It's hard to find a calculator/data source that takes dividends into account, but it looks like if you bought an S&P500 index fund in May 2022 you'd be up around 18% depending on which day you purchased. So not very dramatic IMO
And if you bought it a few days later (on June 13, 2022) you would be up 20.5% today even without dividend reinvestment. Trying to derive meaning from stock returns over such short periods is meaningless due to the inherent volatility of the market.
The point is not if the politicians did better than they would have with another investing approach. It's a standard conflict of interest: the appearance of insider trading is corrosive because others see it and figure it's "how the game is played." So they need to do the same to keep up.
If the 'other investing approach' is a broad market index like the S&P 500, where is the 'appearance if insider trading'?
GP's point is that they could be almost entirely in the S&P500, with some minor innocuous deviation (tracking error, frankly!) and it would look the same. So this isn't really suspicious at all.
Sure it's a US-focussed index, but isn't that you want from your politicians? (Outsider perspective here fwiw.) It'd be worse if they were some foreign country's politicians where the markets at home had done poorly and they'd basically tracked much better performing US index.
You could say it doesn't matter and they need to avoid even the appearance of impropriety, and I would agree. However, it seems clear that the entire point of this particular trading bot and the project is in fact whether politicians did better than another investing approach.
2% is huge if it's consistent and replicable thru both good and bad market conditions. Idk if you can say that's the case based off of this data. If you tried a dozen different strategies, I bet a few of them could outperform the market for at least 18 months.
Only if it has uncorrelated returns and/or lower volatility than the index strategy.
Buying stocks at random has the same average return as buying the index, but has higher volatility and highly correlated returns. Buying at random doesn't "compete" with index funds.
Not necessarily. If my strategy is "pick 500 big companies, and buy shares weighted based on market cap" and it ends up mirroring the S&P500, I haven't done anything interesting.
It also allows you to search for trades by stock, instead of needing to parse through thousands of disclosure forms.
I do want to mention one weakness of my data, which is that I don't currently parse hand-filed disclosures. Most politicians do electronic filings, which are easy to scrape, but some still file by hand. Working on a solution for that, which should hopefully be live before too long.
What is the lag between the trade and the public disclosure ? My guess pretty long so probably fairly useless data.
[edit] The tweet's one example shows a month for that particular example "This came after purchases of up to $115K of $LMT by Representative Scott Franklin on September 12th, which were disclosed on October 11th."
So can't see how building a trading bot that trades on information at least a month old even if info at the time was good would give any big advantage. This strategy is going to be fairly useless imo over the long term even if you assume the politicians trading was better than the overall market.
Sure it does. It allows dang to search posts for his name without getting results that conflict with the actual word dang. Plus it's pretty common usage in places and your eye is drawn to that allowing you to recognize it's a name and not just a word. Pretty useful where people use handles and not actual names. I mean yeah, HN isn't a "smart" website, but I wouldn't say the @ doesn't do anything
Radical proposal: Rather than trying to police leakage of insider information,
level the playing field for both politicians and fed employees by
creating a dozen or so national mutual funds of at least 1,000 equity positions each that intend to model the US economy as a whole. Anyone can invest in them, but all US Federal employees and immediate family members are required to liquidate all other positions and hold only national funds. If the economy and funds do well, all federal folks profit. Distribute fund management among multiple fund management firms.
I think that much of what you propose is already enacted in practice, at least for many federal employees who are not political appointees, etc. Elected representatives are another matter entirely.
Many federal employees do in fact have to limit what securities they can purchase or hold. For example, if I recall correctly, patent examiners cannot hold more than $20,000 in investments for an industry that they examine patents in, and they cannot hold more than $10,000 in stock for any company they may examine patents for. The guidance tells them to prefer index funds that capture the entire market rather than individual companies or sectors. This is explicitly to prevent conflicts of interest. If you are high up enough in these federal positions (without having to be a political appointee), you even have to complete a financial disclosure form (SF-714), and people do check these things for potential conflicts.
That said, many federal employees invest heavily in TSP funds, most of which are managed by BlackRock, so your last point about distributing them among multiple fund managers is not true in practice, since I imagine most federal employees have their investments heavily in funds managed by BlackRock.
Wouldn't that just incentive those people to always favor the items in that fund, therefore providing an advantage to anything that makes in on the fund?
Given two competitors in a market, what if the existing but inefficient one is in the fund but the new one that is trying to shake thing up and/or do a better job is not? You might see a lot more protectionism, and not just against companies of other nations, but against our own new best companies.
Yeah, I've always been a little sceptical of plans to limit their holdings. I think in some ways they actually worsen the incentives.
If you were limited to GM and Ford, would you want a Tesla or Rivian to exist? If you were limited to K-Mart, would you want Wal-Mart to exist? If you limited to Sears, would you want Lowes, Home Depot, and Best Buy to exist?
Basically any restriction that can be imagined would incentive various other bad behaviors that might actively be anticompetitive.
What do you mean by "immediate family"? That usually means spouse, parents, children, and siblings. Sometimes also grandparents and grandchildren.
If you mean something like that then your proposal seems overly restrictive. I don't see any point in say the USGS not being able to hire a seismologist they want to hire because the seismologist can't convince his brother to sell his Microsoft stock and his adult daughter to get rid of her Apple stock. Nothing that seismologist would be able to working at USGS is going to influence those stocks, nor is his work going to provide him with any inside information.
Okay, make that spouse instead, because spousal immunity. Also, make the funds' holdings temporarily blind: a fund does not reveal the entirety of the holdings in its portfolio until 5 years after year-end, and waits 3 months after the closing of a position to reveal that it held XYZ, Inc. during a 37 month period. The idea is not to try to exactly match "the economy" with "the market" or even with "the funds" but to disincentivize politicians making any direct connection between their work and with individual equities, while still being able to benefit from general economic growth.
Even more radical proposal: Make this restriction on senior corporate officers. Your salary can depend on how well the company does, but your investment portfolio depends on the broader market.
I mean, as long as we're using investment restrictions for social engineering.
There's no restrictions on insider trading, except that the disclosure requirement is immediate (upon trade execution) and non-anonymous. AKA, the price of a stock is reflective of the information available - and any insider that tries to take advantage of such information will necessarily reveal it the nano-second they make the trade.
The two graphs have visibly quite different volatilities. A number like 20% is not meaningful unless you also somehow state the risk, eg in terms of volatility or beta or other measures.
Taking the poster by their word they do a good job highlighting the delta between a politician's transaction and their disclosure of the transaction which seems to have about a month delay.
I personally really really struggle to trust the data represented in these tweets (err threads?) after the barrage of day-trade influencers we've seen in the last few years.
Would be interested to see a peer-reviewed version of this experiment...
this guy posts on tiktok, Instagram, etc... two times a day. just sell a service that buys stocks based on monthbold data about senators disclosure forms but he sells it like he has some special information.
Is there a legitimate argument for keeping this legal and not pursuing an expansion of existing insider trading laws? The incentives here are horrifically backwards.
I've yet to see any good evidence that Congress is outperforming the market due to insider trading. Even if they were, I don't think that the net loss of a few million dollars in market efficiency is such a terrible sin, especially when you consider how terrible they are at their jobs. I find it much more concerning that they're spending half their time fundraising rather than actually doing their jobs.
It is a quandary. Some pols burrow in and never go away, to the detriment of the people they're supposed to be serving.
On the other hand, term limits just empower lobbyists, who don't have them. You think capture is bad now, just wait until all elected officials are perennial novices at the game.
Can you clarify what you mean by "this"? Being able to copy the trades of politicians or politicians making trades that are almost instantly profitable?
Why in the world would somebody be complaining about the first one? Obviously the second one is a long standing, often talked about issue and is what they mean. Don't play dumb.
The S&P 500 is up around 16% over the same period, without counting dividends. With dividends, you’d be at around 18%. So… this strategy isn’t particularly impressive unless it can continue this trend over several more years.
Readit News
https://totalrealreturns.com/n/VFINX,VBMFX,USDOLLAR?start=20...
Edit: tweaking your link to May 11 gets it up to 14.8%, and I'm not sure if it's just using the opening price or the lowest of the day
GP's point is that they could be almost entirely in the S&P500, with some minor innocuous deviation (tracking error, frankly!) and it would look the same. So this isn't really suspicious at all.
Sure it's a US-focussed index, but isn't that you want from your politicians? (Outsider perspective here fwiw.) It'd be worse if they were some foreign country's politicians where the markets at home had done poorly and they'd basically tracked much better performing US index.
Because you could cherry-pick any period of time to highlight that they have outperformed the market.
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Buying stocks at random has the same average return as buying the index, but has higher volatility and highly correlated returns. Buying at random doesn't "compete" with index funds.
If anyone is interested, I built a dashboard that tracks the performance of individual congressional stock trades here:
https://www.quiverquant.com/congresstrading/
It also allows you to search for trades by stock, instead of needing to parse through thousands of disclosure forms.
I do want to mention one weakness of my data, which is that I don't currently parse hand-filed disclosures. Most politicians do electronic filings, which are easy to scrape, but some still file by hand. Working on a solution for that, which should hopefully be live before too long.
So can't see how building a trading bot that trades on information at least a month old even if info at the time was good would give any big advantage. This strategy is going to be fairly useless imo over the long term even if you assume the politicians trading was better than the overall market.
For example, threads.net/@quiverquantitative
Many federal employees do in fact have to limit what securities they can purchase or hold. For example, if I recall correctly, patent examiners cannot hold more than $20,000 in investments for an industry that they examine patents in, and they cannot hold more than $10,000 in stock for any company they may examine patents for. The guidance tells them to prefer index funds that capture the entire market rather than individual companies or sectors. This is explicitly to prevent conflicts of interest. If you are high up enough in these federal positions (without having to be a political appointee), you even have to complete a financial disclosure form (SF-714), and people do check these things for potential conflicts.
That said, many federal employees invest heavily in TSP funds, most of which are managed by BlackRock, so your last point about distributing them among multiple fund managers is not true in practice, since I imagine most federal employees have their investments heavily in funds managed by BlackRock.
Given two competitors in a market, what if the existing but inefficient one is in the fund but the new one that is trying to shake thing up and/or do a better job is not? You might see a lot more protectionism, and not just against companies of other nations, but against our own new best companies.
If you were limited to GM and Ford, would you want a Tesla or Rivian to exist? If you were limited to K-Mart, would you want Wal-Mart to exist? If you limited to Sears, would you want Lowes, Home Depot, and Best Buy to exist?
Basically any restriction that can be imagined would incentive various other bad behaviors that might actively be anticompetitive.
better than favoring just a few stocks you have insider info on...
If you mean something like that then your proposal seems overly restrictive. I don't see any point in say the USGS not being able to hire a seismologist they want to hire because the seismologist can't convince his brother to sell his Microsoft stock and his adult daughter to get rid of her Apple stock. Nothing that seismologist would be able to working at USGS is going to influence those stocks, nor is his work going to provide him with any inside information.
I mean, as long as we're using investment restrictions for social engineering.
There's no restrictions on insider trading, except that the disclosure requirement is immediate (upon trade execution) and non-anonymous. AKA, the price of a stock is reflective of the information available - and any insider that tries to take advantage of such information will necessarily reveal it the nano-second they make the trade.
I mean, with the amount of corruption, would it not be possible to get all info from the trust and give decisions, one way or the other?
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I personally really really struggle to trust the data represented in these tweets (err threads?) after the barrage of day-trade influencers we've seen in the last few years.
Would be interested to see a peer-reviewed version of this experiment...
It is a quandary. Some pols burrow in and never go away, to the detriment of the people they're supposed to be serving.
On the other hand, term limits just empower lobbyists, who don't have them. You think capture is bad now, just wait until all elected officials are perennial novices at the game.
Why would they change it?
What existing insider trading laws?