The 6 Most Popular Stocks Owned by Congress
The truth will make you sick. Technically it’s public knowledge, but I can tell you — it’s Congress’ dirty little secret.
#-ad_banner-#Congress is rich. Unbelievably rich. And until just recently, insider trading laws didn’t apply to Congress. So, what are the most popular stocks owned by Congress? I’ll tell you!
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 Representative 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:
Nancy Pelosi (D-CA) and her husband have participated in multiple exclusive IPOs — including that of Visa (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.
Former Speaker of the House John Boehner (R-OH) bought shares of healthcare companies days before the 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 the Congressman’s investments.
The report from 60 Minutes led to a frenzy. And a few months after the story aired, the STOCK (Stop Trading on Congressional Knowledge) Act, which curbed insider trading by Congress, was signed into law on April 4, 2012.
But why was it delayed for so long?
Apparently Congress was making too much money off the lax rules to do anything about it.
Get this: For the first time in history, more than half the members of Congress are millionaires. According to data from the Center for Responsive Politics — a nonprofit that examines the influence of money on politics — at least 268 of the 535 members of the 113th Congress need at least seven digits to disclose their net worth. By comparison, about 5% of American households are worth more than $1 million.
So much for representation “by the people.” But why would Congress change rules that have obviously helped them for decades?
As with most politics, public perception played a role.
You see, the STOCK Act actually has its roots in the 1960s.
Back then, Robert Baker, a senior Senate aide, was roiled in a scandal involving financial gain from a network of vending machines.
He ended up spending 16 months in prison, convicted of income tax evasion.
This led to a series of rules in 1968 that required lawmakers and aides to disclose information about their finances.
The rules require all members of Congress (along with some of their higher-paid aides) to publicly disclose information on their finances every year — including stock holdings.
Thankfully, the STOCK Act strengthened this requirement. Not only did it eliminate insider trading, but Congressmen and Congresswomen 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 I, for one, want to know.
Why? Because members of Congress have proven to be savvy investors. “Fire Your Hedge Fund, Hire Your Congressman,” advises Barron’s. And with good reason…
In a study cited by the financial weekly, members of the House of Representatives beat the average stock market investor 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… and show you how you can pinpoint what your own Congressman owns.
Here’s What Your Elected Representatives Hold In Their Portfolios…
If you’re looking for a scandal, you’ll have to keep looking. The most popular stocks held by Congress aren’t some “super-secret” investments. They aren’t exclusive investments only owned by those in Congress with some inside knowledge of a future breakthrough.
Instead, they’re the same large multinational corporations that make up the bulk of many average investors’ portfolios.
I won’t keep you in suspense…
So what gives? If Congress’ most popular holdings are similar to what many average investors own, how is it that Congress can earn such higher returns?
No one can say for certain, but my research has turned up a few clues. For one, if you look at the most popular stocks held by Congressmen and Congresswomen over the past decade, a lot of the same names show up each year.
This pattern suggests that many members of Congress are in it for the long haul — at least when it comes to the companies they invest in.
Individual investors, by contrast, are an impatient lot. These days, the average holding period for all stocks is about 3.2 months, compared with an average holding period of almost four years from 1926 through 1999.
You don’t have to trade every five days… or every 3.2 months… or even every year to beat the market. In fact, your success actually increases the fewer trades you make and the longer you hold.
A recent study by mega-investment firm Oppenheimer showed that the S&P 500 has NEVER suffered a loss in a 20-year period (measured in rolling monthly periods). The study went back to 1950.
Of course, we all know you can’t say the same for holding stocks for a year or two. When you hold stocks for a short period of time, your odds of losing money are higher. It’s no wonder, then, that Warren Buffett has always said his favorite holding period is “forever.”
That’s my preferred holding period, too. It should be yours as well.
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