Financial

Invest Like The Richest Members Of Congress To Make Big Returns

One of the great things about being a member of Congress is having power. The more power you have, the more influence you have. And the more influence you have, the more money you can make.

Most senators, representatives, and delegates make a salary of $174,000 per year. However, the speaker of the House makes $223,500 per year. And the president pro tempore of the Senate, majority leaders, and minority leaders in the House and Senate make $193,400 per year.

These are healthy salaries that come with fantastic benefits. But in no way do these types of salaries create mega-millionaires out of members of Congress during their time in office. Instead, it’s their outside investments that make them way richer than the average American.

Invest Like Members Of Congress

Given members of Congress know things the average person doesn’t know, it is wise to follow how some of the richest members invest. After all, if you can’t beat them, join them!

It’s like investing in companies that reject you. I was rejected by so many tech companies in 2011 and 2012 that I was able to amass a comfortable nest egg in just those names alone.

In a recent Periodic Transaction Report, House Speaker Nancy Pelosi’s husband, Paul, placed a bet of up to $6 million on Apple, Amazon, Nvidia, and Google-parent company Alphabet ahead of a House committee ruling on regulating Big Tech power.

Paul Pelosi bought 50 Apple calls on May 21 with a strike price of $100 that expire on June 17, 2022. He also bought 20 Amazon calls that have a strike price of $3,000, which also expire on June 17, 2022. 

On June 18, Paul Pelosi exercised his Alphabet call options giving him the right to buy 4,000 shares at a price of $1,200 apiece. The Alphabet call options were originally purchased on Feb. 27, 2020. 

Paul’s strategy of buying well in the money call options is relatively conservative. However, investing up to $6 million in just four names isn’t. Below are their transactions that were disclosed in a filing on July 2.

Regular people do not invest $6 million in call options to buy stock. However, when you are likely worth more than $150 million, as Nancy and Paul Pelosi are, perhaps investing $6 million in call options in just four stocks is no big deal.

Of course, Nancy Pelosi’s office told the media the speaker has no involvement or prior knowledge of these transactions.

Inside Information Is A Grey Area

If you don’t think there’s regular pillow talk between Nancy and Paul, I’ve got an $8 bottle of water to sell you. Oh wait a minute, that’s a bad example because bottled water is a ~$300 billion business!

Whenever you tell a married friend a secret, the vast majority of time, they will tell their partner. So if you never want your secret getting out, never say a word about it!

One of the best ways to get rich is to create a marriage partnership where one partner has power and the other partner has capital. The union of capitalist and politician is perhaps the most powerful combination today for wealth creation. There are plenty of examples from President down to local city government.

Paul Pelosi owns and operates Financial Leasing Services, Inc., a San Francisco-based real estate and venture capital investment and consulting firm. Meanwhile, Nancy has served as a U.S. representative from California since 1987.

With the power to enact legislation, how is it possible for members of Congress not to have inside information? Their staff members are talking to dozens of people from these companies in order to enact proper legislation. From body language to keywords, members of Congress can make inferences.

How Inside Information Gets Revealed

If you play poker, you know there are some tells in a person’s body language without the person saying a thing. Besides marrying a member of Congress, here are some examples of how inside information can be revealed without directly revealing anything.

1) A Leisurely Hit

I was playing tennis with this one guy who worked at Trulia back in 2014. He mentioned they were extra busy due to a potential “partnership.” He didn’t say what, but I figured they were probably going to get acquired since there was a race for market share between Zillow and Trulia. Redfin wasn’t really a contender back then.

Lo and behold, Zillow ended up buying Trulia for $3.5 billion the next week! I didn’t buy the stock, but I could have. And frankly, I’m not sure if I would have gotten into trouble because the guy didn’t tell me anything specific.

Related: Use Poor Pricing Estimates By Zillow And Redfin To Your Advantage

2) Guiding Without Guiding

Let’s say you’re in a management meeting with a publicly-traded company. A C-level executive knows the quarter is going great. But of course, he cannot specifically say earnings will beat estimates.

Instead, the executive says, “We are seeing surprise robust demand from new regions where we previously did no business. These new regions could one day be our main earnings driver going forward.”

From this statement, you can infer your earnings exceptions need to be revised up. And given better-than-expected earnings is usually a strong catalyst for a stock, you buy more stock. Time will quickly tell whether the C-level executive can be trusted.

3) Attending A Party

Let’s say you’re at a mutual friend’s party with unlimited amounts of free alcohol. All of you guys went to business school together so you’re all chummy.

You work at a hedge fund. Your business school classmate is the VP of Business Development at some publicly-traded company. You guys are doing shots for old times sake and having a blast!

At 2 am, you casually ask your buddy, “So how’s business?”

Without telling any specifics, your buddy says, “Business is doing great! We’re planning on expanding into China. To do so, we’re looking to partner up with a local player.”

The next day, you go to work on analyzing who those partners might be in the industry and invest accordingly.

4) A Busy Husband

You’re out getting mimosas at Blue Water Grill with your girlfriend. You ask her, “How are you and Bobby doing?” Bobby is a senior lawyer at a publicly traded company.

She says, “Not too good. Bobby has been working late every night for months because they’re looking to sell one of their subsidiaries.”

Given you tell your venture capitalist husband everything, he goes out and buys your friend’s husband’s company. He knows the subsidiary has been a thorn in the company’s side for two years. Any news of its sale, even at a poor price, will likely push the stock higher.

Of Course Politicians Are Aware Of Sensitive Information

Now that I’ve provided you with some grey area insider information examples, how can you not believe some members of Congress know stock-moving information that you and I don’t.

They are talking to reporters who may trade information from their sources for more access in the future. Politicians are also connected to rich and powerful donors who have various interests. Remember, people are constantly trying to shower politicians with benefits to gain favor.

This constant temptation is one of the reasons why we’ve seen so many politicians fall from grace over the years. If you live in a building that is also home to the world’s best baked cookies, you can’t help but eat some cookies yourself.

In politics, someone always knows something valuable. This information is used as currency for trade or as leverage for something more.

Wealthiest members of Congress

Buy And Sell What Congress Members Buy And Sell

When I first saw the report about the stock options Paul Pelosi had bought, I was pumped! I’ve been a long-time shareholder of Apple, Google, and Amazon. Further, I had bought more during this year’s dip as reported in, How I’d Invest $100,000 Today.

Unfortunately, I failed to buy Nvidia’s stock a couple of years ago, despite attending a house party right behind the CEO’s mega-mansion in San Francisco! The CEO is even Taiwanese. It was a clear sign to buy. Oh well.

You probably don’t want to base all your investment decisions on how the Pelosis invest. However, their track record of building wealth speaks for itself. If you want to get rich, you might as well at least study how the rich invest.

Pay attention to what members of Congress are buying and selling. It’s the same strategy as seeing what some of the best-performing hedge funds are investing in. You can find out by checking their 13F filings online each quarter.

You won’t get the initial benefits, since these people and funds have already bought these securities. However, at least you can use this information to help with your investment analysis.

Instead of getting all bent out of shape about the rich and powerful, think of ways you can benefit as well.

You don’t need to be an investment guru to get rich investing. You just need to identify those who are smart and who have great access. If you have to pay a fee to benefit from their status and abilities, then so be it.

Resist The Temptation To Trade With Inside Info

Finally, it goes without saying that insider trading is illegal. It’s not worth ruining your reputation and your life over money. If you really want to legally conduct insider trading, consider running for Congress instead.

Know the rules. The super-wealthy legally bribe their children’s way into elite private universities by donating tens of millions of dollars for a new building. Don’t go the half-ass route and bribe sports coaches or admissions officers like the parents did in the Operation Varsity Blues scandal. The top brass want their cut.

The rich and powerful operate under a different set of rules from you and me. Consider investing like the rich and powerful or invest in funds run by the rich and powerful.

Related posts:

Recommended Split Between Passive Versus Active Investing

If You Can’t Beat Institutional Real Estate Investors, Join Them

Readers, where is the flaw in investing the same ways as the richest members of Congress? Do you believe the reports that members of Congress don’t know anything more than anybody else?

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Source
Invest Like The Richest Members Of Congress To Make Big Returns is written by Financial Samurai for www.financialsamurai.com

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