It was a flat campaign for stocks in 2011, but presidential election years historically have brought positive returns to the market.

So is there a rebound on the ballot for 2012?

Nope, says local stock investment expert Norm Caris. Expect more of the same, he said.

The four local experts who return to participate in the Star-Advertiser’s 11th annual investment contest envision stocks being flat to just modestly higher this year despite President Barack Obama’s putting his job on the line in November against whoever emerges as the top Republican contender.

Stock market historian Yale Hirsch developed a presidential election cycle theory years ago in which the market follows a pattern corresponding with the four-year presidential term.

Hirsch’s theory calls for the market to be the weakest in the first two years of a presidential term and then in the third — the pre-election year — and the fourth — the election year — to be the strongest because incumbent administrations try during election years to make the economy look good.

Since 1960 the average gain during election years is 4.5 percent for the Dow Jones Industrial Average and 6 percent for the Standard & Poor’s 500 index. However, those averages were higher until they were dragged down in the Obama election year of 2008 when the Dow fell 33.8 percent and the S&P 500 lost 38.5 percent.

Last year the Dow rose 5.5 percent while the S&P 500 finished down 0.003 percent, or essentially flat.

Caris, a Kauai resident and managing director for institutional sales at Caris and Co., said he’s concerned about the economic policies coming out of Washington.

"The political environment will dictate much of the outcome for the stock market," he said.

Fellow stock expert Barry Hyman, the private client group vice president for the Maui branch of FIM Group Ltd., is expecting "volatility with an upward bias."

"I don’t think (the election) will have any significant effect, although as November gets closer there may be short-term swings, especially if the economic situation is uncertain," Hyman said. "If the economy continues to recover and unemployment numbers continue to decline, I think the outcome will be anticipated in advance and the actual election would be anti-climactic. However, if the economy begins to swoon, which I don’t expect, all bets are off."

Besides Caris and Hyman, the other participants in this year’s contest are 2011 champion Richard Dole, CEO of Honolulu investment adviser Dole Capital LLC, and Dwight Melton, co-founder of the Hawaii Stocks and Options Group. Hyman, Dole and Melton have participated in the contest each year since its inception in 2002.

Dole, who was the only participant in the black last year with a 7.7 percent return, is sticking with four of the five picks he ended 2011 with in his hypothetical $20,000 portfolio. The holdovers include two Hawaii-based companies, Alexander & Baldwin, the parent of Matson Navigation Co.; and Territorial Bancorp, the holding company for Territorial Savings Bank, as well as Newport, a supplier of scientific and technical instruments, and oil giant Exxon Mobil. His new pick is diversified manufacturer General Electric.

He said the pending separation of Matson from the parent company’s real estate activities in the second half of this year "may produce higher values for the sum of its parts than has been the case for the combined company."

Dole calls Territorial a buyout candidate due to its strong financial position. The state’s fifth-largest bank, which converted from mutual to full stock ownership nearly three years ago, has been mentioned by analysts in the past as a possible takeover candidate and would be eligible to be acquired once it reaches the third anniversary of its July 13, 2009, initial public offering.

For 2012, Dole said he sees financial stocks as having bottomed out, with manufacturing showing renewed strength and emerging markets a potential bright spot "with built-in economic growth, which until recently has been hampered by government policies to reduce inflation."

Still, Dole said he will be "relatively conservative" going into the new year. He said differing economic philosophies by the two political parties could be problematic.

"One (party) believes that government spending will stimulate economic growth," he said. "The other believes that a smaller government would stay out of the way of the private sector. Regardless of which side wins the race, the special committee of 12 congressional members failed to reach an agreement on how to reduce spending in order to reduce the government deficit. Across-the-board spending cuts would be painful."

Caris, the contest runner-up last year with a negative 7 percent return, said he’s sticking with technology picks again by going with semiconductor giant Intel; TiVo, the digital-video recording pioneer; and Pandora, an Internet music service, among his five selections.

"The global proliferation of electronics continues to be a solid driver of growth," Caris said.

Hyman, a three-time contest winner who slipped to a negative 23.4 percent return last year, isn’t ready yet to jump back into financial stocks.

"There are great values in individual companies in many sectors including but not limited to technology and telecommunications, utilities, health care, ports and transportation, and infrastructure to name a few," Hyman said. "I’m still leery of financials despite global governments spoon-feeding them. With 0 percent interest rates and still-compromised balance sheets, big financial companies cannot make their normal margins on spreads and lending will remain tight."

Hyman is holding onto the five stocks he finished with in his 2011 portfolio but has rebalanced his positions. He’s put one-fourth of his stake in Hong Kong developer Cheung Kong Ltd., which fell 21.2 percent last year.

The Hawaii Stocks and Options Group’s Melton, who in recent years has been leaning toward aggressive index funds, is back at it again. His momentum growth strategy resulted in his portfolio falling 24.9 percent last year despite soaring 39.5 percent in the fourth quarter. He spread this year’s hypothetical $20,000 over just three picks: Direxion Large Cap Bull 3X, Direxion Small Cap Bull 3X and Direxion Financial Bull 3X, all of which return 300 percent of the performance of their respective indexes.

"I think stocks will push modestly higher in 2012 based on the expectation of a durable U.S. economic expansion," Melton said.

He said a continued high unemployment rate, government belt tightening and a likely recession in Europe will keep stocks from having any meaningful gains.