is typically the best of the entire four years. If you don’t remember, then you are probably much more normal.
How strongly probable is this statistic? We get some help from our friends at Schaeffer’s Investment Research (www.shaeffersresearch.com). In this week’s Monday Morning Outlook, Rocky White brings us numbers from the past 16 presidential terms, back to 1949. That doesn’t seem like a long time ago (since I was born a couple years later), but my children would say it is.
The average return for 2011 and each fourth year prior was 17.1 percent as judged by the S&P 500. The median return was even better, 18 percent. In fact, 2011 was the exception to the rule—it lost 3 thousandths of one percent that year. The Dow Jones Industrial Average that year gained 5.5 and has been positive all 16 times!
You know that there are many ways to skin the stats. If you break down those 16 years into halves, amazingly we get 16 of 16 positive halves with an average return of 13 percent by June 30. Other than the sun rising in the east every day of my life and other physical laws, I am not aware of many other phenomena like this one. The first half results of the other years of the cycle don’t hold a candle to the third. Their averages returns are 1.5, -1.1, and 3.1 percentages, respectively.
Being obsessive compulsive myself, I had to look to see if 1949 was a watershed of some sort. Why only 16 periods? To my wonderment, both 1947 and 1943 were also positive for the Dow 30 Average. The S&P 500 data has only been calculated since 1950.
Data heads like me often say, Mr. Market does whatever is necessary to inflict shame and pain on the greatest number or percentage of investors. Let’s hide and watch what happens.
(Past performance is no guarantee of future results. Advice is intended to be general in nature. Statistics from Worden Brothers TC2000, 2015.)