Share this Story : Financial Post Copy Link Email X Reddit Pinterest LinkedIn Tumblr

William Watson: Politicians are no better investors than the rest of us

Analysis of Congressmen's stock-trading shows they underperform the market. So why do we let them run winner-picking industrial policies?

You can save this article by registering for free here. Or sign-in if you have an account.

Why, a new research paper asks, would members of the U.S. Congress “dedicate much of their time and energy to raising millions of dollars for elections just to retain a job that pays $174,000 a year?” That’s $174,000 U.S. a year, of course, so the question isn’t quite such a puzzler for those of us making do with Canadian dollars. But still.

Subscribe now to read the latest news in your city and across Canada.

Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.

Daily content from Financial Times, the world's leading global business publication.

Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.

National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.

Daily puzzles, including the New York Times Crossword.

Subscribe now to read the latest news in your city and across Canada.

Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.

Daily content from Financial Times, the world's leading global business publication.

Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.

National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.

Daily puzzles, including the New York Times Crossword.

Create an account or sign in to continue with your reading experience.

Access articles from across Canada with one account.

Share your thoughts and join the conversation in the comments.

Enjoy additional articles per month.

Get email updates from your favourite authors.

Create an account or sign in to continue with your reading experience.

Access articles from across Canada with one account

Share your thoughts and join the conversation in the comments

Enjoy additional articles per month

Get email updates from your favourite authors

Sign In or Create an Account

One answer is that there’s more to the job than money. There’s also power, which apparently really is the ultimate aphrodisiac, as Henry Kissinger argued, and two resignations this week of Congressmen accused of sexual offences seem to confirm. Plus: power’s non-pecuniary returns, carnal or otherwise, are not taxable.

Another answer many people would give and that does seem to motivate the extended Trump family is that political power is a great tool for making money. I don’t agree, as is often argued, that Donald Trump’s only motivations are monetary. I bet he really would like to stop people from killing each other, win a Nobel Peace Prize, make America great again — though that’s not going so well lately — and earn a place on Mount Rushmore. (Would anyone be surprised if, once they’ve finished the new White House ballroom and the Arc de Trump, his construction people head out to South Dakota, dynamite and pneumatic drills in tow, to start remodelling the mountain?)

Get the latest headlines, breaking news and columns.

There was an error, please provide a valid email address.

By signing up you consent to receive the above newsletter from Postmedia Network Inc.

A welcome email is on its way. If you don't see it, please check your junk folder.

The next issue of Top Stories will soon be in your inbox.

We encountered an issue signing you up. Please try again

Interested in more newsletters? Browse here.

One way politicians supposedly line their pockets is by trading stocks using inside information they come across while legislating and being lobbied. This is not a new suspicion. In fact, in 2012 Congress passed the STOCK Act (for “Stop Trading on Congressional Knowledge”). Because of it, we have data on all stock trades exceeding US$1,000 — 71,333 of them between 2012 and 2023 — by House and Senate members and their families. Two economists, Haotian Chen of UCLA and Bruce Sacerdote of Dartmouth, have now run tests on this data, searching for suspicious patterns. Their conclusion is in their paper’s title: “Capital in the Capitol: Congressional trades resemble uninformed retail trading.”

Most such trades (75 per cent of them) are for less than $15,000, not enough to risk a career over — though one per cent are for more than $250,000. California uber-Democrat Ro Khanna, who chaired Bernie Sanders’ 2020 presidential campaign, was responsible for 12,020 trades. If I were in his district, I’d want him spending more time on my business, less on his. Texas Republican Michael McCaul made 4,482 trades, 28 per cent exceeding $50,000 in value. The economists excluded Khanna and McCaul from their study, so the results weren’t skewed by just two people. That left 331 other sometime-traders.

William Watson: The U.S.-Iran war by the numbers

William Watson: Armageddon postponed, now back to dairy quotas and CUSMA

Advertisement 1Story continues belowThis advertisement has not loaded yet, but your article continues below.document.addEventListener(`DOMContentLoaded`,function(){let template=document.getElementById(`oop-ad-template`);if(template&&!template.dataset.adInjected){let clone=template.content.cloneNode(!0);template.replaceWith(clone),template.parentElement&&(template.parentElement.dataset.adInjected=`true`)}});

Republicans used to trade more than Democrats but since 2017 the two parties have run about even. You can actually buy ETFs (ticker name: Subversive Unusual Whales: “Invest like the oligarchy”) that mimic the portfolios held by congressional Democrats and Republicans. The Democrats, hypocritically, favour the big-tech stocks whose execs they love to lambaste. The biggest holding on the Republican side is Comfort Systems USA, which I’m afraid I hadn’t heard of. It does electrical, plumbing, ventilation and other systems in construction: Build, Baby, Build.

The Great Correction: Not even Wayne Gretzky's hometown could escape the crash of the 'exurbs' Real Estate

The Great Correction: Not even Wayne Gretzky's hometown could escape the crash of the 'exurbs'

Trump isolation deepens on world stage as allies rebuff, condemn PMN Business

Trump isolation deepens on world stage as allies rebuff, condemn

Advertisement 2Story continues belowThis advertisement has not loaded yet, but your article continues below.document.addEventListener(`DOMContentLoaded`,function(){let template=document.getElementById(`oop-ad-template`);if(template&&!template.dataset.adInjected){let clone=template.content.cloneNode(!0);template.replaceWith(clone),template.parentElement&&(template.parentElement.dataset.adInjected=`true`)}});

Posthaste: What Mark Carney's gas tax cut could mean for the Bank of Canada News

Posthaste: What Mark Carney's gas tax cut could mean for the Bank of Canada

What is Anthropic's Mythos AI model and why does it have the financial world in a panic? Innovation

What is Anthropic's Mythos AI model and why does it have the financial world in a panic?

Forcing people to pay a moral tax if they leave the country won't inspire them to stay Personal Finance

Forcing people to pay a moral tax if they leave the country won't inspire them to stay

How do the politicians do in the market? Not great: “congressional trades do not generate abnormal profits; on average, legislators’ portfolios underperform or at best match … market, industry, and factor-adjusted benchmarks, and the magnitudes are small.”

What drives them? “Legislators trade in the direction of analyst consensus … (T)iming evidence is consistent with legislators’ trades aligning with publicly observable professional signals.” Do the politicians move the analysts’ views? No, they tend to lag them.

The researchers also sifted through — or their algorithms did— 241 million posts on “StockTwits,” a social media platform in which people post about stocks, to see whether the politicians lag or lead public opinion on different stocks. They found that “legislators tend to trade stocks that are already attracting elevated retail attention … rather than trading ahead of attention cycles,” as might be the case if their inside information gradually got out after they themselves had made their trades.

My colleague Terence Corcoran once wrote about the scandal of “outsider trading”: people buying and selling stocks “untroubled by genuine information,” essentially on the basis of guesses. Professors Chen and Sacerdote’s results suggest that’s what politicians do, too.

That elected officials don’t make killings in the stock market is reassuring regarding corruption — though with congressional stock-trading now tracked maybe the seedy stuff has just moved to new domains: crypto, private investments, prediction markets, kickbacks from ballroom contracts.

But in view of the current elite craze for state-guided industrial policy, politicians’ investment ineptness is not reassuring at all. They follow the crowd in their own investing, not doing any better than the market and maybe a little worse, but they have nevertheless appointed themselves directors of the U.S. economy’s detailed evolution — and our MPs and MLAs are doing the same in this country.

Bumbling investors themselves, they commandeer truckloads of taxpayer money to place bets on what they have somehow for some reason convinced themselves are the linchpin industries of the future. If they were all Warren Buffetts in their own investing, maybe we would take their enthusiasms seriously (though Buffett himself, ever wise, would advise against that). But they clearly have no greater insight into the shape of the future than anyone else. If they want to play the stock market on their own dime, fine. But hands off our money.

Share this Story : Financial Post Copy Link Email X Reddit Pinterest LinkedIn Tumblr

Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information.

© Financial Post