@ceowatchlist; @fast shops; @ irisapp / TikTok
Young investors have a new strategy: monitor the financial information of sitting members of Congress for advice on stocks.
Among a certain community of individual investors on TikTok, the trading revelations of House Speaker Nancy Pelosi are a treasure trove. “Screams to Nancy Pelosi, the biggest whale in the stock market,” user “ceowatchlist” said. Another said: “I have come to the conclusion that Nancy Pelosi is a clairvoyant”, adding that she is the “queen of investment”.
“She knew,” said Chris Josephs, analyzing a particular transaction in Pelosi’s financial information. “And you would have known if you had followed his portfolio.”
Last year, Josephs noticed that the deals, actually made by Pelosi’s investor husband and just disclosed by the speaker, were working fine.
Josephs is the co-founder of a company called Iris, which shows other people’s stock transactions. Over the past year and a half, he has taken advantage of a law called the Stock Act, which requires lawmakers to disclose stock transactions and those of their spouses within 45 days.
Now, on Josephs Social Investment Platform, you can receive a push notification whenever Pelosi stock trading information is released. He invests personally when he sees which stocks are selected: “I’m at the point where if you can’t beat them join them,” Josephs told NPR, adding that if he sees any deals on his disclosures, ” I usually do buy it … the next one she does, I’ll buy it. ”
A spokesperson for Pelosi said she personally does not own any shares and the transactions are carried out by her husband. “The president has no prior knowledge or subsequent involvement in any transaction,” the spokesperson said.
Josephs still sees transactions by federal lawmakers as “smart money” to follow and plans to follow a wide variety of politicians. “We don’t want this to be a left-versus-right thing. We don’t really care. We just want to make money,” he said.
Pelosi is hardly the only lawmaker making these share disclosures. So far this year, members of the Senate and House have filed more than 4,000 financial transaction disclosures – with at least $ 315 million in stocks and bonds bought or sold. That’s according to Tim Carambat, who in 2020 created and now maintains two public databases of legislators’ financial transactions – House Stock Watcher and Senate Stock Watcher. He says there are a significant number of followers for his work.
“I knocked out a very, very simple version of the project in about a few hours. And I posted it on Reddit, where it gained popularity and people showed a lot of interest in it,” Carambat said.
Dinesh Hasija, assistant professor of strategic management at Augusta University in Georgia, studied whether the market is changing based on disclosures from Congress. His current research suggests so.
“Investors perceive that senators may have inside information,” he said. “And we see abnormal positive returns when there is a disclosure by a senator.”
In other words, Hasija’s research shows that after the information is released, the price of stocks bought by lawmakers goes up.
At least one financial services consultant, Matthew Zwijacz, is considering putting in place a financial instrument that will automatically track congressional stock picks, because, in his view, lawmakers are “probably aware of more information than the General public”.
Investors and government watchdogs are interested in these transactions because of the possibility that lawmakers can use the private information they obtain in the course of their work to make lucrative investment decisions.
“If the situation is that the public has lost so much confidence in the government that they think … that members’ stock transactions are based on corruption, and that [following that] corruption could benefit [them]. … We have a significant problem, ”said Kedric Payne, senior ethics director at the Campaign Legal Center.
A surge of interest in the wake of congressional financial disclosures occurred near the start of the COVID-19 pandemic, when a flurry of reports indicated lawmakers sold their shares just before the financial crash.
NPR reported how Senate Intelligence Committee Chairman Richard Burr privately warned a small group of well-connected voters in February 2020 of the dire effects of the coming pandemic. He sold up to $ 1.72 million of personal stock in a single day in the same month.
A bipartisan group of senators has also been suspected, including Senators Dianne Feinstein, James Inhofe and Kelly Loeffler. After investigations by federal law enforcement, none have been charged with insider trading – a very difficult charge to bring against a sitting lawmaker.
Congressman Raja Krishnamoorthi, an Illinois Democrat, is part of a bipartisan group of House and Senate members who have introduced legislation prohibiting lawmakers from owning individual stocks. He encountered many opposition to this idea.
“From what I understand, one of the perks of being a member of Congress, especially from the late 1800s, was being able to exchange inside information. It was a perk of being in Congress. And it has to come to an end, ”Krishnamoorthi said.
Polls show that there is broad support for the adoption of this ban. According to a survey this year by Data for Progress, 67% of Americans believe federal lawmakers should not own individual stocks.
There is a deep cynicism that forms the basis of a business strategy based on imitating the action choices of lawmakers and their spouses: the idea that politicians are corrupt and that you cannot trust them to fail. not engage in public torts, you might as well trade what they trade.
But despite all the skepticism about politicians and their ethical standards, the evidence does not show that members of Congress make excellent stock pickers. While a 2004 article found that senators have generally outperformed the market, more recent academic studies in 2013 and the past several years have suggested that lawmakers are not good at picking stocks.
“These newspapers found that, in fact, transactions made by senators had underperformed,” Hasija said.
This means that if you ever take advice from a lawmaker – cynicism aside – it might not be a very good exchange.