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.
If you’re holding elected office or have other regulatory/lawmaking powers you should only be permitted to hold index funds, or preferably you should have to move all your investments into a blind trust. Then there’s little chance you’re benefiting personally from inside info
Down this path is the requirement that politicians be independently wealthy, so that we can require them to earn no money and take no money-related actions, as those all risk corruption.
Is that really what you want?
I kind of think that lawmakers should have to live off of the median income of the area people governed, so that in order to improve their own finances, they have to improve the situation for everyone.
Empathy cannot be forced.
I actually don’t see how this follows
Alternately, strengthen democracy: roll back the clock on money-as-speech, restore fairness doctrine, make publicly financed campaigns the norm, implement RCV (executives) & PR (assemblies), etc, etc.
No that's not down that path at all.
For lots of jobs your ability to trade in stocks is restricted. For example when I worked in the securities division of Goldman there was a restricted list of stocks that I was not allowed to own (because we were publicly doing something for them) and then I had to send all my trades through the employee trading desk because they had another list which was the restricted list where the deals weren't public yet so say we were going to be advising XYZ corp on a potential takeover of MNO corp. Only the people on that deal team would know anything about it, so XYZ and MNO stock wouldn't be on the restricted list but if I tried to buy or sell either of those stocks in my personal account I wouldn't be allowed. And there were other restrictions as well.
When I worked for a software company I wasn't allowed to trade in any stock of any of our clients or prospective clients and I had to sign a thing saying I wasn't going to trade based on any client information that was disclosed to me in the course of doing business with the client. etc
These kinds of restrictions are absolutely normal in business. Additionally, in other countries, politicians don't have this sort of carve-out on insider trading laws. This wouldn't be some kind of slippery slope. For example in the UK, members of parliament have to publish their financial interests to avoid these kinds of conflictshttps://publications.parliament.uk/pa/cm/cmregmem/contents22...
Anecdata to follow. Does this not look suspicious?https://www.threads.net/@quiverquantitative/post/CzcB_jyA_pDThe politician in question is a 69 year old former football coach who bought stock in a cloud-based e-commerce software vendor before the company was acquired, then when the stock spiked 50%, he sold it right away.
Well, if you factor in that he bought his position of > $600K US in multiple buys less than a month before the spike then yes, you might say it was a little suspicious.
What a lucky man.
Turns out US insider trading laws have nothing to do with fairness (even if you aren’t a congressperson).
They have to do with theft. Me trading against you from an information advantage is encouraged! This isn’t an insider trading issue, it’s an ethics issue.
Yes, it is likelyindividualpoliticians are making insider trades.
It isalsolikely that some of those politicians are makingbadtrades based on overvalued or misvalued insider information. I have personally seen this in other contexts where people know something presumed private about a company, assume it’s a bigger deal than it is, and trade on that information.
It’salsolikely that there are a lot of politicians who are generally just as bad as the average person at stockpicking.
All this combined, and it’s reasonable that the overall trend will be mostly in-line with the market, but likely overperforming sonewhat in the long run based on the volume and quality of insider trades. One year and change isn’t the long run.
Kids on wallstbets were buying 100-1 leveraged short dated options paid for with their credit cards on the same stonk for the acquisition.
Are you saying they shouldn't be allowed to buy stock at all?
Because you could cherry-pick any period of time to highlight that they have outperformed the market.
That would be a very reasonable restriction. Anyone who works on Wall Street can only own broad index mutual funds.
It may have changed recently but that's not quite how the restrictions worked on Wall St in my experience (8yrs in the front office at Goldman). There are lots of restrictions to the point where owning broad funds often becomes simpler, but you can do single-stock trades etc if you want to.
See another comment where I explain more but how it used to work for me was you have to trade through the employee trading desk (and aren't allowed to have unmonitored brokerage accounts) then any trade gets vetted against various lists (some but not all of which are available to you ahead of time to protect deal confidentiality) and then there are static criteria about how long you have to hold particular positions etc.
Sure, why not? If they aren't willing to sacrifice that for their constituents, as to reduce any risk of conflicts of interest... I'm not sure they should be in any position of power to begin with. Why not just have their savings/pension in a known, public index fund?
You could, but I'm positive that statisticians much smarter than me have devised a test tunable to any sensitivity one desires. The real question is, "What's our threshold of sensitivity, and what are the FPR and FNRs are we willing to endure?"
Are you saying they shouldn't be allowed to buy stock at all?
There are several jobs that are less powerful and have less conflicts of interest where that is indeed the policy.
Yeah probably not individually.
They could put investment money in like an independent index fundmaybe...? Although honestly there should probably be a "Congressional Investment Fund" that they have to put any stock investment money into that invests equally across all publicly traded companies or something.
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.
A buying strategy that can compete with index funds is pretty interesting, isn't it?
No
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.
2% advantage is huge.
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.
Looks like VFINX returned 8.8% since 2022-05-01. How did you get to 18%?
https://totalrealreturns.com/n/VFINX,VBMFX,USDOLLAR?start=20...
I cherrypicked a day in May 2022 from here that gave something like 14% growth (https://finance.yahoo.com/quote/%5EGSPC?p=%5EGSPC), and IIRC the dividends is like 2% annually
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
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.
May 2022 was peak "we're headed for a recession" dooming
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.
There are significantly better options here, e.g. by moving assets into a blind trust while in office.
Do blind trusts really work?
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?
I'm a big supporter of a forced liquidation, without tax penalties, of all positions upon winning federal election. That would of course dramatically limit the people who pursue public office to you know, only virtuous people who are willing to selflessly sacrifice themselves for the public good.
Those people do exist, we've just configured our electoral system in every way to discourage such admirable behavior.
It doesn't have to be full of opportunistic palm greasing scoundrels, we've just set it up that way.
That would of course dramatically limit the people who pursue public office to you know, only
... people convinced that the graft in office would offset the loss of opportunity from investment gains.
There are actually people that aren't self interested in public service, they do exist.
You can find them at state parks, libraries, museums and schools even. I've met plenty of scientists for instance, that work at universities, places like MBARI and JPL and for the city/county at lower salaries without stock options for the opportunity of public service.
They're real, we just need to get more of them in higher office
There are actually people that aren't self interested in public service, they do exist.
relying on altruism is not what i would call scalable nor stable.
The rules of the system should be such that the optimal/desirable behaviour is also the selfish behaviour. If something selfish or damaging is beneficial to the individual at the expense of someone else, then the rules must be changed to even it back out.
Selfishness is anomalous if the consensus of research literature on the topic is to be believed.
Without dropping volumes of research, you can derive this intuitively. Think about how people respond in disasters. Running into danger to save strangers is common for things like floods or bystanders trying to save someone in a car crash. Prosocial is the norm.
These days extreme selfishness is an indicator of autistic spectrum disorder.
So when you pivot everything around selfishness what you in practice do is reward people with a certain flavor of autism and those who have that learned behavior. For example, Elon Musk, Richard Sackler, Adam Nuemam, Sam Bankman Fried, Elizabeth Holmes, Martin Shkreli, Mark Zuckerberg...
Selecting for those traits exclusively to administer the public commons sounds fairly dangerous
Always fun to scroll hn and get some drive-by ableism. The majority of autistic people aren't in full time work, they probably don't resemble that remark.
Of course not. There's a really big difference here.
On the one hand, asd people are everywhere including in positions of power.
However, if you had a system which, by design, considers a subsection of asd people as the only ones qualified to hold power, you would be missing out on the contributions of everyone else which we should be including, you know, as a virtue of democracy.
To circle back around, the premise that people are fundamentally selfish is what's being rejected. The reality is (some small minority of) people behave in ways that might be considered fundamentally selfish and they've been thoroughly studied by behaviourists and psychologists.
There are actually people that aren't self interested in public service, they do exist.
Sure, I'm one of them.
If you think that for the subset of public service that constitutes "electoral politics", that cutting people out of the opportunity to have investment income while in office is going torestrictoffice holding to those people, than you are, well, hopeliessly naive. Compared to the status quo, you'll eliminate some good people who would have been happy enough putting their investments in a blind trust and not been acting out of conflicts with their own investments, and you'll eliminate some people for whom the ability to serve their own investments was a deciding factor, but there's all kinds of corrupt interests that don't rely on having investments in ones own name that people pursue in politics.
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.
i think thats the point?
better than favoring just a few stocks you have insider info on...
There's a huge difference between the occasional company getting the occasional boost when some individual lawmaker or a small group of them can finagle something good for a company compared toevery single lawmakerbeing aligned and wanting certain companies that they all agree on to succeed over others purely because it's beneficial for them and not necessarily because the market views them as better or the general public benefits.
A free market is a system that's based on emergent behavior. As we see time and time again, even the best and most useful and narrowly focused regulations that are beneficial when first implemented need constant review to make sure they aren't later doing more harm than good. Carving out a big chunk of the market as likely to get special behavior regardless of the normal inputs and outputs could outright bedisastrous, IMO.
It actually would be worse. It would distort the entire market...
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.
An even more radical proposal:
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.
It's called VTSAX
What about state and local gov employees?
Unfortunately the stock market is not (reflective of) the economy? It seems reasonable to force them to diversify nonetheless.
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.
@dang, can you change the display for (threads.net) to be like twitter, where it shows the username to the right of the post title?
For example, threads.net/@quiverquantitative
Typing "@dang" does not actually do anything. Write to the mods using the Contact email at the bottom of the page.
Completely unrelated by I just wondered if GP knew that “@“ doesn’t have any functionality but used as a sort of etiquette symbol.
I figure most people on HN know that @dang doesn't do anything and it's shorthand for "dang, if you happen to be reading this, [...]".
But... howdowe know that @dang doesn't do anything?
Dang himself says to send in an email. I never wrote down the address though...
Again, it's the Contact link at the bottom of the page here.
It seems pretty dang useful to me to make it clear when you're referring to the username.
As a non-American, I always read that 'dang' as the moderator, and then it takes a second.
Relatedly, I was here many years before I realised (via that NYT or WSJ or whatever it was profile) that it's 'Dan G'!
I thought I saw dang comment once that they wrote a script to find those mentions.
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
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.
at the same time let's remove the immunity of politicians and prevent long terms that keep people in office until they die.
prevent long terms
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.
Long term politicians are not adverse either to lobbying. On the contrary they are even more likely to be corrupted like a ripe apple exposed to the sun for too long
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.
Is there a legitimate argument for keeping this legal and not pursuing an expansion of existing insider trading laws?
What existing insider trading laws?
Because the people in charge of changing it are getting rich.
Why would they change it?
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.
This is my tweet, thanks for sharing!
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.
Pass it into chatgtp see what it comes up with.
Now that it’s multimodal you can pass it the photo and it will probably output whatever data you want.
Heh, yeah, whatever you want indeed. I wouldn't trust it...
Where do you get the data?
You should track how their returns compare to indexes
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.
How does one get this information about congressional trades?
Does the following thing they make you acknowledge mean you can’t use this to pick stocks?
“It is unlawful to use the information contained in these Financial Disclosure Statements for (A) any unlawful purpose, (B) any commercial purpose, other than by news and communications media for dissemination to the general public, (C) determining or establishing the credit rating of any individual, or (D) use, directly or indirectly, in the solicitation of money for any political, charitable, or other purpose. See 5 U.S.C. app. § 105(c)(1),(2). In conformity with 2 U.S.C. § 104e(b)(3), certain personally identifiable information in these reports, not required to be disclosed, has been redacted.”
It definitely doesn't fall under (C) and (D). I'd have to stare harder at insider trading laws, but probably doesn't fall under (A) either. (B) might prohibit you from building an index fund based on it, but I think you should be able to do the stock picking yourself.
The, literally, million dollar question. Self-reported data success means nothing to me without this
If you're interested in the ability to search by stocks and information on how individual trades are performing:https://www.quiverquant.com/congresstrading/
If you're interested in the source data:https://disclosures-clerk.house.gov/FinancialDisclosurehttps://efdsearch.senate.gov/search/home/
One year is nothing, let's see how it does over 20 years and 50 years.
Maybe there is years of data available on that?
If so, someone should do an analysis of how much politicians pocketed since then.
it is probably hard to do because the data is hard to obtain or analyze in the correct context
Also the bill that required the trades to be made public is only 11 years old.
I’ve looked into this- basically when the congress member purchases or sell stock they have a month or so before they have to report it. It makes live trading impossible. But it is interesting to go back and see who knew what , when.
Do they have to report the actual day of the trade? It seems possible to backtest their trades too.
From what I remember, no, just that it was executed, and within 45 days of the transaction being completed, or 30 days if notified, and only for trades > $1,000.
So you only know that within the last 1.5 months a trade was executed for any particular representative
Really ought to be the other way around - they have to declare purchases a month in advance.
not very useful. no comparison of S&P 500 and it stops in early 2023 and starts in 2020. a 3 year backtest that ends in early 2023 and ignores the bull market that began in 2023 is enough to prove anything.
The post says “The market has been flat during the same time period.”, which is not true.
The market was roughly flat between when the strategy went live (in may of 2022) and when the post was made.
The backtest goes back further though, which is what is shown in the graph. Could be improved by having a line on the graph showing when it went live.
Am I missing something? This threads post was made yesterday. Is there a different “end date” mentioned that I’m not seeing?
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...
tweet is no longer a trademark?
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.
Better headline: Algorithm discovers deep corruption in Politics.
Algorithm discovers stock market has volatility and you can cherry pick returns based on historical dates pretty easily
Sure XD mines more fun.
This is super interesting. The delay between the transaction and the disclosure may not be much of a handicap if lawmakers are making the purchases far in advance of the events to come. Has anyone run a historical backtest of this strategy?
It is hard to run a backtest when the actual strategy cannot be explicated precisely. For example, you would need to know the size of the account/capital. Just saying that a congress person sells $1 million of microsoft is useless unless you know when it was purchased how much capital total etc.
That shouldn't be hard, we have historical stock market data that we can use. The strategy would enter/exit positions on the day that the disclosures were released, see if it beats the market.
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.
3 years is not far enough to draw any meaningful conclusion and it abruptly ends in early 2023.
3 years is plenty if the sharpe is high enough (it probably isn’t, but GP’s comment about volatility of returns is important here)
I still don’t understand why elected officials trading on non public information can’t be considered a intelligence breach
My unpopular opinion is that I think politicians trade on non-public info much less often the the average netizen thinks. There are high profile or notable cases, yes. But I'm talking in general. Pelosi for instance recently traded Roblox in size. What kind of info could she possibly have about that. But Twitter was up in arms about it.
The obvious thing to do from a policy perspective is simply require investing in index funds with sales scheduled well in advance. C-suites and bankers have to do it, why let politicians even give the appearance of corruption.
Honestly, I'd be shocked if HFT firms hadn't integrated all this knowledge into their algorithms ages ago, removing any potential alpha. More likely I think is just that the market has gone up significantly since May 2022, and good stocks disproportionately do very well in an upmarket. For instance, QQQ, is up 31% in the same time period.
If this were true you would expect an announcement effect for disclosures. Testable.
Just over a year is not very long to draw conclusions
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.
Wait, this guy threw $100 million at the congress bot? Or is this paper trading?
That’s not super impressive stochastically speaking just saying
I wonder how big the difference would be if the politicians close associates had to report their asset portfolios. I'm willing to bet there is a lot of "tips" being spread and favours repayed as a form of laundering.
Sam Altman is right. Ai will break capitalism. Trust is the foundation of human storytelling.
You could have a fund based on representatives called the 435 Index.
That’s a pretty crappy return vs index
Separately, retail investors also outperform the S&P on average:https://www.wsj.com/finance/stocks/who-you-calling-dumb-mone...
The average individual-investor stock portfolio has risen about 150% since the beginning of 2014, according to investment research firm Vanda Research, which began tracking the data nine years ago. That beats the S&P 500’s roughly 140% during the same period.
Markets up 16% over same time range.
Did something similar for Malaysian stock market (bursa) and got ~26% since August. I think this is probably much more effective in corrupt countries.
(Our politicians and inside traders don’t disclose stuff obviously but there are signals that indicate an inside trade based on warrant stocks)
That is almost 3X to 4X times higher returns than most bonded investment managers.
Kind of sad really, but it is easy money for that 3% high-risk section of a portfolio =)
If this isn't just luck, and it's based public and obvious information, why wouldn't the effect already be priced in by large firms trading on it?
This is running on info that's about 30 days behind politicians' trades. If it was running on, say, info that was only 24 hours behind, how would it have done?
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