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Senate Stock Watcher

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677 pointsericmay239 comments

It would be great if

(a) elected officials could hold only cash, bonds, and index funds, specifically bonds and index funds that are open the general public and have at least $XX assets, to prevent engineering an index fund available only one one or a few people.

(b) pay them better to make up for the loss of gravy. Sure, the pay raise would not be sufficient to make up for the lost income, but it should be high enough that none of them could complain they can't live on the salary. Paying the senate majority leader under $200K / year is not enough, considering they often have living expenses in Washington and their home state. Lower ranking members get paid less. Pay the leader $1M/year and everyone else $500K/year and then prohibit anything but vanilla investments.

It seems like you’re suggesting to pay them better to make up for the loss of an ability to insider trade without any risk. Allowing that behavior totally breaks the stock market system.

Elected officials should be forced to let go of all their assets to a neutral 3rd party asset manager who they’re allowed zero communication with during the time of their service.

He's suggesting we pay them better to make up for depriving them of vehicles private citizens can use. It's not unreasonable to strip them of those vehicles to prevent insider trading. It's not unreasonable to compensate them for losing those vehicles.

Zero communication is unfeasible. They can communicate public and express investment intentions through that.

This seems like it would suffer from the principal-agent problem.

All their assets? How about their homes?

Long only is actually a pretty terrible choice if you want a "solid" portfolio with risk hedging.

I work in "tech" and I'm substantially net short "tech" as a hedge for potential layoffs, via options. Unfortunately I can't hedge via my employer's stock directly (like most companies my employer very explicitly disallows it, plus I'd be running a high risk of an insider trade accusation; I think it's understandable and acceptable).

A better idea might be to force people's allocation way ahead of time, say any change must be pre-announced 6-12 months ahead of time. That's how responsible executives (for example Bill Gates) sell their stock - via long term stock sale programs. Once signed - has to happen, whether good news or bad news.

> Long only is actually a pretty terrible choice if you want a "solid" portfolio with risk hedging.

What if, in exchange for being one of the most powerful people in the most powerful nation on earth, you don't get to participate in the same wealth building schemes as everyone else?

Instead you get a hefty salary, and the people who say "Nah, I'd rather get rich in the stock market" are probably not the ones you want wielding all that power anyway.

I never quite understood how this is not obvious to everyone.

The primary driver and motivation for politicians should be altruism, do good for the sake of it. So many people in NGOs etc. are capable of doing just that; working for "the good" even though it pays bad, why should we not expect that from politicians?

The US (I'm Swiss) is in my opinion a primary example on why you want to keep the kind of people that care about their own personal finances as far away from politics as possible. Let them play real estate sharks or monopoly at wall street or whatever floats their boat; just don't let them anywhere close to positions where decisions are made that impact not just their life but everyone else's too.

> The primary driver and motivation for politicians should be altruism, do good for the sake of it.

Any system that relies on people being good is a bad system. A good system is one that has good outcomes with weak and venal human beings. The US federal system has its merits but it’s far inferior to Switzerland’s.

> So many people in NGOs etc. are capable of doing just that; working for "the good" even though it pays bad, why should we not expect that from politicians?

Because the government is important. Ideally we want not the best of the people who are motivated by their conception of the good, we want the best, full stop. The average NGO is much less well run than the average company. At the extreme top level where you’re comparing the Gates Foundation with General Electric you’re dealing with at least roughly equivalent levels of competence but if you want the best and you can afford it you shouldn’t self handicap by only hiring those who don’t value money much.

Plenty of NGOs (charities and other humanitarian organizations) are also outright scams: https://smartasset.com/mortgage/the-50-worst-charities-in-am...

Altruism is complicated.

Politics doesn't select for altruism. Politics requires lying, bribing and stealing so it's no wonder the very scum of the earth ends up in positions of power (same for most NGOs executives BTW). Power corrupts, so you will never be able to get altruistic individuals in power. You can't square that circle. The only solution is to severely limit their power.

Why do you think a position as an NGO executive selects for that? Executives in general, yes. NGOs too?

Because altruism alone doesn't get you special interest campaign financing and you gotta win first before you can do anything.

Plus, members of congress get a pension.

Yes, giving them more freedom would allow them to get more money.

But that isn't the objective. Allowing them to use only transparent, hard to game investments is offset by doubling or quadrupling their existing base salary. That is the trade off. Some will find other jobs because they want to become megarich. Fine, let them leave; others will be happy to run for their vacant office under the terms of the new deal.

Secondly, by investing only in bonds and broad index funds, their goal is to help the economy overall and in the long term. If someone is allowed to buy a ton of Lockheed stock, guess who they are going to steer projects to? If their money is parked in DJIA, to benefit themselves they should do what is right for a broad range of companies.

The DJIA is comprised of 30 companies, it’s not a very good option for this.

You’re missing the point. These people have (some, limited) control over the economy. Their financial incentives should be restricted to long-term, gradual growth only, so that they attempt to achieve that.

I understand, skin in the game. All I'm saying is that maybe it's a little restrictive, and perhaps not even working as intended.

It's pretty easy to cheat the system with a long only portfolio, if you're truly controlling the system: cause a deflation -> long treasures will be awesome (TMF just went +100% in the corona-crisis), cause inflation -> gold and maybe also stocks and real estate.

There's no single parameter that you can hook a leader to to assure progress. That's what voting is for. It is a very hard, very old, and probably impossible to solve problem: https://www.investopedia.com/terms/a/agencyproblem.asp

Things like this site from OP may work wonders. We need more disclosure and more pesky people prodding at leaders and executives, analyzing their every step. Journalism, serious journalism, even if done by non-professionals. Remember that since Markopolos & Madoff the SEC is giving substantial cash awards to whistleblowers (proportional to the penalty), which is fantastic. And they're paying out money all the time, so if you know of any fraud do yourself and the society some good: https://www.sec.gov/whistleblower

> It's pretty easy to cheat the system with a long only portfolio, if you're truly controlling the system: cause a deflation

Causing a deflation is very hard, unless possibly if you control the fed.

And that's for the government as a whole. I'd be very surprised if an individual senator can't affect that meaningfully.

Compare that to the current system where a senator hears about huge news that will move individual stock prices next week, and can easily make huge profits.

You agree with me that it's mostly about insider trading, not about skin in the game.

Deflation is not that hard, just dampen social security. Or stop half of military contracts and half of infrastructure spend. Or just go to the federal budget and do anything to reduce it by > 30%. You'll have a deflation (a recession) in a month, even before those changes actually go into effect.

> Deflation is not that hard, just dampen social security

classic HN backseat driver - everything is easy, "just" do XYZ.

The US federal budget is 21% of US GDP. Reduce it by 30%, that will cause a 7% drop in GDP and a deflationary recession. Reduce it by 50% and you have a 10% drop, very substantial. I really don't understand what's difficult about this.

You can also jack up taxes and start paying off govt debt instead of spending it on something new. Would have similar effects.

If you think I'm wrong please write why or post a link with some economic thought, would be curious to read.

The gist is that you will not be able to move the needle with any effectiveness. Reduce the federal budget by 30% by force of will, or what? This is "first, convert 1kg lead to 1kg gold" level thinking.

I agree. That's what I mean by "it seems to be more for you guys about insider trading than about skin in the game".

Edit: I think I understood it. You mean that broad, "macro-like" allocation would prohibit shenanigans with assets in narrower domains, like for example when a congressman successfully pushes a particular drugs-related law that has very big impact on a some particular pharma company. It is more realistic that they can change a single paragraph in some act than they can throw out 30% of the federal budget to "finally start paying back our enormous national debt".

My understanding is that it’s easy to start deflation. But it’s hard to stop deflation.

screws anyone with a loan / mortgage

> (like most companies my employer very explicitly disallows it, plus I'd be running a high risk of an insider trade accusation

I've not seen that before. How is the rule structured? Can you buy otm puts?

I can't really imagine that a formulaic program, established in advance and rigorously followed could possibly run afoul of insider trading rules regardless of your position at the company.

Something like: "In order to hedge my undiversified finical interest in X: While I am employed at X, on days A and B each year I will purchase 1 year puts with strike at 50% of the spot price (or the next higher price available) with Y% of my take home pay and either hold them until the expiration date, until they produce a return of Z, or the time of my choice if my pay is reduced or I stop working at X."

In addition to trading windows and material information rules, my company has a blanket rule that the company stock cannot be shorted nor can derivatives of any kind be used on it. Additionally it warns that this rule may also apply to ETFs containing a high enough proportion of the stock (leaving unspecified what the max allowed proportion would be, but noting that derivatives/shorting a total market index fund is allowed).

I'd recommend anyone who finds terms like that in an employment contract leverage it to try to negotiate for severance.

my company has the same rules, and i’d expect any publicly traded company that doesn't want to see their stock drop due to insiders activity or lawsuits against it would do the same.

i think it’s fair, you’re not restricted from trading other companies. this prevents unethical people from taking advantage of insider knowledge.

I've never seen it before and I've seen the employment agreements for several fortune 500 companies-- though perhaps it's something that's only become common in the last ten years.

Obviously, restrictions on "restricted insiders" driven out of federal law exist... but I'm referring to restrictions that would prevent you from programmatically hedging your employment risks. You're not going to have an insider trading problem from such a program.

As far as fair goes-- it's fair if they compensate you for the loss of that freedom, otherwise it isn't. It's up to you to figure out what compensation is fair.

Employment is an extremely large undiversified risk. Through no fault of your own the company could go tits up with little notice, leaving you seeking new employment at the same time as many other people. Unemployment benefits are a rounding error for highly compensated employees. For good reason, you're generally prohibited from having alternative concurrent employment which would be the obvious way to reduce employment risk. It's prudent to take actions to hedge this risk. If the company takes one of the avenues off the table for that they it compensate you for or provide an alternative (like a good severance agreement).

outside of c levels the average employee wont have enough stock to make this aplicable

You can easily protect your portfolio while being net long using uncorrelated asset classes like a blend of stocks and bonds, or even long inverse ETFs. Look into risk parity portfolios. No need to keep your foot on the gas and the brake at the same time.

Inverse ETFs are shorts, let's be real for a second :). And I'm well familiar with risk parity.

Bonds+stocks only doesn't protect you from stagflation (inflation up, growth down) or a depression (inflation around zero, growth down).

Bonds+stocks+gold only doesn't protect you from a depression.

Both a depression and a stagflation can easily last for over 5 years, so it should be taken seriously, IMHO.

Related: https://www.artemiscm.com/ (see the paper linked below; note that this is also a sales pitch from a long vol fund, so possibly it's a little too optimistic about the strategy).

You're wrong. Bonds protect against depression and index-linked bonds protect against stagflation.

Risk parity has not fared well in this crisis.

Risk parity doesn't come fare well when all correlations go to 1.

All correlations did _not_ go to 1. Volatility was amazing and certainly anti-correlated.

Risk parity's fatal flaw is assuming all instruments must be generating continuous profits.

Can you tell a bit more how you use options to hedge against a downturn in tech? Seems expensive.

When the stock market is booming, buy puts on a major index.

SPY (S&P 500 index exchange traded fund) was around 335 in February.

Buy, cheaply a put (right to sell 100 shares) at a price of 300, expiring in 60 or 90 days, for about $150.

A couple of weeks ago, SPY was at 240. Sell the put, for a gain of at least (300 - 240) times 100 times delta (a description of relation of the option gain to the stock change) of about 0.60, for a gain of at least $3500 to $4500.

Do this 4 times a year times 10 years (last bull run) and you expire worthless 39/40 times for a net loss.

You wouldn't do it in the beginning of a bull run, only once it's been going for a decade plus.

Black swan events don’t wait for a 10-year bull market to occur first. You strategy might hedge against a market bubble (still very questionable), but what about all of the other things that can crash the market?

It's futile to try to make a strategy that will work 100% of time and still return the same or better than a non hedged strategy. If it's a black swan event, you won't be able to predict it by definition. I'm not sure what you're trying to argue.

https://en.wikipedia.org/wiki/Gambler%27s_fallacy

Except business cycles are a real thing

On the contrary. For example, MSFT is currently trading at ~$165. A single MSFT Put option expiring on March 19, 2021, which gives you the right (but not the obligation) to sell 100 shares of MSFT at $165 at any time before expiry currently costs less than $20. So for $20, you can protect your $16,500 asset from a market downturn for a year. Also, options were significantly cheaper before the recent increase in market volatility.

You need to multiply that 20 with 100. It costs $2000 to protect $16,500.

If it actually costed $20 everyone would be playing Taleb on much of their portfolios :). It is not cheap, and also not so easy to size everything properly. Hedging is not user friendly at all.

Robert Shiller often complains about the lack of general public awareness when it comes to hedging. Rationally, if you work in an oil company you should be short oil, but the opposite is much more common to be found in the real world. Similarly with real estate - if you have a big mortgage maybe you should somehow be short on the real estate market elsewhere, just in case your city becomes the next Detroit.

For those unfamiliar with it: options are usually quoted per-share (even though almost all of them are sold in contracts of 100 shares), because it makes calculating the break even price a lot easier. For a put costing $20 on a $165 strike, the break even at expiration is $145.

Also, you never buy long dated puts ATM in bull markets with the intention of hedging. It's usually much further OTM, since it becomes a lot cheaper. Right now all options are very expensive due to high implied volatility.

You are correct, my math was way off. Buying ITM options is definitely not the best way to protect capital.

No! Greenspan famously held only treasuries. Result? A long treasury bull market.

Seriously, the way it should work is that elected and appointed government officials, as well as civil servants with potential access to material non-public information (MNPI) should all be required to use only investment accounts managed by a manager with full discretion and with whom the official does not communicate.

The question is, what if they want to build an elevator for their car at their vacation home in Aspen and need to pull out some cash, and just happen to do so immediately prior to a recession they received a briefing about? Surely “give me cash” and “invest some cash” are acceptable communication to an investment manager, but still could abuse the MNPI.

They can borrow money using the portfolio as collateral, interest free or pegged to inflation, to be repaid either when the stock is released or over time. Although, it'd be a bit more complex than standard collateral since there'd have to be a "margin call" mechanism, where assets in the portfolio have to be sold to cover the debt if they drop too far.

The risk here is low. After all, the manager could easily have sniffed the coming recession and hedged against it. All assets do not lose value in a recession, you know.

Knowing only the returns the manager has yielded over several years tells the official very little about how the manager will perform in a recession, in a boom, or in a boring year.

By the way, that's how it works in financial companies. There's no reason it shouldn't work that way for government officials.

Stocks are a sideshow. It’s not how members get rich. It’s not how someone worth nothing leaves office worth millions.

Look at book deals and board seats.

Both of these options are wrong. Not so long ago, the people who entered government did so purely for civic duty. They didn't need to profit off of it.

Civic duty shouldn't mean their family and kids don't get the same opportunity as those of a software engineer. It is not "profit". It is a salary so that smart people don't have to sacrifice their family to do their civic duty. I am not saying any Senator is necessarily sacrificing, but that is where all these shady actions come in.

You still don't understand. It has nothing to do with material things like money. It is something much greater than that. Civic duty is the highest honor one can achieve in their life.

That's a great ideal, but the reality is that if you slash the salaries for being in elected office down to something token like $50k, you won't get more "civic minded" people in elected office, you'll get more rich assholes because they're the only ones who can afford to quit their job to campaign and hold office, fly back and forth to DC, and maintain two residences on that salary.

I've come around to the idea that we'd be way better off just paying them a lot more. I also think people should be able give their congressman a tax deductible 'tip' up to $20. Put a line on the Form 1040.

Ahh it would be fair for citizens to be able to bribe politicians the way lobbyists do.

It's not a bribe if they are supposed to be working for us.

I don’t think many people agree with that. I do. Most people don’t know what it means.

When is that "not so long ago", exactly? Corruption in republics is as old as republics themselves, and US was no exception.

I think if representatives in the Senate and Congress were focused on a salary payday, they would have chosen another career besides politics.

It’s the bennies and perks of being a representative that outweigh making $200k/yr. Plus so many of them already have cushy incomes by time they are in office, being a representative is really the cherry on top the cake.

> Plus so many of them already have cushy incomes by time they are in office, being a representative is really the cherry on top the cake.

Right, but I think the argument behind paying them more is that you shouldn't have to already have a cushy job to become a representative. We complain on here from time to time about how representatives don't understand technology, but it's no surprise when most folks who understand technology would be taking a pay cut to become a representative. Same with fields like medicine and management.

Why not just insist on a firewall between themselves and investment decisions?

Lots of ways that could be implemented.

A wealthier congressman could employ a firm to manage their money.

On common way to protect against insider trading is to make irrevocable trades fat in advance.

For example, irrevocably say you buy $500 of an index fund every month.

As someone who worked at investment bank for years, and would have had to go to the trouble of getting preapproval for any individual trades, it was far less troublesome just to rely on managed accounts.

So, yeah, just make them use managed accounts.

I think it was Steven Landburg that had the idea that politicians and administrators should hold a broad-based index of their country's real estate, on the theory that better policies lead to land within the country being more valuable, and so it aligns incentives.

I don’t think we have a problem in this country where the interests of landowners are underrepresented.

That’s not the problem that that system is solving, and it’s not the typical kind of landownership that causes anti democratic effects; I think you’re just pattern matching there.

As a georgist I think this idea is very flawed.

(not building housing can increase existing house prices... but is not necessarily a good move)

Why? Georists support taxation of land rents, also in the expetation that good governance leads to higher (ground) rents (and thus higher government revenues).

Edit: If anything, the Landsburg policy is just a tepid approximation of Georgist finance.

House prices and land prices are quite separate things.

NIMBY policies increase house value, but decrease land value.

A) Still requires a blind trust. One can inside trade index funds if you know about news that’ll shake the entire market.

B) If you look at the salary of public officials inflation adjusted, the president would be making a few mil a year if they still made Washington’s salary. We’ve let public salaries atrophy badly.

100% agree. I'd be fine with 7 or 8 figure salaries for members of congress, the president, and top executives along with very strict rules on investments: treasuries with a small allocation to broad market, long only ETFs: S&P500, MSCI World, etc.

Executives get that kind of salary because their tenure is short, they are under pressure, and they are (at least in theory) held accountable for performance by multiple stakeholders (employees, shareholders, the board, customers, etc). Members of Congress have a sky high re-election rate, have a much less stressful lifestyle, and are generally not held to such an account for their activity. We want to disincentivize choosing politics as a career, not encourage it.

Why do we want to disincentivize career politics? I feel like raising the incentives will improve the ability of the average politician.

People don't go into politics for the paycheck.

This wouldn't change if the salaries went up 10x, or even 100x.

Influence is worth far more than cash ever could be.

People don’t go into politics for the paycheck because only the wealthy and the incumbents have the ability to sustain a months-long campaign. That’s the real reason we have people in Washington who represent Wall Street instead of Main Street.

Indeed, campaigns should be in the public interest. Nobody should be able to accept donations from anyone for a run for office. They should receive budgets from the FEC and it should be illegal to use any money for the campaign above and beyond that, even their own. That would solve a lot of problems. Run out? Tough. This eliminates an awful lot of conflicts of interest and allows candidates to run on their own merits.

That's meaningless without doing away with Citizens United. All the real money goes into the slush funds and not the campaigns.

I agree completely. They should not exist either.

My fear is that the FEC rules would be written in a way that discourages third parties, or non-incumbents.

You mean like they are now?

One of the problems that creates is only certain types of people can afford to go into politics. Improving the pay for staffers might go a long way to reduce some of the revolving door cycles that many people find so distasteful

I don't see how it helps.

The expensive part is GETTING elected, not serving. If you don't have the resources to win, the salary doesn't help you.

Perhaps these races would be more competitive if there were a few million more reasons to win.

7/8 figures seems a bit much no?

if the fact that paying them more results in a better society, it may be worth it. The absolute amount is irrelevant if the return on this investment is greater.

A higher paid politician is also less likely to be corrupt (since the agent causing the corruption will need to beat their high salary, which is risk free). A higher paid politician will not need to worry about blowbacks from policies that are good for society but bad for existing entrenched players.

And a higher paid politician may encourage people, even if they were poor initially, to work to become a career politician (and study it, the same way a neurosurgeon or any other professional trade would). High pay almost always equate to high intelligence, and i would hope that an intelligent person is also someone who can run things better.

535 members of congress, each making $10M/year adds up to about $15/year per American.

That seems like a lot to me though. You can make many expensive things look not that expensive if you put it in terms of “per American”. It’s just the there are many things and they all add up. E.g can’t you just pay them 1 million and use the 90% savings to buy X nurses?

I don’t have any data to inform my decision on what would be the best number though so I should shut up.

It's not a lot for any individual American.

The reason to oppose it can't be "I can't afford it". It's more "those bastards don't deserve it". And that's not how mature adults should think about things.

Compared to the impact the federal government has on all our lives, it's nothing. If it resulted in 1% better governance, it would be a really well spent $15.

Right, I'm just saying it's not clear to me where the 10 million figure came from? And it seems very high for a government salary. Obviously if it's justified to work then I'm for it.

Someone said "7/8 figures seems a bit much no?".

$10M is 8 figures.

I agree it's high :) $1M might be enough.

Not relative to their responsibilities. The US federal government takes in about $3.5T per year and employs about 2m people. Private sector executives routinely get 8 and 9 figure comp for running organizations 1/10th or even 1/100th that size.

Also, remember that this is "in exchange" for anyone who assumes office to mostly forgo income from individual investments and I'd add things like book deals and honoraria after office. Someone mentioned Singapore and that's my example case here.

The prime minister of Singapore has a salary of more than 2 million US dollars, and being a competent POTUS is a much more demanding job.

You’re solving the wrong problem

Getting what you just proposed (or any of the many other obvious ways to prevent insider trading) through a senate full of insider traders is the problem

Solve that one

How would you deal with their family, friends, etc.?

Same way SEC deals with everyone else.

Then why can't SEC have the authority to deal with congresspeople too, though?

Because obviously the congresspeople don’t want to pass such a law

I mean isn't that a problem with the original proposal too?

> why can't SEC have the authority to deal with congresspeople too

Because congress wrote the law.

But they somehow wrote the original proposal?

They will just get hired as 'consultants' at large companies after they are out of politics

That problem already exists. My half-baked proposal doesn't claim to solve all the hazards. :-)

Index funds are still too aggressive. You buy some defence contractor and vote for war.

TBH, $10M per senator per year is only $1 billion/year - a rounding error for America. And when a senator has F-U money, there is little incentive for him to take dirty money (true sociopaths will take both, of course).

How do we select for normal, non-sociopath humanoids for political office?

Random selection. It's like jury duty, but longer!

To me this seems to be no worse and possibly more efficient than our current system.

I would argue significantly better than our current system. It would allow more diversity as well as bring knowledge about government back into communities.

Ancient Athens did it: https://en.m.wikipedia.org/wiki/Sortition

> pay them better

Nancy Pelosi's net worth is $160M. You can't pay her "better" to compensate for loss of "gravy".

Nancy Pelosi's estimated net worth is $16M, not $160M.

https://en.wikipedia.org/wiki/List_of_current_members_of_the...

Her husband + her net worth is about 160M. Which is the same thing - you can't pay her enough to compensate her for the cessation of movement on the gravy train. If you're suggesting that having a wife who's been in congress for decades in no way helps her husband's endeavors, I have some wonderful Florida swampland for sale.

Let me make a different suggestion:

Keep your part A.

Throw away your part B. Nobody deserves to make more money because they either screwed their country or refrained from screwing their country.

> pay them better to make up for the loss of gravy

You went the wrong way. If anything they should take a vow of poverty.

What’s that? Then no one will want to be a Senator? Good.

Functionally impossible. Even if they aren't allowed to own anything, you can't stop people from doing them favors of one sort or another. You'd basically be making it a rule that their reward for their work is getting discreet favors from special interests. It'd be hard to establish a set of rules airtight enough to stop it from happening entirely, companies would find ways around whatever basic regulations are put in place just like they do now.

> You'd basically be making it a rule that their reward for their work is getting discreet favors from special interests.

So you’re saying today’s state of affairs is unavoidable and there’s absolutely nothing we can do. How defeatist!

There are options other than an impossible-to-enforce vow of poverty.

I’ll be generous and they can keep their current salary. But no additional income streams allowed. And all investments must be held double-blind and only invest in broad index funds.

That’d be a good start. An unforceable but public vow of poverty upon swearing in would still be good.

Fascinating site!

Unfortunately -- correct me if I'm wrong -- the calendar day selected isn't the day stocks were traded, but rather reported, which can be up to 45 days after a trade? [1] E.g. today's date (Apr 10) shows trades that happened on March 9, 20, and 25.

So very cool for transparency, but of zero utility for anyone trying to either duplicate a trading strategy, or trying to suss out in advance what senators know that we don't. :(

[1] https://en.wikipedia.org/wiki/STOCK_Act

So, in about 30 - 45 days time this is going to make for some VERY interesting reading..

If historical data is available, an aggregated result of this could be compared to the S&P index. To see if their trades actually outperform and therefore if they a better traders than average, and if so, this might mean they have better info.

> We document that a portfolio that mimics the purchases of U.S. Senators beats the market by 85 basis points per month, while a port- folio that mimics the sales of Senators lags the market by 12 basis points per month. The large difference in the returns of stocks bought and sold (nearly one percentage point per month) is economically large and reliably positive.

https://projects.iq.harvard.edu/files/gov2126/files/ziobrows...

There are many examples of sketchy investment behavior in the Federal government. I remember this one, courtesy of Nancy Pelosi and Visa. I thought I remembered her offloading $MMs of FB call options too just prior to railing against them, but I can't find an article on that one now that I'm looking. Link on Visa: https://www.investors.com/politics/editorials/pelosi-corzine...

Investors.com is partisan garbage. They're famously the ones who wrote that Stephen Hawking wouldn't have been able to survive under the NHS and that we found yellowcake uranium in Iraq after the invasion. Their weird authorless editorials get into all sorts of 'the lizards walk among us' areas. As for Pelosi, their claim is that she killed legislation to limit swipe fees in 2007 -- in order to take part in an IPO in 2008 -- to then pass the swipe fee legislation in 2009 (which would hurt the share price now that she owned the stock)? Meanwhile she held onto the IPO stock and bought 3x at prices of twice the dollar amount of the IPO?

I'd love to see someone diagram how that is meant to be sinister.

Not sure about the first part, but to answer your question about the Pelosi example: The idea was that she and her husband accepted preferential access to Visa shares during IPO in exchange for delaying a bill that was set to pass by 2 years, thereby benefiting from 2 years of share price growth, not to mention a lower share price penalty given Visa had years more time to prepare for it. Did I do a good enough job articulating that without a diagram?

That makes much more sense than they laid out.. then again there was that whole global financial crisis that happened during that time with George W. Bush in the White House, so it seems pretty implausible still? Anyway, I found a much more compelling article that doesn't end with the sentence, "The list of financial "greed" and sleaze on the left is long. What a bunch of hypocrites."

https://www.thedailybeast.com/how-visa-courted-nancy-pelosi-...

Yes, better article for sure, thank you.

Then he joined MF Global Holdings and bagged a $14 million compensation package — including $2 million in guaranteed bonuses, regardless of performance.

Jeez man, I can't even get a 1% raise, despite being a good worker in my team. 2M guaranteed, regardless of performance? What a sweet deal...

Being a worker is not how to get rich. Don’t think it ever has been.

And if they're consistently worse than the average, just execute the inverse of their trades and beat the market. :)

Joking aside, I'm surprised that members of Congress have even allowed to trade on the markets, given how much inside information they know.

I think it's actually worse than that: I think they are specifically allowed to do more insider trading than the average US citizen. I could be wrong though, I just heard that once upon a time.

seems like the STOCK Act should have closed that loophole, https://en.m.wikipedia.org/wiki/STOCK_Act,so it's illegal we just have to see if anyone is prosecuted over it.

If I recall correctly, the stock act has them regulating themselves.

Yeah, seems pretty obvious that they should at least be required to do the same sort of advance scheduling of trades that execs are.

IMHO we don't even need to do that, I'd bet 50% of nefarious behavior could be caught by googling for information about companies which Senators buy or sell, and seeing if there's news which would indicate they took advantage of their office (being on a committee approving XYZ, etc).

That's not guaranteed. There are number of reasons one of them being by sheer chance.

Yes, that's the point of measuring them. There are enough senators making enough trades over time though that there should be a clear out-performance bias if they are insider trading with much significance.

The whole problem with this approach though is that a smart senate inside trader (since the STOCK act) would not do these trades him/herself. They would trade inside tips to outsiders for favors instead.

How about making one for Congress?

In 2011, "60 Minutes" reported that members of Congress could legally trade stock based on non-public information from Capitol Hill. video [0], write-up [1]

[0] https://www.youtube.com/watch?v=2zh30lm7aSQ

[1] https://www.cbsnews.com/news/congress-trading-stock-on-insid...

The Senate is part of Congress but The House doesn't disclose trades. The Stock Act of 2012 prohibits insider trading for the Senate and provides that trades are disclosed, which is why the data is available for that branch.

https://en.wikipedia.org/wiki/STOCK_Act

> The house doesn't disclose trades.

This is not a factual statement. See the Clerk of the House of Representatives [0].

The main issue is that many of these trades are submitted by scanned, handwritten documents.

[0] http://clerk.house.gov/public_disc/financial-search.aspx

Would be interesting to create a senate-tracking "index" fund. Wonder how that performs against the market.

I am only half joking, but I can see advertising already. "Make money the way insiders do".

The STOCK Act (or Ethics in Government Act, actually) only requires reporting within 30-45 days of purchase/sale, so your fund will lag behind whatever market-moving events they're trading on.

If you copy the long term plays it could still be viable.

You wouldn't know if it's long term.

Day 1 - stock purchase Day 45 - reported Day 46 - you buy or not? Day 45 - stock sold Day 90 - reported Day 91 - you've already lost

I mean investments that are typically long term, such as LEAPS, and as an example buying them if they're still at the same price they were bought by the senator at.

I think the site is definitely a good start. I would like to see accumulated data and charting. Which stocks have been bought and sold by week or month, etc.

A question to people who might pay more attention to the functioning of Congress than me: Is much of their day-to-day business actually secret? If Congress is about to pass a bill which will benefit company X, can't we all go on to the House or Senate web sites and read the drafts of those bills and have the same "insider information" that they do? Are we just mad that they're paying more attention to what they themselves are doing and how it will benefit certain companies' stocks than normal people who have better things to do with their lives than track what Congress is debating from day to day?

> can't we all go on to the House or Senate web sites and read the drafts of those bills and have the same "insider information" that they do?

The published drafts are days behind what's being circulated; you can see this every time there's an emergency bill, it's often voted on almost simultaneously with the final text being released. Sometimes, there's a reading of the bill, if people push the right procedural buttons.

Regardless, insider trading on delayed information isn't nearly as good as insider trading on current information (probably? I don't have experience with insider trading :)

This. When npr.org has more timely, relevant information than congress.gov--e.g. S.3548[1] wholesale pivots to H.R.748[2] with significant changes incorporated, and the latter isn't updated until days later--it leaves much for the general public to desire.

[1] https://www.congress.gov/bill/116th-congress/senate-bill/354...

[2] https://www.congress.gov/bill/116th-congress/house-bill/748

Congressmembers have access to the information earlier than the public. For example, Senator A may be reading a private draft of Bill B, which he expects will benefit the stock price of Company C, so he buys shares of C now at $50, unveils the legislation in a week which pushes the price up to $75, and passes the legislation the next week pushing the price up to $100. So the insider-trading Congressman gets a $50/share profit, while someone who was diligently watching the hill would only be able to act from the public release of the legislation and capture a $25/share profit.

Most of the actual negotiations do happen behind closed doors, and there are likely many times during their term when a congressperson would know of market-moving macroeconomic news before it's been publicly disclosed.

> It shall be unlawful for any person to obtain or use a report: for any unlawful purpose; for any commercial purpose, other than by news and communications media for dissemination to the general public;

Welp, looks like trying to actually trade on this information is illegal.

Feels like a double standard.

Good luck trying to prove that one traded after reading a specific website on a specific date...

I wonder if it makes sense to forbid members of congress from owning anything other than a narrow class of investments (for example homes and index funds, though I'm surely missing many).

This sounds like the old "cut their pay!" argument. The rejoinder to that argument is that it should be practical for people who aren't already wealthy to hold office, and a low salary would hurt that.

This is different because the hit to potential earnings from restriction to a basic generic portfolio seems small (maybe not relative to the upside from insider trading, but to what members of congress would make as average citizens). Heck, it's still possible to trade in index funds off insider information. But the advantage seems smaller.

No need to limit asset classes, this is the problem blind trusts are designed to solve. It's the tool that anyone who wants to avoid the appearance of impropriety uses.

But the current majority, at least in the Senate, seems not to need to care about the appearance of impropriety.

I wonder if openness of this information can lead to a senator just front running the watchers by creating 'vibes' when none exist. so they can buy a moderately in-news stock and declare it immediately. then sell it after the run up. or vice-versa with shorts.

in fact they can disclose favorable news immediately and wait for 30days to disclose unloading the position till the fervor has died off.

It's sickening how all of these lifetime senators and congressmen can amass such wealth given the salaries of their elected positions.

Yes this is something that needs to be looked at more. How much does their wealth grow from the time they enter to the time they exit congress. Some politicians seem to get very wealthy while in congress.

“You can’t get rich in politics unless you’re a crook.”

What concerns me far more is how long they can remain elected vs. any corruption that happens while elected. We needed term limits decades ago.

LBJ was a notorious case.

I personally don’t think insider trading is a crime, as many other people don’t https://reason.com/2012/11/28/legalize-insider-trading/

The more resources we spend fighting “insider trading” the more valuable people who have found loopholes or ways not to get caught. It’s a never ending losing game. I’d rather make all trades public than ban “insider” trading.

I think insider trading should be a private affair: if you work at a company and steal from the company by inside trading on some announcement, well then they should probably fire you (and maybe file a civil suit).

But there's certainly arguments to be made that insider trading is very good for the markets as it allows new information to get incorporated into the price very quickly.

How about this one for suspected informed trading? ~40% in 2 days...

https://efdsearch.senate.gov/search/view/paper/82AAE77A-D129... (you have to agree to the terms first)

Unless I misunderstood something, looks like Mark Begich bought KERX stock on 01/28/2013 for 1001$-15000$, sold at 01/30/2013 for 15001$-50000$.

KERX closing price on 01/28/2013 was 6.06, and 8.49 2 days later... Verified by looking at charts in https://www.barchart.com/stocks/quotes/KERX/interactive-char...

God damn, there is no way this is anything other than just brazenly obvious insider trading. Completely unethical. Our representatives are complete and utter scumbags.

Needless to say, this should be illegal. I honestly wish we could retroactively imprison them for doing this.

The current state of the U.S. is so damn embarrassing and shameful. I literally cringe when I imagine internationals seeing what we do here.

No, the truth appears to be boring and ordinary.

The senator bought the shares on the 28th; the day the company issued a press release. If you go to the link below, you'll see what looks like it might be insider trading by others, but that occurred on the 23rd, not the 28th. He bought along with everyone else when information was public and he sold to take a quick gain.

If you go to the link the parent provided and set the range for January 3, 2013 through February 3, 2013, you'll see the following:

-The stock traded at around $2.80-$3.00 from January 1-January 22. In other words for almost all of the month.

-On January 23 (Wed) the stock jumps to $3.75, stabilizing to around $3.30 a share by January 25 (Friday). Something is happening

-On January 28 (Monday) the stock gaps up and opens at around $5.00 a share. That day at 7:00 a.m. the company issues a press release that it has had success with a new renal drug:

https://www.prnewswire.com/news-releases/keryx-biopharmaceut...

If you know which direction the released news will move the stock and roughly when the news will be released, you could sit waiting to pull the trigger faster than most people who were not similarly advantaged. It would be silly to do something egregious, but competently leveraging a persistent informational advantage will still lead to significant relative gains in the long term.

> The current state of the U.S. is so damn embarrassing and shameful. I literally cringe when I imagine internationals seeing what we do here.

Sadly, the concept of politicians using their positions for personal gain is not a uniquely American phenomenon.

True. Its also Common in many developing and undemocratic nations.

It IS illegal as defined by the STOCK Act of 2012.

https://en.wikipedia.org/wiki/STOCK_Act

What can we do?

if you're a US Taxpayer, file a complaint with the SEC here: https://www.sec.gov/oiea/Complaint.html

It’s hard to do much. Senators can just tip off firms and friends.

The senators are probably thinking "What can you do?".

Hope the FBI does its job. That's on the President to prosecute and enforce corruption. One of the many duties of the President and the cabinet.

So give up, then

Write a letter

As I mentioned above, it's a biotech stock. Those sorts of jumps (and dumps) happen all the time around FDA approval dates.

Yeah, but perhaps he knew in advance that the FDA would approve?

Of course, it could also have been modelling based on public info or simple gambling.

Nobody is surprised that the stock went up or down.

>God damn, there is no way this is anything other than just brazenly obvious insider trading.

How do you figure?

A U.S. senator buys random pharma stock the day before it announces their renal drug passed a trial, and then sold immediately after announcing.

You're assuming some senator would have access to confidential FDA reports. This is not likely to be the case.

What is likely to happen is people betting on new biotech issues. This looks like it is what happened. He turned about to right on that occasion.

That's a straw man. The pharma company hadn't even applied for FDA approval yet.

So it was random price action? No catalyst? Then to cry insider trading is beyond absurd.

So he traded the catalyst.

Keryx didn't apply for FDA approval until months later.

That was a biotech stock. They are very volatile. If he held long term he would've done much better. If you search for FDA catalyst dates, you can find dates when drugs are going to be approved or denied, etc. It's like a coin flip.

True, if Begich was a professional trader focused on biotech stocks, that behavior would be entirely normal.

But...the guy is a career politician from Alaska. What are the chances he suddenly decides to roll the dice on an obscure biotech stock 2 days before a positive piece of info drops?

You can see his other disclosures and its all mutual funds and blue chips.

Except Keryx hadn't yet applied for FDA approval of Zerenex, so the action date isn't relevant. On this day in question, they came out of the blue and announced their renal drug had surpassed expectations in a trial, so a U.S. senator buying them randomly the day before is suspect.

ok! Perhaps I am wrong then. I could not find Keryx on the historical catalyst site I use (likely because it merged so the ticker is gone?)

That explains the stock's behavior. It doesn't explain the suspiciously fortunate timing of these transactions.

Plenty of traders speculate in stocks. These sorts of trades should be reviewed but aren’t really that suspicious. I wouldn’t call this “suspected insider trading” without actual evidence.

The actor in question didn't have a history of speculative trades, just run-of-the-mill long plays. Very unlikely their first prop-bet is such a winner.

Or maybe they subbed to r/wallstreetbets

He made 20% one time on less than $15,000. He sold when it happened to go up and got lucky. Dodgy stock picker newsletters in biotech make recommendations every day, he’s just as likely to have followed one of their trades than anything else. Unless you produce actual evidence that he has some connection to that company and acted on non public information it’s just speculation. And even worse, it’s damaging to the guy. Frankly it’s ridiculous that people have formed such stirring opinions here based on such limited data and experience.

I think the opinion is that this anomaly should get a small amount of investigation. That is neither stirring nor damaging. If there is smoke, go see if there is a fire. It's not an accusation. It's a desire for a second look.

How about you provide some proof? Like op did

I'd like to see someone dig up all the most egregious examples of suspected insider trading here and post it in the relevant voter guides for each member's reelection.

Hey everyone, I'm the creator of this. I'm listening to everyone's comments about new features and expect them shortly!

Thanks for everyone's support and appreciation.

I found that John Boozman does quite a lot of trading but his data is not visible on your site because he reports it only on scanned-in paper forms.

Now, maybe Senator Boozman just really loves paper forms, but maybe he's one of the many people who have realized that one of the best ways to hide legally required disclosures is to make it inaccessible to automated analysis.

I suggest making an annual report of which senators are filing in a way that inhibits analysis of their trades. Mr Boozman would be a star on that list, but there may be others and I think we should call them on it.

Nice job, I really like this and find it useful. A couple ideas I'd love to see implemented, depending on how far you want to go with this:

(1) On the "top 5 traded tickers" display, just go ahead and list all the tickers and not just top 5. This will summarize the day-by-day info on the left panel. Would be nice to sort the traded tickers summary by either count or ticker.

(2) So right now, we can select a date and see the reports from Senators that reported that day. Additionally, I'd like to name a Senator and see all their trades across all reports in a single screen. Finally, I'd like to click (or input) a ticker and see all reported trades for a given ticker among all Senators and all dates.

Thanks again. I wasn't even aware this info was now publicly reported. A small step forward, I guess.

I posted elsewhere in the thread, but figured it was worth replying directly - is there any way to find out who is making their own investment decisions, and who is having their money managed in a blind trust on their behalf? The two situations are obviously very different with respect to possible abuse.

Just realized, you could get the info manually if it's not already publicly available, given that there are only 100 senator. Their offices would probably just give that info, otherwise "refused to answer" would still be useful info to put on your site next to each senator's trades.

Would be really interesting to see if lawmakers outperform the market and if so, by how much, they can't all be Warren Buffet right?

Ok this is really awesome. Now if you would just go ahead and create an API for this, so I can set my TD Ameritrade to trigger trades off of this information, that would be great.../s

The general public doesn't have great trading strategies, but Senators may be more well informed. I wonder how a bot based off of their trades would do.

I suspect they're sophisticated enough to turn something like an "index fund of what the people in charge buy" into a profit by making sure the timing of the reporting makes it more profitable for them.

Since the reporting isn't instantaneous, they of course also have insider knowledge of their own trades and that those trades would influence markets and when. They could screw around with the timing of trades to give misleading stories, like selling off a bunch of stuff just before they file a report and then buying it after their action tanks the price.

But a virtual index fund that tracked their purchases and sales to make a record of how well Senators do in the stock market compared to an index fund (which I believe are also run by well informed people)? That might shame them into changing the rules if it looks bad. Of course, I don't know enough to say they aren't behaving themselves.

Some cases that look suspicious might, when taken as a whole with their other trades, average out and make clear that they lose money even when they have insider knowledge that they will lose money. Somehow I doubt that, but if it's truly a blind trust or an independent fund it should be true and would increase faith in our elected officials to see hard data for.

You can fix that by coupling their trades with the "index fund", so their bid/ask for X shares at price $Y is combined with some # of shares of the common fund proportional to shares held by all members. Then the trade is executed atomically and we get the same price.

> But a virtual index fund that tracked their purchases and sales to make a record of how well Senators do in the stock market

I think it's kinda funny that you called a stock index as a "virtual index fund". Feels like we've come full circle.

Thank you! I meant in the sense that it's not a useful thing to buy, but it is funny :-)

I would be pretty surprised if various algo-trading houses don't already do it.

I'd like something like this in Australia, targeting real estate speculation which is probably our largest single source of corruption at all governmental levels.

The US polity though seems too deeply corroded for transparency to be more than a minor (albeit positive) tweak.

Fun fact: until the STOCK act was passed in 2012 there was nothing restricting insider trading by Congress.

https://en.m.wikipedia.org/wiki/STOCK_Act

This would be much more useful if you could tell which senator was actually making the trading decsions, vs having trades made on their behalf in a blind trust. The situations are very different in terms of potential abuse of inside information

This information should be reported within 24 hrs or less of a trade rather than 45 days later to negate the insider trading aspect of the situation.

It also should apply to the house and the senate.

My question is this- if one were to build a trading bot that bought and sold along with something like this- 1) would it be legal 2) I’m curious about the returns vs the market.

I always liked this study on buying presidential supporting stock. Don't know if it would work on trump but if we'd bought haliburton stock we'd all be rich... https://www.theguardian.com/money/2008/mar/08/moneyinvestmen...

The "Thoughts & Prayers" button is brilliant.

Feedback - in the "about" section, this sentence is broken: "Since there is no major reprecussion for insider knowledge trading for a senator or member of congress to act on the best behalf of their wallet." Either drop the "since", or replace full-stop with a comma to join the following period.

I wonder how hard it would be to create a mutual fund that tracks the holdings of the senators.

The easy solution to this problem would be to either require Congressmen to publicly announce a transaction prior to effecting it, or to tax their capital gains heavily for transactions made outside of a predetermined window.

I love this! Create a widget as well, perhaps one day it will be added to the senate website, or the local senators offices.

Where does this data come?

From the bottom of the page: https://efdsearch.senate.gov/search/home/

Just the Senate? What about the House?

periodic is spelled as perodic. Very neat idea, I hope something comes out of it.

the senate website source...

It shall be unlawful for any person to obtain or use a report:

* for any unlawful purpose;

* for any commercial purpose, other than by news and communications media for dissemination to the general public;

* for determining or establishing the credit rating of any individual; or

* for use, directly or indirectly, in the solicitation of money for any political, charitable, or other purpose.

"...indirectly... solicitation of money... for any ... other purpose".

The author of the site links to a site which takes donations. Is this a violation?

I'm not suggesting he shouldn't take donations; I'm suggesting the language in the usage terms are too overly broad.

This is news and reporting.

Who cares? It's obvious 'the rule of law' means nothing in 2020.

I also remember a comparison between Barack Obama and Lee Hsien Loong. While President Obama was learning JavaScript for the first time in office, PM Lee had written a C++ sudoku solver prior to high office in addition to being Senior Wrangler (top math undergrad) in Oxford. No, hard intelligence isn't everything (in fact it's probably overvalued in most parts of our society), but it may be a reliable indicator of other character traits important for soft skills, like persistence, diligence, and thoroughness.

POTUS makes $400k per year. Singapore's PM makes $2.2M / year. It's hard to avoid thinking you get what you pay for sometimes. Personally, I would be much more inclined to consider public service if salaries for government positions were competitive with the free market.

If I can reliably purchase a George Washington or an Abraham Lincoln quality POTUS for $300M per year, I would consider that money very well spent.

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