Make Money Off '08 Race: Know Your Electorate

To profit from the 2008 election, the investor needs to find an edge -- something that is not obvious to most. This begins with a deeper understanding of the electoral process than one typically finds in journalistic accounts of the horse race. Looking at current polls also fails since the election is so far away that the polls register mostly name recognition.

In this series, our objective is to help readers gain this edge in several ways:

By helping readers understand the biases built into the system

By using this to improve our handicapping of results

By linking candidates to issues

By showing which stocks are most affected by these issues

This installment, the second in our series (click here for a look at Part 1), focuses on the electorate. There is a good reason for this. Keynes taught us this with his famous beauty contest analogy. It is more important to consider the judges than to consider the contestants.

Plus, as our continuing series will make clear, there are many issues that Congress can't settle now, like immigration, that will be big in the general election.

And it is best to address both negatively affected companies, in this case, for example, like Monsanto (MON - commentary - Cramer's Take), Centex (CTX - commentary - Cramer's Take) and Potash (POT - commentary - Cramer's Take), and positively affected ones, such as Security With Advanced Technology (SWAT - commentary - Cramer's Take) and L-1 Identity Solutions (ID - commentary - Cramer's Take) once we have laid the proper groundwork.

Our analytical process does not begin with issues and stocks. It ends with them.

The American Voter

The seminal study of the U.S. electorate was The American Voter, written by four all-stars at the University of Michigan and drawn from some of the early survey work done on elections. This is what I first learned as an undergraduate and studied more carefully when I began graduate work at Michigan in 1970.

As I reviewed the literature in preparation for this series, my most striking conclusion was how little voting behavior has changed. The most interesting developments relate to the candidates, the tactics and the use of modern media.

Voters Are Ill-Informed

Most RealMoney readers are intelligent and well-informed. There is a natural inclination to think of the electoral process in terms of how you make your own voting decisions. Forget it!

You need to think of the electorate in terms of vast pockets of voters who are in jobs, neighborhoods and social situations very unlike your own. Their concerns are different. Their methods of making a voting decision are very different.

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At the time of publication, Miller had no positions in the stocks mentioned, although positions may change at any time. Jeffrey Miller is president and CEO of NewArc Investments, a registered investment advisor, and Capital Markets Research. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Miller appreciates your feedback; click here to send him an email.