A Blog For Independence Day

While this blog is not to discuss investment advice (if you read my post, “So You Want to Be a Trader?” you know that I am the last person you want to ask what stocks to pick), I wanted a little patriotic theme. Not sure I get there, but I’ll let you be the judge.

 

A few months ago, I was intrigued by a conversation I had with a broker-dealer client of mine during our year-end tax planning strategy. He mentioned that he had attended a conference where one of the speakers mentioned an ETF (exchange traded fund) that was tied into congressional sessions.  I found this fascinating.  I love unique ideas.  Our country was founded by unique ideas and guts.  Some of my clients’ ETF and mutual funds had unique strategies as well. One tracked oil futures, another housing prices and yet another tracked companies with high dividend yields that offered dividend reinvestment plans (DRIPs).  I don’t seem to get plain vanilla strategy clients.

 

My first mutual fund client 12 years ago started with approximately $10 million under management and has grown to $40 million today using a simple strategy of buying on a monthly basis stock of large companies offering dividend reinvestment plans.  Yet another client, this time an ETF, offered its shares in pairs. It was indexed to the price of a barrel of oil. There was an Oil Up and an Oil Down fund. Investors that thought oil prices were going up bought the Oil Up and those that thought oil was too high and would drop, obviously bought Oil Down. Unfortunately, the index was based on oil prices at $60 per barrel, and back in 2008 oil reached almost $120 per barrel. This caused the fund to have to liquidate at a time when the fund had grown to over $1.5 billion. Good for hedge funds, bad for me as I lost a client.

 

I wanted to find out more about the congressional fund so I did what every American does when faced with a question – I Google’d it.  What I found was information about Eric Singer who had done a study back in 1992, which followed the stock market’s performance when Congress was in session versus when it is out of session.  He found the market does better when Congress is not in session.  Meaning when Congress does nothing, things get better. I didn’t say that; Eric did.

 

Based on his study he formed the Congressional Effect Fund (CEFFX) in 2008.  This is a mutual fund that, in simplest terms, invests in the S&P 500 (in the market) when Congress is out of session and in interest bearing domestic securities (not in the market) when Congress is in session.

 

Eric, if you are reading this, I want to be your auditor.

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