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A bite sized discussion on timely financial news and investment topics, to help you maximize your net worth and wealth for the next generation with Justin Dyer and Mena Hanna of AWM Capital.
Justin Dyer: Hey everyone.
Welcome back to another episode
of A-W-A-W-M Insights, excuse me,
already, uh, tripping on my words.
Um.
I'm your host, Justin Dyer, CIO
of a WM, capital, alongside Mina
Hana, portfolio manager here.
Uh, we're gonna jump right into it today,
kind of doing a free flowing conversation
of a, of a little bit of a spicier topic.
It could be, um, and we'll
see, we'll see where it goes.
So, uh, topic of conversation today
is, does it make sense to copy.
Trading activity of politicians.
Um, you know, of course we're
gonna start this conversation quite
simply and then see where it goes.
Let's see what the data says.
So Mina, jump right in.
When you unpack it all, get beyond
the headlines that are often
attention grabbing in incre,
especially in this polarized world.
What are we actually looking at here?
And there's probably a number
of ways to slice and dice
Mena Hanna: this.
Yeah.
Yeah.
There's a number of ways to look at this.
I think it's misrepresented in a
lot of settings where you see, oh,
Nancy Pelosi is outperforming the
s and p 500 since 2020 by 300%.
That is, that is a fact.
Okay.
Um, so.
Is there some egregious
performance difference?
Yes.
Now I just wanna put a massive
asterisk and, and caveat and, and
say that there's a caveat there
when you're actually looking at
implementing a trading strategy.
You kind of have to have like
all three things, all three main
components of what I'm gonna go
through working in your favor.
One, you have to have a strategy
that actually makes money.
Something that like this seems
to be a winner in the green.
The second thing that you have
to be able to do is implement it
and actually extract the money.
In a situation like this, and this is
probably something that you'll never hear
on the news, politicians can place trades.
They only have to report trades
in a 45 day window of time.
That is light years in.
The market's eyes.
That is a ton of time and from the point
that actually the trades are made to,
to, when people find out about them, the
stock prices typically changed a lot.
There's probably some insider
information and trading and your
expected gain is kind of erased.
So even though here we don't even have to
get into step three, but even though here.
You do see something that could
potentially make money the way that the
system is set up kind of prevents you
from being able to extract that value.
The last part I'll just get into it
is, is this a repeatable process that
I actually trust on a go forward basis?
And I would argue in this situation,
it's also a no so lot there.
Um, but this is something that you
can't kind of trust your life savings
Justin Dyer: Yeah.
And I would even even expand on what
you're saying, um, a little bit as well.
The, the delay in actual activity
to reporting is, is vast,
especially in terms of market.
Yes.
You're saying in some cases
there's evidence of, uh.
Mena Hanna: uh,
Justin Dyer: Of outperformance,
but the assumptions there are huge.
When did the trade actually happen?
It could have happened
anytime in that window.
So that's number one.
And it could go both ways, right?
Markets move incredibly fast.
Uh, and you, you even look at some of
these tracking products today, kind of
cut cutting to somewhat of a punchline.
They've actually out underperformed
and so, um, it's not.
It's not just what you're saying, right?
Where there's evidence of
outperformance, there's, there's
evidence of, of underperformance.
More broadly speaking, you can, when
you take a, a kind of a, a, a wide
range of participants, um, and you
look and it, and it, and it spans
political parties, you see some positive
performance by someone like Nancy
Pelosi over what, the last five years.
But if you go to a website,
unusual Whales, who started this.
This conversation really, um,
through the end of 2024, over a
one year period, a 12 month period.
Uh, there's quite a few
Republicans on here as well.
So like, you're gonna, the,
the short, the short of it is
you're going to see outliers.
I in a.
Population we're talking about.
I think there's something north of like a
hundred or close to 120 Congress members,
Congress, people who, who actually trade
stocks or traded stocks within the last
12 months or 24 months, within the most
recent period of time, let's just call it.
Uh, and you're gonna
see some who outperform.
You're gonna see some who underperform.
But to your point, is this a
strategy that can be replicated
accurately going forward?
The short answer there is no.
There's a number of different
reasons for it, right?
Whether it's because we're not actually
getting good data on what's happening.
Mena Hanna: It's too late.
Yeah.
Justin Dyer: too late first
and it's too late, right?
Uh, and then.
You're also the, the, the
magnitude of the activity is crazy.
We've, we've filled, I've filled
these out for, for clients in the
past where you're going through these
questionnaires, like you're saying,
oh, what was the size of the trade?
It's like one to 10 million or
one to $10,000, 20 to 50, right?
There's all these crazy ranges.
And so how do you, how do you,
uh, actually accurately guess what
the weightings of the trading is?
It's almost.
Impossible to, to really do that.
Then if you look at more rigorous, I
would say, academic, um, studies, which
I'm kind of referencing in some of
these comments, at the end of the day,
you look at the population as a whole.
I kind of hit hit on this,
the academic studies show.
They underperform as a
group, so it's not wise.
But then, uh, we can go through the
data of, of the two big ones Yeah.
That are in the market right now.
Mena Hanna: Yeah.
The real life data.
So, uh, these products, there's a, a
Democrat and Republican ETF both released
in February of 2023, so we've had two and
a half years to see how they've performed.
The, the Democratic one is
called Nancy, which is Yeah.
Clever ticker that has returned 83%.
Um, over that span of time, the NASDAQ
has returned a hundred percent, so
it's underperformed by around 17% and.
Of the elements that you highlighted
around the lag times, as well as
also fees, uh, you're paying a
lot more for these ETFs than you
would be for a standard fund.
Um,
just those erode your returns.
Justin Dyer: so little.
I question for you may, uh, not
to put you on the spot, but are,
I would imagine there's more
turnover in these vehicles as well.
So tax efficiency is much lower than
you would we would otherwise want.
And so not only the outright fees,
like the hard fees of the expense
ratio and whatnot are higher,
but the tax drag is also probably
substantially higher when, when new
reports come out, which is again due.
Degrading fee or degrading performance as
Mena Hanna: well.
Yeah.
And you actually probably won't
see that in these numbers.
You'll see that when you actually end up
filing your taxes at the end of the year.
So it's an even bigger hit than
what we're, what we're looking at.
Um, so that's, that's
that ETF, the G-O-P-E-T-F.
Remember the NASDAQ returned a
hundred percent, returned 46.7%,
so you got less than half the return.
There's 53% deviation in performance
over this period of time.
And yeah, it's like, yeah,
it's, it's a big loser.
You lost a lot of money if you
invested in this ETF thinking that
you're gonna make money and you're
gonna outperform the market now.
This is, uh, an argument that I'm
going that I, I've heard a lot.
Um.
It's that, well, you should kind of look
at November 1st as a different window.
Since the House, the Senate, and
obviously our president are all
on the same political party, so
theoretically and conceptually.
The G-O-P-E-T-F should do better?
Nope.
It's still the worst performing
ETF over that period of time.
It's returned around 6%.
The NASDAQs returned 13.7.
The s and ps returned 8.7.
So even in the shorter
windows of time where.
You do have kind of tailwinds or what you
would think would be tailwinds to help
a certain political group outperform.
It just does not show up in,
in the dollars and in the data.
Justin Dyer: Yeah.
Awesome.
Yeah.
Well, uh, hopefully this casts
some, some light or shed some
light on this, uh, this, yeah.
Very reasonable question, but
look, at the end of the day when
you look at the data, guess what?
This does really just prove
to become one of those.
Another attention grabbing headlight
grab, grabbing type strategy
to make companies like unusual
whales, a little bit more money.
It becomes an asset gathering
game and you, you really
have to look a layer deeper.
Don't let your biases, whether they
be on one side of the political
spectrum or the other, don't let them
influence your long-term discipline.
Right?
What do we say?
Vote at the ballot box,
not with your portfolio.
It's definitely the case here.
Look at the data, rigorously,
understand what's going on, and then,
you know, compare it to the tried and
true methods of building compounding
long-term, multi-generational wealth.
And, uh, you know, unfortunately,
or fortunately, this, this
question, this, this, uh, this
specific topic is, is no different.
Mena Hanna: Yep.
And just one last thing to add.
You know, things change over time.
The legislation is probably gonna change.
We had a situation with the Federal
Reserve where trading restrictions
were placed on Federal Reserve
members, and it's kind of been bounced
around that potentially politicians
are not going to be able to actually
trade in the same ways, or they're
gonna have more restrictions, which.
Will probably hurt their
performance even more.
So, yeah, when, when we're thinking about
actually building a portfolio that's
proven to succeed in different periods
of time and also has an ongoing reason
for outperformance, you can't really
base your investments on something that
can change and deviate so drastically.
Based on a changing law or changing
sentiment in general, it's, yeah,
it's a lot more complicated than just
copying what everyone else is doing
and, and yeah, cashing your check
Justin Dyer: the bank
100%.
If it sounds too good to
be true, it usually is.
Uh, all right, with that we'll wrap up.
Hopefully this was informative.
If you're at all curious, um, we're happy
to go deeper on this topic or others.
Uh, you can text Mina.
He'll give his number in a sec.
Um.
But yeah, we, we love the feedback,
we love the questions, we love the
interact interaction so we can talk
about things that are both interesting
to us, but interesting to you, all our
Mena Hanna: listeners.
Yeah, shoot me any questions
that you might have if they're
political or not political.
Happy to field all questions.
My number's 6 2 6 8 6 2 0 3,
Justin Dyer: 5.
Yeah.
Awesome.
Cool.
Until next time, own your wealth,
make an impact, and always be a pro.