By Paul Tracy
The truth will make you sick.
Congress is rich. Unbelievably rich. According to data from the
Center for Responsive Politics, 249 of the 535 members of Congress
are millionaires. That's 47%. By comparison, about 5% of American
households are worth more than $1 million.
And until just recently, insider trading laws didn't apply to
Congress. They could buy or sell investments based on non-public
information they learned from their privileged positions.
As you would expect, that's led to some great returns for
Congress' investments. 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 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.
I even wrote about this problem back in July 2011, after doing
research into how -- and in what stocks -- Congress invests.
Then, in late 2011, 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
"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
"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
And that was just one example of what was happening on both
sides of the aisle.
The report from 60 Minutes led to a frenzy. And a few months
after the story aired, the Stop Trading On Congressional Knowledge
(STOCK) Act, which curbed insider trading by Congress, was signed
Of course, for many years the rules required all members of
Congress (along with some of their higher-paid aides) to publicly
disclose information on their finances every year -- including
Thankfully, the STOCK Act strengthened this requirement. 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.
But what may surprise you is that the most popular stocks owned
by Congress aren't exclusive investments only being bought by the
Take a look...
The table above shows the most widely held stocks owned by
Congress in 2010 (2011 data hasn't been published yet). Keep in
mind this was before Congress passed the STOCK Act...
As you can see, each stock on the list is a major corporation.
So how is it that Congress can earn higher returns owning some of
the most well-known companies on the planet?
As I've shown you, it's very likely Congress has helped
themselves for years by trading on non-public information. But I
think there is likely another reason why Congress is outperforming
You see, some of the best returns for politicians, based on
their own financial disclosures, come from owning well-known,
profitable businesses for the long haul.
Take Representative Lloyd Doggett (D-TX). According to financial
disclosure statements, he's owned a stake in
Procter & Gamble (
since at least May 2000. And he still owned a stake as of his most
recent disclosure filed in 2011. In that time, the U.S. experienced
two recessions, two wars, and high unemployment, yet Procter &
Gamble's total return during that period is over 140%. For
comparison, the S&P 500 gained less than 10% during that
And it's a similar story with Representative Jon Kyl (R-AZ), who
bought shares of
Wells Fargo (
in May 2001. He still holds a stake in the company today. Over that
span, Wells Fargo has returned about 75% -- despite the problems in
the banking sector. That's more than triple the S&P's return of
Now, there is no definitive answer as to how long the average
Congressman holds a stock. But in my research, holding for the
long-term seems to be the rule for Congress, not the exception.
And the simple fact is, the longer you hold an investment, the
more likely you are to make money.
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). Their study went all the way
back to 1950.
And every one of the six stocks listed above has a positive
20-year return. Cisco returned more than 2,500% over that time. And
General Electric -- despite being over 100 years old -- has still
delivered a 480% return over the past two decades.
That's not to say every stock will automatically go up simply
because you hold for a long time. But owning great businesses --
and letting their returns grow year after year -- looks to be the
best way to make money in the market... even if you're a member of
Paul Tracy does not personally hold positions in any securities
mentioned in this article. StreetAuthority LLC owns shares of PG in
one or more if its "real money" portfolios.
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