The General Election: Right About The Right

I used to go into the polling station, past the amusing sign that said

Polite Notice
No ball games
Do not sit on the fence

to draw a big, hairy cock and balls on the voting slip. Spoilt paper you might think. But actually, more of a predictive tool. Every time I did that, that’s exactly who won!

Using a slightly more sophisticated method, I correctly predicted the result of the 2015 General Election, too. Way back on the 6th April 2014 (that’s 2014) I posted this:

“The Tories have already won the next general election: I was thinking about the budget and the move to allow the withdrawal of pension funds (particularly as annuities are not fit for purpose in the current low interest climate) has basically ensured that the Tories will win the next election (not least thanks to the baby boomers it affects being the dominant electorate). Unless something very strange happens between now and then it’s a fait accompli. (I prefer a hung parliament as you may know, and I’m really only interested in proving I knew they would win already so I can feel good about myself for being such a smart-arse. Just wanted to share my motivation with you all ;-)”

So that was a result. Then my analysis of the FTSE 100 around election time panned out nicely as well. If you recall from the article (issue 2 of MI Magazine), I showed that in the 18 elections since the war we’d seen a variance (i.e. move up or down) of at least 0.5% from the closing price on polling day, over the next 5 trading days. In 15 of the 18 elections there was a variance of over 1%. Since we’re in a bull market – and pretty much irrespective of who wins an election the FTSE 100 follows the global markets, in particular the US markets – we could expect a move up. As you can see from the two charts (one intra-day and one daily) the move was a little under 3%. It was upwards as we would expect, in line with global markets, and also because uncertainty tends to discount.

In analysing stocks and markets we are always looking for high probability. A lot of the time the secret is to look for it in places others aren’t looking. This exercise, which wasn’t particularly complicated, really involved analysing what had happened in the past, and looking for a high correlation so we could be reasonably sure that it would repeat what had happened in the past. And that’s exactly what took place. All the information in this case was available freely on the internet. The point is you don’t need a Bloomberg terminal, or to get tips from so-called analysts. You could do this yourself. All you need is a bit of time to do it properly. I used a spread sheet, but even the analysis could have been done manually.

Simple and effective is just as good as complicated and effective. I would say almost all of trading is preparation. If you haven’t done the leg work then you won’t be able to make confident decisions quickly enough to be effective, or to remove the costly emotional element from your actions.