WHY DO CONGRESSMAN OUTPERFORM THE MARKET BY 12%?

Interesting weekend reading here.  Did you know it is legal for members of Congress to trade on nonpublic information?  Even worse, these members of Congress have been found to outperform the market by 12% on average.  Just how do they do it?



Source: UCLA School of Law

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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Comments

  1. I wouldn’t make too much of this. Congressmen are simply far more aware of what’s happening in the economy then most by design of their profession. Talk to a lot of people and they are clueless about what is happening around them, but if they were genuinely interested I believe the information is out there for them to use.

    I am not vested in the market right now and I am not so aware of what’s happening in the economy, however, when I was vested and really looking at what was happening I outperformed by far more then 12%. Outperforming does take work, imho, and for congressmen they naturally do a lot of that work as a part of their job. Public information gets delivered to them, where most of us have to seek it out.

  2. Deborah that is the biggest load of hooey I have ever heard. Investment professionals and fund managers are generally more economically literate that any congressman. Listen to bernankes testimony in Humphrey hawkins or the senate panel questioning lloyd blankfein. Some of these guys know what is going on but your average congressman is damn near illiterate about economics. If barney frank made 1200bp over the market I would even be suspicious. And he is one of the most financially savvy and intelligent. The fact that the avg outperformance is 12pct is shockingly grotesque. Sounds like the USA is due it’s own british style “throw all the bastards out they are all corrupt” kind of episode.

  3. The study highlighting the 12% advantage of the average Senator was published in 2003; yet, the first we hear of it is today ? I call Shame on the entire journalistic profession (so-called). I challenge each and every journalistic outlet to report on this paper, and the phenomena it presents, for the better information of the electorate.

  4. I did not see addressed the issue that the Congress is day trading while they are supposed to be legislating. The quality of legislation and the quality of debate has declined in part because congressmen spend their working hours trading stocks and dialing for campaign contributions, rather than doing the job they were elected for.

    I also didn’t see mentioned a rather obvious remedy: require that members place their holdings in blind trusts. While that wouldn’t work for members who have family businesses, it would take care of most of the problem.

  5. I wrote to Rep. Visclosky and Sens. Lugar and Bayh on 6/26/2010 on this very issue, asking them whether they were exempt from insider trading laws. I live in Indiana.

    Visclosky and Bayh have never responded to my email through the government server system.

    Senator Lugar’s office CALLED ME! The staffer said yes, that he was exempt from insider trading, but since he has been in office, he has kept his investment monies in public mutual funds to remove any taint of pushing through lesilation that would benefit him financially. A Truly Honorable Man!.