The truth will make you sick. Technically it’s public knowledge, but I can tell you — it’s Congress’ dirty little secret.
Congress is rich. Unbelievably rich. And until just recently, insider trading laws didn’t apply to Congress.
I don’t know which is worse: The fact that insider trading was legal for some of our nation’s wealthiest politicians… or that Congress refused to do anything about it for decades.
“A few lawmakers proposed a bill that would prevent members and employees of Congress from trading securities based on nonpublic information they obtain. The legislation has languished since 2006,” according to The Wall Street Journal.
That was, the legislation languished until “60 Minutes” — one of the most respected investigative journalism programs on television — dedicated a segment to the issue. Here’s a portion of what they had to say…
“In mid-September 2008, with the Dow Jones Industrial Average still above 10,000, Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke were holding closed-door briefings with congressional leaders and privately warning them that a global financial meltdown could occur within a few days. One of those attending was Alabama Rep. Spencer Bachus, then the ranking Republican member on the House Financial Services Committee and now its chairman.
“While Congressman Bachus was publicly trying to keep the economy from cratering, he was privately betting that it would, buying option funds that would go up in value if the market went down. He would make a variety of trades and profited at a time when most Americans were losing their shirts.”
And that was just one example. Also dug up by “60 Minutes”:
House Minority Leader Nancy Pelosi, D-Calif., and her husband have participated in multiple exclusive IPOs — including that of Visa Inc (NYSE:V). According to one report, Pelosi purchased 5,000 shares of Visa at the IPO price of $44. Just a couple of days later, when the stock was trading to the investing public, it traded at $64 per share.
House Majority Leader John Boehner, R-Ohio, bought stocks in health care companies days before the so-called public option was pulled from the legislation. The removal of the public option proved to be a boon for private health insurers, making a significant sum for Boehner’s investments.
The report from “60 Minutes” led to a frenzy. And a few months after the story aired, the STOCK Act, which curbed insider trading by Congress, was signed into law.
But why was it delayed for so long?
Apparently Congress was making too much money off the lax rules to do anything about it.
According to data from the Center for Responsive Politics, 249 of the 535 members of Congress are millionaires. That’s 47%. For comparison, about 5% of American households are worth more than $1 million.
So much for representation “by the people.” And why on earth would Congress change rules that have obviously helped its members for decades?
Thankfully, the STOCK Act strengthened financial reporting requirements for members of Congress (along with some of their higher-paid aides). Not only did it eliminate insider trading, but Congress must now disclose their trades within 45 days after they happen.
That means we have an opportunity to see exactly what our “representatives” are buying. And we need to know…
In a study cited by Barron’s, members of the House of Representatives beat investors like you and me by 55 basis points a month. That comes out to an extra 6.8% per year. I think Barron’s said it best…
“To give an indication of what House members’ outperformance is worth, investing at the stock market’s long-term total return of 10% would mean $10,000 would grow to $25,937 in 10 years. But with their special investment acumen, their 16.8% annual returns would leave them with $47,253 in 10 years.”
With that in mind, I decided to dive in and see just exactly what the most popular investments are with Congress…
The 10 Most Popular Stocks In Congress
I’ll be honest — the most popular stocks held by Congress aren’t some super-secret investments. They aren’t exclusive investments owned only by those in Congress with some inside knowledge of a future breakthrough.
Instead, they’re large multinational corporations that make up the bulk of many average investors’ portfolios.
I won’t keep you in suspense…
1. General Electric Company (NYSE:GE) — 83 members
2. The Procter & Gamble Company (NYSE:PG) — 68 members
3. Microsoft Corporation (NASDAQ:MSFT) — 64 members
3. Bank of America Corp (NYSE:BAC) — 64 members
5. Exxon Mobil Corporation (NYSE:XOM) — 56 members
6. JPMorgan Chase & Co (NYSE:JPM) — 53 members
7. Cisco Systems, Inc. (NASDAQ:CSCO) — 52 members
7. AT&T Inc. (NYSE:T) — 52 members
9. Intel Corporation (NASDAQ:INTC) — 51 members
9. Pfizer Inc. (NYSE:PFE) — 51 members
This data is provided by the Center for Responsive Politics. The most recent year available was 2011, before the STOCK Act passed.
As I said, Barron’s cited a study that suggests members of Congress post returns much better than average investors.
If their most popular holdings are similar to what many investors own, how is it that members of Congress can earn such higher returns?
No one can say for sure, but my research is turning up a few clues.