August 16, 2022

Essay: Not-So-Representative Investors

So I am thrilled by a recent learned paper that says quite a lot about money and the people who make it.

The study, “Abnormal Returns From the Common Stock Investments of Members of the U.S. House of Representatives,” is a real eye-opener. Using the financial disclosures of politicians, the research team built model portfolios and charted their performance. They found that House members “earn statistically significant positive abnormal returns,” outperforming the market by 6 percentage points.

Senators do even better, the authors say, citing their own earlier research from 2004. Senate portfolios “show some of the highest excess returns ever recorded over a long period of time, significantly outperforming even hedge fund managers,” with gains that are “both economically large and statistically significant.”

They beat the market, my friends, by 10 percentage points a year.

Take that, Jim Cramer!

The authors suggest that members of Congress have access to “nonpublic information that could have a substantial impact on certain businesses, industries or the economy as a whole,” and that investing on that information “could yield significant personal trading profits.”

In the study, the authors recommend all kinds of new disclosure and monitoring requirements to root out misconduct and shut the door on the Congressional casino.


The real lesson here, obviously, is an unbeatable investment strategy. To your impecunious correspondent, the path is clear: I need to be elected to Congress!

Over the years, my own strategy has produced abnormal returns, but in the wrong direction. Like a reverse Midas, I have a way of turning gold into stuff that pigs like. It’s time for me to produce gains that are “both economically large and statistically significant.”

I called one of the authors of the report, Alan J. Ziobrowski, an associate professor of business at Georgia State University, to learn more. He explained that he and the other researchers used the phrase “abnormal returns” to describe profits “beyond the area that we would call normal good fortune,” money so large that “it’s not rational to assume that they are just plain dumb-lucky.”

Professor Ziobrowski also gave one possible explanation for why the trading profits appeared to diminish the longer that someone served in office. “At some point,” he said, “it could be that the risk isn’t worth the return, if you know what I mean.”

About now, you are probably thinking, “Schwartz, you idiot.” And, if you’ve read this column before, it’s not a new thought. But this time I really think I’m on to something. You run for office on other people’s money. Once you win, you get the bits of information — academics might call them the Ziobrowski Whispers — that will bend the markets to your will.

What could possibly go wrong?

Well, Professor Ziobrowski’s enthusiasm for my idea seemed somewhat muted, as if he actually did not appreciate its brilliance.

“The key is, you’ve got to get elected,” he explained patiently. “You may have to sell your soul to do that.”

I asked, “And the problem with that is?”

He laughed. Considering what he knows about the possible returns, I asked, had he ever thought of running himself? “No, I can’t honestly say I did,” he said. “I’m a lowly little college professor.”

From Georgia, I pointed out. College professors from Georgia haven’t done badly on the national stage. Newt Gingrich has had two lines of credit at Tiffany’s worth more than a million bucks!

Mr. Ziobrowski, astonishingly, demurred. “I’m not ready to trade my free time for money.”

Frustrated, I called a former member of Congress, Nick Lampson, a Texas Democrat who served from 1997 to 2009, with a break from 2005 to 2007 because of an electoral loss.

I told him that I was looking for a role model. “You may have the wrong person,” he said. Especially when he served in Congress, he said, “I’ve always lived hand to mouth and didn’t have disposable income to invest.” Even now, he said, “I don’t have any stocks in anything of consequence.”

While he heard things while serving that might have made him some money, he said, “I never felt comfortable doing things when I heard.” His time in Congress did not make his family rich, he said, but he’s not complaining. “We’re paying our bills, and I sleep well at night, and I’m reasonably happy,” he said.

What’s wrong with these people? That’s certainly not the way I’d play the game. I disclosed to him my desire to cash in by getting in.

He said something that caught me by surprise. Though you couldn’t tell it by looking at many of the members, it’s actually not that easy to be elected to Congress. “It’s ugly,” he said. “It’s hard.” Party labels set voters against you, he said, and people say awful things about you. Still, he said, “If you’re there, and you’re there for the right reasons, it’s for me the most rewarding thing I’ve ever done in my life.”

I don’t think we have the same working definition of “rewarding” or “the right reasons.”

This was starting to sound like a less attractive deal than I had thought. An opponent who wanted to say awful things about me probably wouldn’t even have to lie, or to dig very deep. People have said awful things about me for most of my life, and to my face. They are called editors.

But I digress.

If I can’t win, here’s another thought: How about a mutual fund tied to senators’ purchases? If their information is so good, let’s all sign on.

The possible flaw in that plan, of course, is that information is only valuable if it’s held by the few. Let everyone in on the secrets, and they aren’t secrets any more. The senators and House members wouldn’t make any more money in the market than the rest of us.

And the problem with that is?

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