The truth will make you sick. Technically it's public knowledge,
but I can tell you -- it's Congress' dirty little secret.
laws don't apply to Congress.
I wish I were kidding.
If this makes you mad, then you don't want to read the Oct. 11,
2010 edition of
The Wall Street Journal.
I'll let it speak for itself...
"Chris Miller nearly doubled his $3,500 stock investment in a
renewable-energy firm in 2008. It was a perfectly legal bet, but
he's no ordinary investor.
Mr. Miller is the top energy-policy adviser to Nevada Democrat
and Senate Majority Leader Harry Reid, who helped pass legislation
that wound up benefiting the firm."
And this isn't some rogue staff member who was fired the next day.
As I said, insider trading is perfectly legal... if you're a member
of Congress or a Congressional aide.
"The Journal analysis showed that an aide to a Republican
member of the Senate Banking Committee bought Bank of America Corp.
stock before results of last year's government stress tests eased
investor concerns about the health of the banking industry.
A top aide to the House Speaker profited by tradingshares of
and Fannie Mae in a brokerage account with her husband two days
before the government authorized emergency funding for the
Another aide to Republican lawmakers interested in energy
issues, among other things, profited by trading in several
I don't know which is worse: The fact that insider trading is legal
for some of our nation's wealthiest politicians... or that Congress
refuses to do anything about it.
"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
Why has it languished?
Apparently Congress is making too much money off the lax rules to
do anything about it.
According to data from the Center for Responsive Politics,
319 of the 535 members of Congress are
. That's 60%.
So much for representation "by the people." And why on Earth would
Congress change rules that have obviously helped them for decades?
But back in the 1960s there was at least a sliver of hope. Think of
it as a "Milk-Bone" Congress threw out to keep the dogs off their
You see, back then, Robert Baker, a senior Senate aide was roiled
in a scandal involving financial gain from a network of vending
He ended up spending 16 months in prison, convicted of
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.
This means we have an opportunity to see exactly what our
"representatives" are buying. And we need to know...
Because according to
, the "Holy Grail of investing has been found: get elected to U.S.
In a study cited by
, 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 think
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
$10,000 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 this in mind, I decided to dive in and see just exactly what
the most popular investments are with Congress...
I'll be honest, 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
Instead, they're large multinational corporations that make up the
bulk of many average investors' portfolios.
I won't keep you in suspense...
But as I said above,
cited a study that suggests members of Congress post returns much
better than average investors.
Insider trading may be legal, but if their most popular holdings
are similar to what many investors own, how is it that Congress can
earn such higher returns?
No one can say for sure, but my research is turning up a few clues.
For one, the average
for an investment was seven years in 1940, according to William
Hutchings of the
. By 2007, the period had shrunk to just seven months.
OK, investors are trading more... so what?
Well, it seems that this higher trading frequency may actually hurt
returns. In fact, by trading less and holding longer you can
your chances of success.
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.
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 much, much higher.
And you can lose a boatload of money in a hurry... as if we needed
a reminder in this market.
In fact, in its worst 1-year period, the S&P 500 dropped 44.8%.
So then is that their secret? Are our representatives buying
well-known stocks and holding them "forever"? It's impossible to
know -- representatives only have to disclose holdings while they
are in Congress. What they own before or after their terms is still
But it could have something to do with it. After all, every one of
the six stocks above has a positive 20-year return. Cisco returned
more than 5,800% over this time. And Bank of America -- despite its
recent problems -- has still delivered a 121% gain during the past
Of course, to actually see those returns you would have stomach the
hard times and avoid selling during rough patches. This may be
easier said than done -- but numbers don't lie.
Congress may have access to information average investors don't,
but there's nothing "secret" about their investments.
Action to Take -->
All the clues point to holding "forever" as the most surefire way
(though not guaranteed) to make money.
: If you want some more evidence for why I think buying "forever"
stocks is one of the best moves you can make -- in any market --
you can read past analysis
. If you'd like to learn more about my
"10 Best Stocks to Hold Forever," visit this
Disclosure: Neither Paul Tracy nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.