House of representativesInformation is power, and members of the U.S. House of Representatives sit on a gold mine of it. Their seats on Congressional committees give them an inside view of the companies they regulate through legislation. This can be profitable information to anyone trading stocks -- and it should go without saying that our legislators should not be able to profit from that advantage.

However, statistically at least, it appears that some members of the House have used that information for their own stock market gain.

A Random Walk Down Pennsylvania Avenue

A study published this year, entitled Abnormal Returns From the Common Stock Investments of Members of the U.S. House of Representatives, found that stocks purchased by House members from 1985 through 2001 "earn statistically significant positive abnormal returns."

How abnormally positive are we talking? According to the study, House members outperformed the market by more than six percentage points a year.

Senators, it turns out, are even better stock pickers than both their colleagues in the House of Representatives and professional money managers. An earlier work by the authors of the House study showed that a portfolio made up of the common stocks owned by U.S. Senators between 1993 and 1998 outperformed the market by about 10 percentage points a year. According to the paper, those are "some of the highest excess returns ever recorded over a long period of time, significantly outperforming even hedge fund managers."

Is Deep Throat Giving Hot Stock Tips?

The study suggests that the senators' better return comes not from a higher investing acumen than House members, but from their greater power to affect legislation.

One senator out of 100 will have more relative power than one representative out of 435. And apparently, those senators aren't shy about using their power. In years where direct comparisons could be made, 27% of the senators purchased common stocks, as opposed to 16% of representatives.

Senators also seemed to have better information on when to sell. The reps' common stock investments gained significantly in value even after being sold. But the upward momentum of senators' investments tended to peter out after they sold.

Which Party Gained More?

If you believe that the Republicans have more in common with Wall Street than the other party does, well, surprise! Democrats' investments outperformed the Republicans' in both the House and Senate study. The authors hasten to add that "party affiliation is statistically significant only in the House of Representatives."

They also say that outcome may have more to do with which party is in power during the periods of the studies than anything else. After all, the majority party does get the committee chair positions, and with them, more power.

Significantly, both studies found that seniority plays a role in trading success -- but in a way opposite of what one might assume. The most junior House members and Senators tend to do better than their more senior colleagues. Maybe the juniors are just hungrier than their elders. Or perhaps they just eventually become so powerful that they no longer wish to invite closer scrutiny of their investments. As Alan J. Ziobrowski, one of the authors of the study, told the New York Times, "At some point, it could be that the risk isn't worth the return, if you know what I mean."

Motley Fool contributor Dan Radovsky is not a member of Congress, but he hopes for the same returns.


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stevenmathis123

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July 29 2011 at 7:41 AM Report abuse rate up rate down Reply
chris1011

Bill Maher's new rule:

How about this for a New Rule: Not everything in America has to make a profit. It used to be that there were some services and institutions so vital to our nation that they were exempt from market pressures. Somethings we just didn't do for money. The United States always defined capitalism, but it didn't used to define us. But now it's becoming all that we are.

Did you know, for example, that there was a time when being called a "warprofiteer" was a bad thing? But now our war zones are dominated by private contractors and mercenaries who work for corporations. There are more private contractors in Iraq than American troops, and we pay them generous salaries to do jobs the troops used to do for themselves ­-- like laundry.War is not supposed to turn a profit, but our wars have become boondoggles for weapons manufacturers and connected civilian contractors.

Prisons used to be a non-profit business, too. And for good reason --­ who the hell wants to own a prison? By definition you're going to have troublewith the tenants. But now prisons are big business. A company called the Corrections Corporation of America is on the New York Stock Exchange, which is convenient since that's where all the real crime is happening anyway.The CCA and similar corporations actually lobby Congress for stiffer sentencing laws so they can lock more people up and make more money. That's why America has the world's largest prison population ­-- because actually rehabilitating people would have a negative impact on the bottom line.

Television news is another area that used to be roped off from the profit motive. When Walter Cronkite died last week, it was odd to see news anchorafter news anchor talking about how much better the news coverage was backin Cronkite's day. I thought, "Gee, if only you were in a position to do something about it."

But maybe they aren't. Because unlike in Cronkite's day, today's news has to make a profit like all the other divisions in a media conglomerate.That's why it wasn't surprising to see the CBS Evening News broadcast livefrom the Staples Center for two nights this month, just in case Michael Jackson came back to life and sold Iran nuclear weapons. In Uncle Walter's time, the news division was a loss leader. Making money was the job of TheBeverly Hillbillies. And now that we have reporters moving to Alaska to hang out with the Palin family, the news is The Beverly Hillbillies.

And finally, there's health care. It wasn't that long ago that when a kid broke his leg playing stickball, his parents took him to the local Catholic hospital, the nun put a thermometer in his mouth, the doctor slapped someplaster on his ankle and you were done. The bill was $1.50, plus you got tokeep the thermometer.

But like everything else that's good and noble in life, some Wall Streetwizard decided that hospitals could be big business, so now they're run by some bean counters in a corporate plaza in Charlotte. In the U.S. today, three giant for-profit conglomerates own close to 600 hospitals and other health care facilities. They're not hospitals anymore; they're Jiffy Lubeswith bedpans. America's largest hospital chain, HCA, was founded by the family of Bill Frist, who perfectly represents the Republican attitude toward health care: it's not a right, it's a racket. The more people who getsick and need medicine, the higher their profit margins. Which is why they're always pushing the Jell-O.

Because medicine is now for-profit we have things like "recision," whereinsurance companies hire people to figure out ways to deny you coverage when you get sick, even though you've been paying into your plan for years.

When did the profit motive become the only reason to do anything? When did that become the new patriotism? Ask not what you could do for your country,ask what's in it for Blue Cross/Blue Shield.

If conservatives get to call universal health care "socialized medicine," I get to call private health care "soulless vampires making money off humanpain." The problem with President Obama's health care plan isn't socialism, it's capitalism.

And if medicine is for profit, and war, and the news, and the penal system,my question is: what's wrong with firemen? Why don't they charge? Theymust be commies. Oh my God! That explains the red trucks!

Bill Maher

July 28 2011 at 6:07 PM Report abuse rate up rate down Reply
tebad

Brickhead,
Dude, you need some professional help!
I'm pissed off as well, I have lost everything in this mess,
but you are a little too far gone man!

July 28 2011 at 4:46 PM Report abuse +1 rate up rate down Reply
Frank Ellis

These comments are interesting, but what about the current situation of 535 individuals deliberating causing a 5% drop in the stock market in five days. They knew in advance that they would persist in causing the little stock holder to panic and seel off at a loss. Not much volumn, so the big money is not selling. Knowing in advance that these 535 have agreed to not agree until the market reaches their predetermined level for buying, they are prepared to take advantage of their manipulation when the little folks sell sufficiently to lower the level. Since the volumn is low, it is apparent that small investors are driven by fear, but there are no buyers, because small buyers are fearful, and the big money is waiting on the signal from Congress that the predetermined level has been reached. Right after the volumn picks up, an agreement will be announced and sent for the president's signature. When there are no buyers, the law of supply and demand is the causation driving the prices down to the level predetermined by the gang of 535. There is no greater insider information than the present deliberate knowledge that they would not allow any agreement until reaching their goal of a decimated market and small investor. Any investor who votes for any incumbent merely demonstrates a willingness to cause more stock market havoc during the next term period. When the last investor that can be wrung out by fear has given up, and no one else is willing to sell, the pendalum will reverse. The fraud of news talking up the "problem" to instill fear is part of the power that is conspiring to achieve its own personal financial goals. A finger is on the pulse, and that inside knowledge will ripple through the gang of 535 and its friends when the final pulse dies.

July 28 2011 at 4:18 PM Report abuse +1 rate up rate down Reply
asr3krav

There is no doubt in my mind that OUR representatives in Washington can and do profit from the information they hear while in office. Within this month, I read an article on AOL that called reader's attention to the large number of Senators and Congressmen who have become millionairs after being elected and gone to Washington to represent US. Search out this article;read and weep. The solution is simple and clear. TERM LIMITS ! If term limits is good for the President and Vice President,why shouldn't it be required for our representatives ? New and fresh ideas are needed to guide our representatives. Nowhere in our Constitution is it written that these jobs are for life.However,look at the men standing before the cameras who have already served more than two terms in office.There ideas are old and of another age. Go home,enjoy your ill gained millions and make room for younger,fresher,and patriotic Americans who wish to serve the people of our country. Let's shout for TERM LIMITS. That's the cure to a bad problem !

July 28 2011 at 4:12 PM Report abuse +1 rate up rate down Reply
ironcyde

Dan- This is 1 of te dumbest headlines ever ! You know HD well they do... Why waste our tme when you should have done some good ol' fashioned investigative journalism into HOW they continually get away w/ it... the entire process ! Good god.

July 28 2011 at 4:06 PM Report abuse rate up rate down Reply
goldaxe

SHHHHHHHH........They will write A law that makes it legal,and of coarse give themselves another pay raise.

July 28 2011 at 4:04 PM Report abuse rate up rate down Reply
jenyouwino

"Surprise! Democrats' investments outperformed the Republicans' in both the House and Senate study." Really? Well of course they did. It helps to have some big far left liberal hedge fund tycoon on your side. And now they (both sides to be fair) have profited through predictable political bantering to downside the market, and they will profit equally well on the upside. Why? It's simple. These political maggots know when they are going to sign the debt ceiling deal, and only they know how the weasels at the S&P, Moody's, etc., will respond. That being said, they could be getting ready to short the market further. Would that we knew what is going on behind those "closed doors." It's just way too much power in my books, and as usual, they are extinguishing the middle class in the process.

July 28 2011 at 4:04 PM Report abuse rate up rate down Reply
sf1000000

Well you don't get ants till you open the picnic basket...perhaps as a cost cutting measure, we should stop paying these dirty birds and instead live off the money they earn from playing the market...you live by the sword you perish by it or the stock market in this case.

July 28 2011 at 3:50 PM Report abuse rate up rate down Reply
billdollar

Look, these opportunistic political parasites always take advantage of their power every day with ALL people they come into contact with. The Federal Reserve System makes sure the middle class of America is always squeezed by the rich overlords of Corporate America and the Wall Street Crowd. They game is rigged in their favor and that's how they intend to keep it. Little people always come in last!

July 28 2011 at 3:43 PM Report abuse rate up rate down Reply