Trade the Congressional Effect: How To Profit from Congress's Impact on the Stock Market

Summary

The key to avoiding wealth destruction by Congress is to have investing time horizons that take you past Congress's relentless dysfunction in the moment. You can do this using the Congressional Effect approach on a sustained basis. You can also do it by adopting strategies such as value investing, which looks to buy companies at prices in the stock market that are trading at a significant discount to their long-term value. Contrarian investing is another way of identifying out-of-favor values.

Congress has shown itself to be innumerate and incontinent in dealing with our budgetary dynamics, so much so that the Senate has not produced a budget as required by law for the past three years. The impact of this has been that the dollar has weakened steadily as a store of value over the past 10 years. Investors should have some portion of their assets in gold and gold-related funds as insurance against further deterioration in the dollar's value and role as the world's reserve currency.

International funds obviously are much less directly impacted by Congress's actions and allow diversification away from legislative risk. In seeking to reduce risk exposure, it is also a good idea to focus on funds that reduce global security risk.

Finally, the government has intruded into the marketplace with conflicting impacts on the economy. On the one hand, the government is trying to create inflation by printing more money. On the other, the avalanche of new regulations in health care, finance, ...