Congress is dangerous for your portfolio, but Eric Singer, author of “Trade the Congressional Effect: How To Profit from Congress’ Impact on the Stock Market,” has a plan.
John Nyaradi: Hi, everyone. I’m John Nyaradi, Publisher of Wall Street Sector Selector, a financial media site specializing in exchange traded funds and global markets. Today I am really pleased to welcome my special guest, Eric Singer. Eric, welcome to Wall Street Sector Selector.
Eric Singer: It’s nice to be here. Thank you.
John Nyaradi: Eric manages the Congressional Effect Fund which is placed under the symbol CEFFX. He’s also a registered investment adviser at Congressional Effect Management, LLC. And he’s the first to document the general effect that Congress has on daily stock prices. He started that back in 1992 with an article at Barrons. He’s widely published in the business press and now has a new book out from John Wiley & Sons that’s called Trade the Congressional Effect: How To Profit from Congress’ Impact on the Stock Market. So Eric, let’s start at the top, why did you write the book and what can people get out of it?
Eric Singer: I really wrote the book for a couple of different reasons. The first thing is that I want people to understand how much Congress hurts stocks. Over the last 47 years, on the 7,900 days Congress is in session the market goes up in price less than 1% annually and on the 4,100 days that they’re on vacation, it goes up in price 16% annually. And what’s even a little bit more startling is that those numbers go all the way back to 1897, day by day, the same way. Essentially all the gains in the market are attributable to days when Congress is on vacation.
John Nyaradi: So how can individuals or advisers like you take advantage of this and what different strategies do you cover in the book?
Eric Singer: Well, there are several different things that I cover in the book. Number one, each Congressman thinks his job is just to simply get reelected, and so, particularly in the House, they think on a very short-term basis. They have to. So they have a very short-term time horizon. One thing that an investor needs to have is a long-term time horizon and you can use value funds to do that. You have to understand that whatever short term damage they can do to an industry, you can see if there are ways to try to use that to your advantage.
Also, the way my mutual fund works, which is the Congressional Effect Fund, the symbol is CEFFX and for institutional investor, CEFIX, I only invest on days Congress is out of session. So on the days when they’re out of session, I’m long the S&P and on the days that they’re in session, I’m flat. I don’t take duration risk and I avoid legislative risk by not investing on those days that Congress is in session.
John Nyaradi: Tell us about your registered investment advisory practice.
Eric Singer: It’s called Congressional Effect Management. We have private accounts that take advantage of some of the different strategies that are associated with the Congressional Effect and I’m based in New York.
John Nyaradi: We’re talking in October, 2012, we have an election coming up in a couple of weeks and we’re hearing a lot about the so called fiscal cliff. Can you give us your view of that?