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TikTokers Are Trading Stocks By Copying What Members Of Congress Do

Sep 21, 2021
Originally published on September 21, 2021 3:16 pm

Young investors have a new strategy: watching financial disclosures of sitting members of Congress for stock tips.

Among a certain community of individual investors on TikTok, House Speaker Nancy Pelosi's stock trading disclosures are a treasure trove. "Shouts out to Nancy Pelosi, the stock market's biggest whale," said user 'ceowatchlist.' Another said, "I've come to the conclusion that Nancy Pelosi is a psychic," while adding that she is the "queen of investing."

"She knew," declared Chris Josephs, analyzing a particular trade in Pelosi's financial disclosures. "And you would have known if you had followed her portfolio."

Last year, Josephs noticed that the trades, actually made by Pelosi's investor husband and merely disclosed by the speaker, were performing well.

Josephs is the co-founder of a company called Iris, which shows other people's stock trades. In the past year and a half, he has been taking advantage of a law called the Stock Act, which requires lawmakers to disclose stock trades and those of their spouses within 45 days.

Now on Josephs' social investing platform, you can get a push notification every time Pelosi's stock trading disclosures are released. He is personally investing when he sees which stocks are picked: "I'm at the point where if you can't beat them, join them," Josephs told NPR, adding that if he sees trades on her disclosures, "I typically do buy... the next one she does, I'm going to buy."

A Pelosi spokesperson said that she does not personally own any stocks and that the transactions are made by her husband. "The Speaker has no prior knowledge or subsequent involvement in any transactions," said the spokesperson.

Still Josephs views trades by federal lawmakers as "smart money" worth following and plans to track a large variety of politicians. "We don't want this to ... be a left vs. right thing. We don't really care. We just want to make money," he said.

Pelosi is hardly the only lawmaker making these stock disclosures. So far this year, Senate and House members have filed more than 4,000 financial trading disclosures — with at least $315 million of stocks and bonds bought or sold. That's according to Tim Carambat, who in 2020 created and now maintains two public databases of lawmaker financial transactions — House Stock Watcher and Senate Stock Watcher. He says there is a significant following for his work.

"I knocked out a very, very simple version of the project in like a couple of hours. And I posted it actually to Reddit, where it gained some significant traction and people showed a lot of interest in it," Carambat said.

Dinesh Hasija, an assistant professor of strategic management at Augusta University in Georgia, has been studying whether the market moves based on congressional disclosures. His ongoing research suggests that it does.

"Investors perceive that senators may have insider information," he said. "And we see abnormal positive returns when there's a disclosure by a senator."

In other words, Hasija's research shows that after the disclosures are published, there's a bump in the price of stocks bought by lawmakers.

At least one financial services consultant, Matthew Zwijacz, is planning to set up a financial instrument that automatically tracks congressional stock picks, because, in his view, lawmakers are "probably privy to more information than just the general public."

Both investors and government watchdogs are interested in these trades because of the possibility that lawmakers could use the private information they obtain through their jobs for money-making investment decisions.

"If the situation is that the public has lost so much trust in government that they think ... the stock trades of members are based on corruption, and that [following that] corruption could benefit [them]. ... We have a significant problem," said Kedric Payne, senior director of ethics at the Campaign Legal Center.

A surge of interest following congressional financial disclosures came near the beginning of the COVID-19 pandemic, when a flurry of reports indicated that lawmakers sold their stocks right before the financial crash.

NPR reported how Senate Intelligence Committee Chairman Richard Burr privately warned a small group of well-connected constituents in February 2020 about the dire effects of the coming pandemic. He sold up to $1.72 million worth of personal stocks on a single day that same month.

A bipartisan group of senators also came under suspicion, including Sens. Dianne Feinstein, James Inhofe and Kelly Loeffler. After investigations by federal law enforcement, none were charged with insider trading — a very difficult charge to make against a sitting lawmaker.

Congressman Raja Krishnamoorthi, a Democrat from Illinois, is part of a bipartisan group of House and Senate members who have introduced legislation banning lawmakers from owning individual stocks. He has run up against a lot of opposition to the idea.

"As I understand it, one of the perks of being a member of Congress, especially from the late 1800s on, was to be able to trade on insider information. That was a perk of being in Congress. And that has got to come to an end," Krishnamoorthi said.

Polling shows that there is wide support for enacting this prohibition. According to a survey done this year by Data for Progress, 67% of Americans believe federal lawmakers should not own individual stocks.

There's a deep cynicism that forms the foundation of a trading strategy based on mimicking the stock picks of lawmakers and their spouses: the notion that politicians are corrupt and that you can't trust them not to engage in insider trading — so if the information is public, you might as well trade what they're trading.

But despite all the skepticism about politicians and their ethical standards, the evidence doesn't show that members of Congress make great stock pickers. While a 2004 paper found that senators generally outperformed the market, more recent academic studies in 2013 and over the last few years have suggested lawmakers are not good at picking stocks.

"Those papers have found that in fact, the trades made by senators have underperformed," Hasija said.

This means if you ever take a stock tip from a lawmaker — cynicism aside — it might not be a very good trade.

Copyright 2021 NPR. To see more, visit https://www.npr.org.

AUDIE CORNISH, HOST:

During the pandemic, beginner investors jumped into the market, fueled by new apps and widely available data. And they've got a new strategy - taking stock tips from sitting members of Congress. NPR investigative correspondent Tim Mak has more.

TIM MAK, BYLINE: Among a group of retail investors on TikTok, Speaker Nancy Pelosi's stock trading disclosures are a treasure trove.

(SOUNDBITE OF MONTAGE)

UNIDENTIFIED PERSON #1: Shouts out to Nancy Pelosi, the stock market's biggest whale.

UNIDENTIFIED PERSON #2: So I've come to the conclusion that Nancy Pelosi is a psychic and she can guess when a stock is going to pop.

CHRIS JOSEPHS: She knew. And you would have known if you followed her portfolio on Iris. Come do it. I have a group chat going...

MAK: That last voice was Chris Josephs, the co-founder of a company that shows other people's stock trades. In the last year and a half, he's been taking advantage of a law requiring lawmakers to disclose their stock trades and those of their spouses within 45 days. It's called the Stock Act.

JOSEPHS: When Nancy Pelosi started being right on everything, it started with CrowdStrike. Then she made a big - or her husband made big bets on Tesla and then Google.

MAK: In 2020, Josephs noticed that the trades, actually made by Pelosi's investor husband and disclosed by the speaker, were really good. Now on the platform he's created, you can get a push notification every time Pelosi's stock disclosures are released. Josephs plans to track a large variety of federal politicians.

JOSEPHS: We don't want this to obviously be a left versus right thing. We don't really care. We just want to make money.

MAK: A Pelosi spokesperson said that she does not personally own any stocks and that the transactions are made by her husband. She's not the only lawmaker who is filing these disclosures. So far this year, Senate and House members have filed more than 4,000 financial trading disclosures, with at least $315 million of stocks and bonds bought or sold. Both investors and government watchdogs are interested in these trades because lawmakers could use information they get on the job to make lucrative stock decisions. NPR, for example, reported how Senate Intelligence Committee Chairman Richard Burr privately warned a small group of well-connected constituents back in February 2020 about the dire effects of the coming pandemic.

(SOUNDBITE OF ARCHIVED RECORDING)

RICHARD BURR: There's one thing that I can tell you about this. It is much more aggressive in its transmission than anything that we have seen in recent history.

MAK: He also sold up to $1.72 million worth of personal stocks on a single day that February. Other senators soon came under suspicion.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED PERSON #3: Dianne Feinstein and James Inhofe and Georgia Senator Kelly Loeffler allegedly sold off stocks within days of a classified briefing about the coronavirus.

MAK: But after investigations by federal law enforcement, none were charged with insider trading. It's a very difficult charge to make against a sitting lawmaker. James Kardatzke is the CEO of Quiver Quantitative, a data platform which has also started collecting and presenting details from congressional trading disclosures.

JAMES KARDATZKE: Obviously our lawmakers have access to a lot of information that isn't readily available to all of us, and I think it's only natural to assume that some of them may be using that to drive their own investment decisions.

MAK: There's a deep cynicism that forms the foundation for this trading strategy. Politicians are corrupt, and you can't trust them not to engage in insider trading. If the information is public, you might as well trade what they're trading.

RAJA KRISHNAMOORTHI: In this country, people already are deeply alienated from our economic system, and they're increasingly alienated from our political system.

MAK: That's Congressman Raja Krishnamoorthi, a Democrat from Illinois. Along with a bipartisan group in the House and Senate, he has introduced legislation banning lawmakers from owning individual stocks. He's run up against a lot of opposition to the idea.

KRISHNAMOORTHI: As I understand it, one of the perks of being a member of Congress, especially from the late 1800s on, was to be able to trade on insider information. And that has got to come to an end.

MAK: According to a survey done this year by Data for Progress, 67% of Americans believe federal lawmakers should not own individual stocks. But while lawmakers can, the public is taking advantage of the situation. Professor Dinesh Hasija is an assistant professor at Augusta University, and he's been researching whether the market moves based on congressional disclosures.

DINESH HASIJA: We see an abnormal positive returns when there's a disclosure by a senator.

MAK: After the disclosures come out, there's a bump in the price of stocks bought by lawmakers. We even spoke to one financial services consultant planning to set up a financial instrument that automatically tracks congressional stock picks. But for all the cynicism about politicians, academic studies over the last few years have suggested lawmakers are not so good at picking stocks. Here's Professor Hasija again.

HASIJA: Those papers have found that in fact, the trades made by senators have underperformed.

MAK: Which means if you ever take stock tips from a member of Congress, cynicism aside, it might not be a very good trade.

Tim Mak, NPR News.

(SOUNDBITE OF THE BLACK KEYS SONG, "SO HE WON'T BREAK") Transcript provided by NPR, Copyright NPR.