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Hey there, it's the NPR Politics Podcast. I'm Tamara Keith. I cover the White House. And today we want to highlight some reporting from our friends over at The Indicator from Planet Money about how lawmakers are making money from the stock market. Our own Deirdre Walsh has been following this story for months and joined up with The Indicator team to talk about it in June.
This is The Indicator from Planet Money. I'm Waylon Wong. And I'm Darian Woods. And we have NPR's congressional correspondent Deidre Walsh with us today. She's dialing in from the House of Representatives. Hi, Deidre.
Hey there. Deirdre, the stock market is on a tear right now. And you reported this story that caught our attention about a company that partnered with a financial firm Subversive to allow everyday people to invest like members of Congress. Right. So this was initially created by a trader who calls himself Unusual Whales. Love the name. He has created two separate ETFs. Exchange traded funds. Right. That are modeled on ETFs.
the trades by members of Congress. So he's using publicly available forms, disclosure forms by these lawmakers or their spouses and dependent children's trades
to model one ETF called Nance, which is modeled on Democratic lawmakers' trades, named after former Speaker Nancy Pelosi. So casual. Nance. And another ETF called Cruz after Republican Texas Senator Ted Cruz. Very good. To show how the two different parties' investment strategies are working in the market.
Darian, today on the show, you and I are going to invest in these two exchange-traded funds, as in these funds that track a range of different companies. One of us will go with Nance, comprising companies held by Democratic members of Congress, and the other will go the Cruz direction, companies held by Republicans. And as we do this, we'll also consider whether politicians should even be allowed to play the market. So, Deirdre, how do you think we're going to do? I don't know.
I think you're going to do really well based on the past experience of these funds. Well, past performance is no indication of future performance. No, no, I think we're going to get rich, Darian. If you can't beat them, join them. Support for NPR and the following message come from SimpliSafe Home Security.
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No matter the placement, Squarespace AI makes it easier to go live, stand out, and succeed online. Use code NPR to save 10% off your first purchase of a website or domain. All right, so Waylon, I now have here the Planet Money Investment Fund.
It's a very sophisticated jar. Oh, there's actually stuff in it? Because, you know, the Planet Money stock trading experiments have not gone that well in the past, let's just say. Yeah, the origin was in 2010 when the Planet Money team bought a toxic aspirin.
Needless to say, that didn't go so well. Okay, should we count out how much we have to fritter away on this new experiment we're doing? Invest, invest, not fritter. We have $50, $60, $73, $74, $75, $76, $77. $77.
And I say a quarter and a dime. Nice. $77.35. That's a great amount of capital to start with. Now, this should be enough to buy these exchange-traded funds that are based on Congress members' trading.
As we're taping now, one share of Nance, or N-A-N-C, is going for a little over $35 a share. And then Cruz with a K, K-R-U-Z, it is almost $30. Okay, now Darian, there's one quarter in the jar, right? I can do a coin flip for you to figure out which one of us will invest in which ETF. Heads for Nance, tails for Cruz, okay? All right.
It's heads. Okay. I have the Nance approach and cruise for you. And cruise for me. So we'll each buy one share and we'll check back in a week to see how we did. Wait, Waylon, what did we actually invest in? Yeah. So I'm just taking a scroll through this portfolio. I'm looking at what's in the cruise ETF and the
The biggest category of holdings is actually oil and gas. So almost 11% of the cruise ETF is in oil, gas and consumable fuels. I'm going to look at the Democratic one on the NANC ETF. I'm seeing oil, gas and consumable fuels is actually 0.65%. So...
Basically zero. Really? Less than a percent? Oh, gosh. Very little. What about software? Yeah, mine is 6.2%. Mine is 17.5%. What? Really? So Democratic...
Congress people love software, but Republicans less so. Oh, that's really interesting. Yeah. And on the Dems list, I also see pharmaceuticals, retail, insurance. Yep. Same here. Investments all over the economy. Well, I'm feeling good about my investment because the trading based on Democratic lawmakers and their families is up 10%.
20% in the year to mid-June. And that's about five percentage points more than the S&P 500, which is a reasonable proxy for the overall U.S. stock market. Cruz hasn't done as well. Those Republican lawmakers' trades are on average up only 9%, not as good as the stock market as a whole. But regardless, this raises the question of whether politicians are using inside information to
profit from the stock market. Yeah, Josh Graham-Lynn is the CEO and co-founder of Represent Us, which is an anti-corruption advocacy group. And he does not like the status quo. Members of Congress who are serving the American people simply shouldn't be in a position to trade individual stocks. Josh?
Josh supports a bill to ban this trading. And, you know, because all bills just have to have an acronym. An acronym? Yes, this is an acronym that actually spells out a real word. This one is called the Ending Trading and Holdings in Congressional Stocks Act or the Ethics Act. Very clever. Now, Josh is OK with members of Congress investing in funds where they're tracking an overall rise in the markets.
just not trading individual companies. I don't think anybody wants to limit members of Congress from making investments and having a positive retirement ahead of them. It's when there's a perception of conflict of interest or perception of insider trading that
That's what's really damaging to both Congress's credibility and the American people's trust in our political system. Just 16% of Americans surveyed by the Pew Research Center say they trust the government to do what's right just about always or most of the time. Oh, geez, that's really low. 16%. Not so good. And with the stock trading they're doing...
It would be good to know the reality. Like, are politicians systemically making outsized gains on their stock trading? Short answer is no, absolutely not. Bruce Sassadote is a professor of economics at Dartmouth College, and he and his co-authors tallied all the congressional trades from 2012 to late 2020.
On average, they do average. You know, stuff that they sell sometimes goes up. Stuff that they buy goes up, down. And in our paper, they, as a group, underperform. Bruce is not saying corruption in regards to trading never occurs. It just doesn't appear to be systemic. He finds even the top 1% of traders don't look any different from stocks randomly picked, like the proverbial monkeys throwing darts at a dartboard.
Now, Bruce didn't test monkeys with darts, but he did test reindeer. Actually.
actual reindeer. Yes. Bruce and his college student co-authors did some further research where they literally went to a Christmas-style theme park called Santa's Village, and they got reindeer to pick stocks by walking on pages of the Wall Street Journal. So they used the point of the hoof to decide which stock they were buying. Wow. So you actually did this. I was reading the paper, and I wasn't sure if this was just a Christmas parody, but you actually got the reindeers to pick stocks?
Absolutely. And, you know, some of my favorite parts of the paper where we point out that they exhibit herding behavior and that they're good at sniffing out new trends. I feel like Bruce temporarily turned into a zoologist. Are we talking about investors or animals? Look, he always wanted to study biology, but his parents made him study economics.
But, you know, Bruce does say there is a serious point here. The reindeer outperform the Congress people and the senators on average, especially in a finite time horizon. And a couple of good picks dominate everything. And that point might carry over to the recent conversations about congressional leaders doing so well, because you have this idea that, well, maybe Nancy Pelosi is really killing it in NVIDIA and other tech stocks.
But you have to ask yourself, OK, is that really inside information or is it that she represents a district that has a lot of tech companies? And when tech companies are doing well, she and her husband, Paul, are doing well. So we asked Josh, the advocate for bans on congressional stock trading, whether this kind of evidence made him rethink his position. I don't think so. I mean, think of it this way.
If you had an NBA player who was bad at rigging the rules in favor of their team, would you still let them rig the rules in favor of their team? Of course not. Maybe this ethics bill would protect Congress people from their own bad stock pick. That would be a funny outcome.
That was Darian Woods and Weilin Wong from The Indicator from Planet Money. Suffice to say, the value of those funds has changed since that episode aired. Around midday Wednesday, the Cruz Fund was trading at about $30, and the Nance Fund was up at about $37. We'll be back in your feeds tomorrow with the weekly roundup. I'm Tamara Keith. I cover the White House. Happy Fourth of July, and thanks for listening to the NPR Politics Podcast. ♪
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