Trading bot that buys stocks bought by politicians is up 20% since May 2022
threads.net
threads.net
https://totalrealreturns.com/n/VFINX,VBMFX,USDOLLAR?start=20...
Edit: tweaking your link to May 11 gets it up to 14.8%, and I'm not sure if it's just using the opening price or the lowest of the day
Buying stocks at random has the same average return as buying the index, but has higher volatility and highly correlated returns. Buying at random doesn't "compete" with index funds.
Because you could cherry-pick any period of time to highlight that they have outperformed the market.
They could put investment money in like an independent index fund maybe...? Although honestly there should probably be a "Congressional Investment Fund" that they have to put any stock investment money into that invests equally across all publicly traded companies or something.
See another comment where I explain more but how it used to work for me was you have to trade through the employee trading desk (and aren't allowed to have unmonitored brokerage accounts) then any trade gets vetted against various lists (some but not all of which are available to you ahead of time to protect deal confidentiality) and then there are static criteria about how long you have to hold particular positions etc.
There are several jobs that are less powerful and have less conflicts of interest where that is indeed the policy.
GP's point is that they could be almost entirely in the S&P500, with some minor innocuous deviation (tracking error, frankly!) and it would look the same. So this isn't really suspicious at all.
Sure it's a US-focussed index, but isn't that you want from your politicians? (Outsider perspective here fwiw.) It'd be worse if they were some foreign country's politicians where the markets at home had done poorly and they'd basically tracked much better performing US index.
What a lucky man.
They have to do with theft. Me trading against you from an information advantage is encouraged! This isn’t an insider trading issue, it’s an ethics issue.
It is also likely that some of those politicians are making bad trades based on overvalued or misvalued insider information. I have personally seen this in other contexts where people know something presumed private about a company, assume it’s a bigger deal than it is, and trade on that information.
It’s also likely that there are a lot of politicians who are generally just as bad as the average person at stockpicking.
All this combined, and it’s reasonable that the overall trend will be mostly in-line with the market, but likely overperforming sonewhat in the long run based on the volume and quality of insider trades. One year and change isn’t the long run.
Is that really what you want?
For lots of jobs your ability to trade in stocks is restricted. For example when I worked in the securities division of Goldman there was a restricted list of stocks that I was not allowed to own (because we were publicly doing something for them) and then I had to send all my trades through the employee trading desk because they had another list which was the restricted list where the deals weren't public yet so say we were going to be advising XYZ corp on a potential takeover of MNO corp. Only the people on that deal team would know anything about it, so XYZ and MNO stock wouldn't be on the restricted list but if I tried to buy or sell either of those stocks in my personal account I wouldn't be allowed. And there were other restrictions as well.
When I worked for a software company I wasn't allowed to trade in any stock of any of our clients or prospective clients and I had to sign a thing saying I wasn't going to trade based on any client information that was disclosed to me in the course of doing business with the client. etc
These kinds of restrictions are absolutely normal in business. Additionally, in other countries, politicians don't have this sort of carve-out on insider trading laws. This wouldn't be some kind of slippery slope. For example in the UK, members of parliament have to publish their financial interests to avoid these kinds of conflicts https://publications.parliament.uk/pa/cm/cmregmem/contents22...
Campaigns should be paid for with tax money with a strict limit for every candidate and harsh penalties for any under the table bullshit.
Corporations that would nominally donate can just not. And we can fucking tax them appropriately and stop them and their C levels tax dodging at every available opportunity.
The way things are at the moment, democracy is really just a corporation/business, isn't it? Pretty sure all of this is driven by apathy though, the average voter doesn't really care enough about these issues + humans are too easy to manipulate into race/class/etc wars to divide voters and distract them from thinking about the real issues - but the only reason they're so easy to distract is because we're all so self serving; people don't care so long as they can vote for the "team" that says they hate the people they hate.
> Corporations that would nominally donate can just not.
In Brazil campaigns are funded with taxpayer money, there are very strict rules for donations to election campaigns and donations from corporations aren't allowed. This is the theory but for real nobody gives a damn about the rules, corporations donate outrageous amounts behind the scenes and politicians do whatever they want. It is a clown show.
If anyone is interested, I built a dashboard that tracks the performance of individual congressional stock trades here:
https://www.quiverquant.com/congresstrading/
It also allows you to search for trades by stock, instead of needing to parse through thousands of disclosure forms.
I do want to mention one weakness of my data, which is that I don't currently parse hand-filed disclosures. Most politicians do electronic filings, which are easy to scrape, but some still file by hand. Working on a solution for that, which should hopefully be live before too long.
So can't see how building a trading bot that trades on information at least a month old even if info at the time was good would give any big advantage. This strategy is going to be fairly useless imo over the long term even if you assume the politicians trading was better than the overall market.
For example, threads.net/@quiverquantitative
Relatedly, I was here many years before I realised (via that NYT or WSJ or whatever it was profile) that it's 'Dan G'!
I mean, with the amount of corruption, would it not be possible to get all info from the trust and give decisions, one way or the other?
Those people do exist, we've just configured our electoral system in every way to discourage such admirable behavior.
It doesn't have to be full of opportunistic palm greasing scoundrels, we've just set it up that way.
... people convinced that the graft in office would offset the loss of opportunity from investment gains.
You can find them at state parks, libraries, museums and schools even. I've met plenty of scientists for instance, that work at universities, places like MBARI and JPL and for the city/county at lower salaries without stock options for the opportunity of public service.
They're real, we just need to get more of them in higher office
Sure, I'm one of them.
If you think that for the subset of public service that constitutes "electoral politics", that cutting people out of the opportunity to have investment income while in office is going to restrict office holding to those people, than you are, well, hopeliessly naive. Compared to the status quo, you'll eliminate some good people who would have been happy enough putting their investments in a blind trust and not been acting out of conflicts with their own investments, and you'll eliminate some people for whom the ability to serve their own investments was a deciding factor, but there's all kinds of corrupt interests that don't rely on having investments in ones own name that people pursue in politics.
relying on altruism is not what i would call scalable nor stable.
The rules of the system should be such that the optimal/desirable behaviour is also the selfish behaviour. If something selfish or damaging is beneficial to the individual at the expense of someone else, then the rules must be changed to even it back out.
Without dropping volumes of research, you can derive this intuitively. Think about how people respond in disasters. Running into danger to save strangers is common for things like floods or bystanders trying to save someone in a car crash. Prosocial is the norm.
These days extreme selfishness is an indicator of autistic spectrum disorder.
So when you pivot everything around selfishness what you in practice do is reward people with a certain flavor of autism and those who have that learned behavior. For example, Elon Musk, Richard Sackler, Adam Nuemam, Sam Bankman Fried, Elizabeth Holmes, Martin Shkreli, Mark Zuckerberg...
Selecting for those traits exclusively to administer the public commons sounds fairly dangerous
On the one hand, asd people are everywhere including in positions of power.
However, if you had a system which, by design, considers a subsection of asd people as the only ones qualified to hold power, you would be missing out on the contributions of everyone else which we should be including, you know, as a virtue of democracy.
To circle back around, the premise that people are fundamentally selfish is what's being rejected. The reality is (some small minority of) people behave in ways that might be considered fundamentally selfish and they've been thoroughly studied by behaviourists and psychologists.
Are they?
Forgive the suspicion, it's just aside from Zuckerberg and Musk the rest of the list you specifically named in the GP comment aren't on the autism spectrum, so I'm finding this line of reasoning a little dubious.
I mean, as long as we're using investment restrictions for social engineering.
There's no restrictions on insider trading, except that the disclosure requirement is immediate (upon trade execution) and non-anonymous. AKA, the price of a stock is reflective of the information available - and any insider that tries to take advantage of such information will necessarily reveal it the nano-second they make the trade.
Given two competitors in a market, what if the existing but inefficient one is in the fund but the new one that is trying to shake thing up and/or do a better job is not? You might see a lot more protectionism, and not just against companies of other nations, but against our own new best companies.
better than favoring just a few stocks you have insider info on...
A free market is a system that's based on emergent behavior. As we see time and time again, even the best and most useful and narrowly focused regulations that are beneficial when first implemented need constant review to make sure they aren't later doing more harm than good. Carving out a big chunk of the market as likely to get special behavior regardless of the normal inputs and outputs could outright be disastrous, IMO.
If you were limited to GM and Ford, would you want a Tesla or Rivian to exist? If you were limited to K-Mart, would you want Wal-Mart to exist? If you limited to Sears, would you want Lowes, Home Depot, and Best Buy to exist?
Basically any restriction that can be imagined would incentive various other bad behaviors that might actively be anticompetitive.
If you mean something like that then your proposal seems overly restrictive. I don't see any point in say the USGS not being able to hire a seismologist they want to hire because the seismologist can't convince his brother to sell his Microsoft stock and his adult daughter to get rid of her Apple stock. Nothing that seismologist would be able to working at USGS is going to influence those stocks, nor is his work going to provide him with any inside information.
Many federal employees do in fact have to limit what securities they can purchase or hold. For example, if I recall correctly, patent examiners cannot hold more than $20,000 in investments for an industry that they examine patents in, and they cannot hold more than $10,000 in stock for any company they may examine patents for. The guidance tells them to prefer index funds that capture the entire market rather than individual companies or sectors. This is explicitly to prevent conflicts of interest. If you are high up enough in these federal positions (without having to be a political appointee), you even have to complete a financial disclosure form (SF-714), and people do check these things for potential conflicts.
That said, many federal employees invest heavily in TSP funds, most of which are managed by BlackRock, so your last point about distributing them among multiple fund managers is not true in practice, since I imagine most federal employees have their investments heavily in funds managed by BlackRock.
I personally really really struggle to trust the data represented in these tweets (err threads?) after the barrage of day-trade influencers we've seen in the last few years.
Would be interested to see a peer-reviewed version of this experiment...
Why would they change it?
I was asking if they are also suggesting that this second-degree insider trading be stopped somehow?
2. If an amateur could do it, hedge funds, HFT firms, etc have definitely been doing it for longer than them and have taken away and arbitrage opportunities.
3. It very likely might be that the one month lead that the politicians have make their trades profitable, while anybody copying them will be unprofitable due to those same politicians decisions
It is a quandary. Some pols burrow in and never go away, to the detriment of the people they're supposed to be serving.
On the other hand, term limits just empower lobbyists, who don't have them. You think capture is bad now, just wait until all elected officials are perennial novices at the game.
What existing insider trading laws?
If so, someone should do an analysis of how much politicians pocketed since then.
(Our politicians and inside traders don’t disclose stuff obviously but there are signals that indicate an inside trade based on warrant stocks)
So you only know that within the last 1.5 months a trade was executed for any particular representative
> The average individual-investor stock portfolio has risen about 150% since the beginning of 2014, according to investment research firm Vanda Research, which began tracking the data nine years ago. That beats the S&P 500’s roughly 140% during the same period.
“It is unlawful to use the information contained in these Financial Disclosure Statements for (A) any unlawful purpose, (B) any commercial purpose, other than by news and communications media for dissemination to the general public, (C) determining or establishing the credit rating of any individual, or (D) use, directly or indirectly, in the solicitation of money for any political, charitable, or other purpose. See 5 U.S.C. app. § 105(c)(1),(2). In conformity with 2 U.S.C. § 104e(b)(3), certain personally identifiable information in these reports, not required to be disclosed, has been redacted.”
If you're interested in the source data: https://disclosures-clerk.house.gov/FinancialDisclosure https://efdsearch.senate.gov/search/home/
The backtest goes back further though, which is what is shown in the graph. Could be improved by having a line on the graph showing when it went live.
Kind of sad really, but it is easy money for that 3% high-risk section of a portfolio =)
The obvious thing to do from a policy perspective is simply require investing in index funds with sales scheduled well in advance. C-suites and bankers have to do it, why let politicians even give the appearance of corruption.