According to a study cited in this blog post, if you played the stock market between 1993 and 1998, chances are you "underperformed" the market by 1.4%. This makes sense. Like everyone else, when you or I buy a stock, we are betting that the stock will be worth more money in the future than it is today, and thus the shares of MegaGigantaCorp that we bought for $1 will pay us $2 apiece when we sell them. But unlike a lot of the other people buying and selling shares of MegaGigantaCorp, we are not professionals who not only spend 28 hours a day watching these companies, their performances and their prospects for success but who also move in circles where rumors about company doings may be spread on a regular basis. In short, we are betting that we know more about money than people who work with money for a living. This is like playing poker against Doyle Brunson after showing him three of your cards, and the average household should be glad it's only a point and a half underwater. It should be noted that this is almost a break-even performance, meaning you would have slightly better luck buying stock by flipping a coin. You could then take all of the time you were using to do market research and spend it more wisely, say by playing Mr. Brunson in online poker. That would also relieve you of the coin you flipped to make your stock picks and greatly simplify your life.
Those corporate insiders who hear the rumors and watch the goings on very closely tended to overperform the market by about 6%. Given the above scenario, this also makes sense. People who do things for a living often tend to do them better than people who dabble in them. I, for example, can climb a ladder, aim a hose and carry someone on my back for a short distance. But if your house catches fire, I should be waaaaay down the list of people you're going to call.
Sometimes we get annoyed with these corporate insiders because it seems like they are taking unfair advantage of the information they know that we don't, and using that advantage to make more money than we do. Unless of course they are our broker, in which case we are annoyed at the restrictive government regulations that prohibit people from doing their jobs the best they can. If we are said government, we are annoyed that there are people in the private sector who do things better than we do. We are therefore annoyed quite a bit of the time.
But not all of the time. Households underperform the market 1.4%, corporate insiders outperform it 6% and United States Senators serving between 1993 and 1998 outperformed it twelve percent. Yes, US Senators did twice as well as those sneaky, underhanded corporate insiders against whom they are the bulwark of protection for us everyday schmoes. Maybe, you say, that also makes sense: "Maybe the members of the US Senate are simply that much sharper and savvier than everyone else, including corporate insiders." To which I say: "Thurmond, Byrd, Inhofe, Burris, Nickels, Dodd, Kennedy, Kerry, Helms, Boxer." And to which I add, "Et cetera."
The excellent senatorial market performance should, of course, be expected, even if not for reasons of excellent senatorial intelligence. Remember, corporate insiders exceed the market average because they know its ins and outs and hear the whispered rumors before they make the news. They know the playing field better. Think how much better, then, a group of people would do if they knew the field was going to change before anyone else knew it, and they were the ones writing the changes.
But you don't have to guess, you can read it plainly: Between 1993 and 1998, they did eight and a half times better than you and me.