According to Pew Research data, public trust in politicians sits near historic lows. Currently, just 24% of Americans trust the government, down substantially from 75% of folks back in the mid-1960s. Maybe that's precisely why today's new breed of cynical social media traders are tracking Congress members' trading activity as a key part of their investment strategy. A growing community of TikTokers regularly call out trades that prominent politicians are making in their personal trading accounts.
- Cynical social media traders are tracking Congress members' trading activity as a key part of their investment strategy.
- Lawmakers passed the Stop Trading on Congressional Knowledge (STOCK) Act in 2012 to discourage insider trading.
- Trades executed by lawmakers or their families must be disclosed within 45 days of execution.
- Academic research revealed that senators' stock purchases underperformed the benchmark during six-month intervals by 17 basis points between 2012 and March 2020.
For instance, username @quicktrades alerted his followers in July that House Speaker Nancy Pelosi's husband had spent $300,000 on International Media Acquisition Corp. (IMAQ) shares, adding, "I've come to the conclusion that Nancy Pelosi is a psychic," in the video's commentary.
Likewise, Chris Josephs released a clip through his @irisapp handle declaring "she knew," referring to a purchase Pelosi's husband made in graphic processing unit (GDU) maker NVIDIA Corporation (NVDA) one month before reports surfaced that the company's chips would be used in a U.S. supercomputer. Furthermore, Josephs told Yahoo! Finance that the Congresswoman's disclosed positions acquired over the pandemic have traded up as much as 20% to 30% since their initial investment.
The STOCK Act
To guard against trading on privileged information, lawmakers passed the Stop Trading on Congressional Knowledge (STOCK) Act in 2012, which prohibits the use of non-public information for private profit, including insider trading by members of Congress and other government employees. Additionally, trades executed by lawmakers or their families must be disclosed within 45 days of execution.
At the time of its passage, then president Barack Obama said that the law would help reduce the trust deficit between Washington, D.C., and the rest of the country. Despite this, many young traders still see politics controlled by the elite, who have a means of accessing information before the general public to engage in insider trading. Indeed, a recent Data for Progress poll revealed that 67% of Americans believe that federal lawmakers should not own individual stocks.
Insider trading is the buying or selling of a publicly traded company's stock by someone who has non-public, material information about that stock.
Are Congress Members Good Stock Pickers?
Performance-wise, academic studies show that members of Congress are not particularly great stock pickers. "Those papers have found that in fact, the trades made by senators have underperformed," said Dinesh Hasija, an assistant professor of strategic management at Augusta University in Georgia, per NPR.
Moreover, a research paper compiled by Dartmouth College that examined government officials’ personal stock trading between 2012 and March 2020 found that Senators' stock purchases underperformed the benchmark during six-month intervals by 17 basis points. Meanwhile, the paper found that stocks sold underperform “insignificantly” after six months, but outperformed the market by 14 basis points, 12 months later.
One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument.
Several recent large transactions may turn the head of prominent TikTok Congress stock watchers, including a sale of between $5 million and $25 million in Microsoft Corporation (MSFT) shares on Sept. 3 filed by Rep. Suzan K. DelBene (D-WA) and a disclosure by Rep. Patrick Fallon (R-TX) of purchases in cloud cybersecurity firm CrowdStrike Holdings, Inc. (CRWD) on Oct. 1 totaling between $100,001 and $375,000.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.