"Wise men say, and not without reason, that whoever wished to foresee the future might consult the past." ~ Machiavelli
This post will serve the purpose of ending and summarizing my series on "Understanding Cycles" as well as capping the "Where To Invest 2008" category of posts. Now that's efficient!
First, since we are on the subject of cycles and the year, 2008, I can think of no better time to review the historic impact of the presidential cycle on the stock market.
The Presidential Cycle: Finding the 'Rhyme' of History:
Of course, this is a four-year cycle. The theory about the presidential cycle states that economic sacrifices are generally made during the first two years of a president's mandate. As the election draws nearer, administrations place more resources and energy (ala tax breaks and incentives and rate cuts) to stimulate the economy so voters will go to the polls feeling positive about their collective livelihood.
As with any theory, the presidential cycle comes with imperfections or inconsistent
results, as seen in recent years: President George H. W. Bush's cycle began strong and ended weak while both of Bill Clinton's terms began strong and his final term ended relatively -strong.
TFP readers know that I do not buy completely into any theory but ascribe to Mark Twain's idea that "history does not repeat itself but it does rhyme."
In my humble opinion, I view the current cycle (George W's second term) as similar to that of George H. W. Bush's term: Its beginning was stronger than its ending (as it appears now). Furthermore, there's little available stimulus remaining; Democrats will "talk down" the economy; and the mal-informed voter masses are beginning to push economic concerns higher than others (Iraq, immigration). One aspect of the Presidential Cycle that could potentially hold true in the next term is that whomever is elected will deliver "bad news" immediately so as to deflect any "blame" away from their administration and any stimulus created by the new administration will take several quarters to take effect. There's no doubt that we will hear the phrase, "It's the economy, stupid!," many times over the next several months...
Economic and Market Cycle Summary:
- Understanding Cycles Part 1 explains the Market Cycle of stocks and reveals that current conditions resemble the Distribution Phase, which, in simple terms, is "the beginning of the end" of a Bull Market. The phase is marked by a transition of "bullish" sentiment of the Mark-Up phase to one of mixed sentiment. It is a very emotional time for the markets as investors are led by the emotions of fear, mixed with hope, and even some lingering greed.
- Understanding Cycles Part 2 explains the Business (or Economic) Cycle and how it relates to the Market Cycle of stocks. The current economic status, especially considering its age of 80 months and the average duration is 56 months, makes it prudent to assume that we are months (not years) from a recessionary environment and a corresponding Bear Market or "Mark-Down" phase for the stock market.
- Prudent risk management will have an investor take risk where risk is warranted. Even the most narrow-minded investor or financial media pundit
will find it hard to argue that more market risk is required today to achieve the same or lower return than one would expect to receive even 12 months ago. Why take more risk for the same or less return?
Summarizing "Where To Invest 2008:
For specifics on asset allocation and investment selection to manage risk prudently, given the current ecomomic and market cycle environment, here are some quick links from previous "Where To Invest 2008" posts:
- Socrates, Stocks & Self-Advice provides a good basis for risk assessment, contrarian investing, and asset allocation.
- Bull vs. Bear vs. 'Right' is a few months old but offers a good balance of views from those seeing the market going higher and those seeing the market going lower, while adding where the prudent investor should be (hint: neither one).
- Investing In the Baby Boom Part Two: Actions reminds investors that baby boomers may move markets more than anticipated; therefore, whether you find weight in the "theory" or not, the largest segment of our population will impact financial markets, at least to a degree, that is worth noting.
Now, to coin a phrase worthy of Christmas gift-giving, I'll "wrap it up" with some links to noteworthy "Where To Invest 2008" articles from other sources:
- Business Week's S&P 500 Sector Breakdown: Health and Technology look good. Find out what does not look so good...
- Fortune has Six Standout Funds and four top money managers sharing their insights on "What's Ahead For 2008?"
- I always listen when John Bogle speaks, who says to be prepared for a lot of bumps.
- A Bloomberg has what Behavioural Finance author, James Montier, describes as an "industry obsessed with minutia detail" with advice, rather, to Keep It Simple Smarty. ("hat tip" to The Big Picture)
Achieving True Balance:
Above all, simplicity and moderation really comprise the foundation of prudent 
investing. As much as I enjoy studying (not necessarily applying) the innerworkings of financial markets, from human behavior to fundamental analysis to technical analysis, nothing matters more than making life as meaningful as possible and remembering that money is nothing more than a means of creating that life. You may have gathered that I gain a "non-monetary" return from investing, in the form of personal fulfillment, which makes "out-performing the market" a secondary objective. Unless an investor can honestly match that sentiment, then they should explore passive investing...
As author, Mitch Anthony, so profoundly stated, "life is not about making money -- money is about making a life..."
TFPAuthor, Kent N. Thune, QPFC, is the President and founder of Atlantic Capital Investments, LLC (ACI), a 'fee-only' Registered Investment Advisory firm located in Mount Pleasant, SC.
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