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

In Conclusion

This book has tried to make investors more aware of the damage Congress causes to our investments. In industry after industry, there has been too much emphasis by the government on almost completely eliminating risk when in fact the biggest creator of risk is the government itself. Documented impacts of the effect of legislation show that some of our most important industries, including health care, finance, and energy, have their stocks suffer when government changes or even just threatens to change the rules. As we have seen, just the recent damage caused primarily by the government to the stocks of those industries has totaled hundreds of billions of dollars or more over the past several years.

On a cumulative basis, over very long periods of time, this Congressional Effect has caused a great deal of daily damage to our stock market. Unfortunately, the structural weaknesses of our political system incent each member of Congress to “do something” to further entrench their position and avoid the accusation of being part of a “do-nothing Congress.” But when they do something, they get more power and we get less success because it is we who pay the price in our businesses and in our investment returns. Congress uses behavioral finance principles to make us fear that what we already have will be taken away. But with more freedom, we could all have so much more than we do now. The missing hundreds of billions mentioned earlier could have helped to fuel a stock market ...