Like lots (millions, maybe?)1 of people, I was stunned when I came across this tweet:
The breathless exhortation to indignity continues in the thread:
Okay, this looks bad. And to be clear, even the possibility of a perception of a conflict of interest like this is not good, even if there were no bad faith actions. At a minimum, everyone should feel like their representatives would have a hard time using their power to get rich. And part of the reason it’s so important to have stringent controls is how easy it is to create the perception of wrongdoing! Which is what we’ll talk about here.
One of the main selling points in these two tweets is just how much richer Pelosi has gotten: $115m richer! Tripled! I’ll admit, that got my attention, and even persuaded me for a minute. It does not feel like someone should be able to triple their wealth in 17 years, or add $115m to it, without doing some Billions-style insider trading.
But how anomalous is that kind of investment outcome? Typically people think of investments as providing a rate of return. 10% means that if you invest $100, at the end of a year you have $100 * 10% more than you had, so $110 in total, or $100 * (1 + 10%). If you keep going the next year, you have $100 * (1 + 10%) * (1 + 10%) = $100 * (1 + 10%)^2. In general, after N years you have $100 * (1 + 10%)^N.
That’s working forwards. If you want to figure out what the rate of return was, you invert the equation.
Current amount = Original investment * (1 + return) ^ (number of years) Current amount / Original investment = (1 + return) ^ (number of years) (Current amount / Original investment) ^ (1 / number of years) = (1 + return)
Okay, so the current amount = $41m + $115m. The original investment was $41m. The number of years was 2021-2004, or 17. How does this look?
If you plug in the numbers you get a return of 8.18%. This is a great run, to be clear. (And it’s somewhat higher than my tweet about this — not sure where I went wrong on the arithmetic…) But it’s nothing to write home about. In fact, the S&P500 returned 9.5% per year over this period.
This, of course, is just the power of compounding. Practically anyone with investable assets can achieve these kinds of returns by simply investing in broad market index funds.
So, if Pelosi and her husband were insider trading, they didn’t do a terribly effective job at it.
So what point am I making here? Well, first, invest some money if you can; this is as good an illustration as any about the kind of large (relative) gains that are possible for practically anyone. Second, that it’s important to actually plug the numbers from headlines like this into some kind of framework or model, otherwise it’s too easy to get dazzled by large numbers. And third, our lawmakers probably have too much leeway in managing their personal assets, because it’s too easy to see something like the tweets above, and lose all confidence that they have your interests in mind.
I mean, it’s probably millions right? He has 1.6m followers and this tweet got a lot of engagement.
I think your broader point still stands, but they undoubtedly were not able to invest their entire $41M net worth in 2004.
I think the current amount is 115m, so she became ~74m richer, so her returns are even worse.
On the flip side, it's impossible to say there was no conflict of interest, even she made 0 dollars. Decision makers should fave stricter limits on trading, e.g. be restricted to index funds. In Australia, public servants have to follow rules around this, for example logging all trades above a minimum and bans on trades related to companies involved in procurement/tenders (e.g. billion dollar defence contracts).