Explore Harvard's Nieman network Nieman Fellowships Nieman Lab Nieman Reports Nieman Storyboard

Senators who play the stock market do very, very well

ASK THIS | March 10, 2006

A study from the 90s showed that about one-third of U.S. Senators were investors, and as a group they enjoyed an abnormal rate of return. Is it time for an update?

By Morton Mintz

Q. (for U.S. Senate candidates): If elected (or re-elected), would you invest in individual stocks, including those that fall directly under the jurisdiction of committees on which you serve?

Ted Stevens, the senior Republican in the Senate, who has represented Alaska since 1969, invests in dozens of individual stocks, including telecommunications and technology companies within the jurisdiction of the Commerce Committee, which he chairs.

In contrast, Richard Lugar of Indiana, a Republican senator for 28 years who chairs the Foreign Relations Committee, decided on entering politics in 1967 that "holding individual stocks was incompatible with public service. Lugar invests only in diversified mutual funds, and each year releases a balance sheet of his assets and liabilities that goes well beyond what is legally required."

The quotes are from "An Ethics Quagmire / Senators Beat the Stock Market-and Get Rich-With Insider Information," in the January 1, 2006, issue of The Washington Spectator. The writer, Max Holland, also reported:

"According to a study conducted by four business professors, in any given year between 1993 and 1998 roughly one-third of all senators played the stock market, and those who did enjoyed an ‘abnormal’ rate of return, meaning they out-performed the market.

“Senators consistently anticipated movements in stock prices: they often purchased stocks just before prices took off like a rocket, and revealed an uncanny ability to sell just when a stock was about to flatten out.

"For some perspective, the authors of the study (university professors Alan Ziobrowski from Georgia State; Ping Cheng from Florida Atlantic; James Boyd from Kent State; and Brigitte Ziobrowski from Augusta State) compared the senators' performance with that of two groups. The first is the investing public: 66,465 randomly selected households in the United States that were studied in 2000.

This group under-performed the market by approximately 1.4 percent annually from 1991 to 1996. The authors also compared the senators' performance with a 2001 study of corporate insiders during the period 1975 to 1996. This group beat the market by about 6 percent annually—lending credence to the old Wall Street adage that you rarely go wrong if you buy and sell when the insiders do.

"Yet being a corporate insider, and presumably trading on the basis of privileged information, apparently pales next to being a senator. The Ziobrowski et al. study found that senators (including their spouses and dependents) outperformed the market by around 10 percent annually.

"'Nobody gets results like this in the financial world consistently and over the long term,' notes Professor Tom Ferguson, who studies money in politics at the University of Massachusetts-Boston. Any manager of a mutual fund, in fact, who regularly beats the market by as little as two percent annually is considered an investment genius."

QUICKEST way to riches
Posted by Mike Mahr -
03/16/2006, 12:42 PM

The quickest way to get rich in America is to join a criminal organization, and the safest, surest and QUICKEST way to riches is to become a member of the most powerful criminal enterprise in the country, Congress.

The NiemanWatchdog.org website is no longer being updated. Watchdog stories have a new home in Nieman Reports.