Earlier this year, Senate Majority Leader Bill Frist told the trustee in
charge of managing his stock portfolio to sell all of his shares in
Hospital Corporation of America, the giant company founded by the
Senator’s father and brother. Just two weeks after the shares were sold,
H.C.A. announced that its earnings would not meet Wall Street
expectations, and the company’s stock price tumbled almost nine per cent.
Frist, it happened, had got out pretty much at the top, and his continued
connections to H.C.A.—his brother, for instance, is on the company’s
board of directors—raised the possibility that he’d been tipped off.
Frist is now the target of a probe by the Securities and Exchange
Commission, although he insists that he did nothing wrong, and that he
sold the shares to defuse concerns about potential conflicts of interest.
Frist’s colleagues in the Senate, meanwhile, have remained noticeably
quiet about the affair. Perhaps that’s because he’s far from the only
senator to demonstrate uncanny investing smarts. 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.
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