In 2021, the potential insider trading cases of the US congress shocked the whole world. One of the catalysts was congresswoman Nancy Pelosi, whose husband Paul Pelosi had allegedly made more than $30 million by trading stocks of the big companies that his wife is regulating.
News about their trading spread like wildfire across TikTok, Reddit, and Instagram. One of the most obvious cases was the Nvidia deal.
Pelosi’s husband bought the Nvidia stocks a month before an announcement came out saying that the US government will buy a supercomputer made with Nvidia microchips.
Suddenly wide masses understood that senators might be trading using advance knowledge about impactful events.
As a result, many young investors adopted a new trading strategy – looking at the financial disclosures of politicians and copying their trades.
Congress trading results Vs S&P 500
So how easy is it for congressmen to make money with insider info? Most of them are not professional traders and even with insider knowledge, it’s not always possible to predict the movements of stock prices. Even the big hedge funds with their advanced stock prediction strategies don’t always beat the general market.
Many economists have downplayed the idea that politicians are more successful than average when it comes to investing in the stock market. Some have argued that the 45-day delay in reporting the trades can be too big a delay to catch the trades before the market has already moved.
Luckily it’s possible to check this.
Members of Congress have to publish their trades since 2012 and there have been various academic studies on trading on insider purchases. Researchers perform the studies by trading shares of the stock in a stock trading simulator after the insiders have recently purchased or sold them.
Some of those studies have shown that insiders are able to outperform the market by up to 36%* over a 1-year period.
A user on Reddit has been collecting the stock trading data from the US congressmen and has built an algorithm that copies their trades.
As you can see, the U.S. Congress as a whole has significantly outperformed the S&P 500 in a span of 6 months.
Where can I see congress member stock trades?
The Stock Act, signed by President Obama in 2012, requires public officials to make their transactions public so the public can see what they’re doing.
The Stock Act requires lawmakers to report all trades and file reports within 45 days of the trade date.
This law was meant to help prevent conflicts of interest by requiring public disclosure of these trades by members of Congress. The hope was that this will encourage them to act in an ethical manner when making decisions that could affect their own investments.
The law also requires that the public can easily access these records, which has led to increased transparency in government.
Nancy Pelosi – the most famous congress trader.
Pelosi’s possible insider trading activities go back many years. She was first elected to Congress in 1987 and has been on the board of directors for Goldman Sachs since 1990. Since then, she has been known as one of their most loyal insiders—even when they were involved in giving her insider information about the housing market collapse.
Some speculate that Pelosi has made over $100 million by selling off stocks just hours before they crashed. She also had access to information about upcoming tax laws that allowed her to sell off shares in companies like Apple and Google at record low prices.
Nancy Pelosi does not trade stocks herself, it’s done by her husband Paul Pelosi who owns an investment firm “Financial Leasing Services”. So traders are looking for his firm’s disclosures when they want to tap into the wisdom and connections of Nancy.
The Pelosi family’s overall portfolio has beaten the S&P 500 by 4.9 percent in 2019, and a juicy 14.3 percent in 2020 and it has kept topping the market in 2022 as well.
Congress moves to ban members from trading stocks
If you want to take advantage of the publicly available stock trades of US politicians, you have to act fast. Congress is planning to ban members from trading stocks and the new law is expected to be put up for a vote sometime in 2022.
One of the biggest obstacles and blockers for this new law was Nancy herself because If family members were banned from trading, her husband Paul would lose his job.
Despite the controversies and scandals, the US politicians have kept trading stocks for years and it has been profitable according to research. The looming risk of a stock market crash might decrease the trading activities of politicians as even the pro investors are uncertain about the markets.
With the upcoming ban for congress members to trade stocks, insider trading could become less popular, however, it is likely that the smartest ones will find or create loopholes to continue exploiting their “psychic” stock price forecasting skills.