Myths of the 2004 Election

Election Day. Hopefully, today will be the conclusion of the political season. What has been so surprising about this election -- though in hindsight, it really shouldn't have -- is how astoundingly wrong "conventional wisdom" has been.

While it may have been "conventional," it can hardly be called "wise."

For example, the common view was the market merely wanted a "clear winner," but major averages took a dive Tuesday afternoon on unsubstantiated reports that Senator Kerry was leading in early exit polling from several swing states. After trading as high as 10,132.99, the Dow Jones Industrial Average ended down 0.2% to 10,035.73, while the S&P 500 closed up a fraction to 1130.58 after trading as high as 1140.50, and the Nasdaq Composite gained 0.3% to 1984.79 vs. its intraday best of 2002.93.

Notably, the market had started to rally long before any conclusion on the election's outcome (still unknown as of this writing). The advance began with a rotation in the beginning of October away from fixed income, then accelerated last week when the mutual fund year-end maneuvering got under way. And as we know from history, markets tend to enjoy a strong three months from Nov. 1 to end of January.

Regardless of the election outcome, I see no reason why that seasonality won't play out this year also.

But as we await the results of the vote, let's discuss two of the more annoying fallacies that have echoed through Wall Street. Some myths are merely factually incorrect -- urban market legends, so to speak. Others involve a gross misunderstanding of the way markets function.

There is a lesson in each of these issues for investors.

Variant Perception

"Variant perception" is an investing stratagem used to obtain a philosophical advantage in the market. The key to this is in determining what other investors might be either overlooking or taking for granted. If you can find out what's wrong in everybody else's assumptions, then you will have a distinct advantage.

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Barry Ritholtz is chief market strategist for Maxim Group, where his research and market analysis are used by the firm's portfolio managers and clients in the U.S., Europe and Japan. He also publishes The Big Picture, his macro perspectives on the economy and geopolitics, entertainment and technology industries. At the time of publication, Ritholtz had no position in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Ritholtz appreciates your feedback and invites you to send it to [e-mail].