Ruled By Geniuses!


An interesting tidbit in James Surowiecki's column in this week's New Yorker:

Last year, Alan Ziobrowski, a professor at Georgia State, headed the first-ever systematic study of politicians as investors. Ziobrowski and his colleagues looked at six thousand stock transactions made by senators between 1993 and 1998. Over that time, senators beat the market, on average, by twelve per cent annually. Since a mutual-fund manager who beats the market by two or three per cent a year is considered a genius, the politicians' ability to foresee the future seems practically divine. They did an especially good job of picking up stocks at just the right time; their buys were typically flat before they bought them, but beat the market by thirty per cent, on average, in the year after. By those standards, Frist actually looks like a bit of a piker.

The full study doesn't appear to be online, but here's the abstract. Surowiecki goes on to consider arguments against insider trading laws, but concludes that insider trading ought nevertheless to remain a crime. Brian Doherty took the opposite position back in 2002.