Every few decades, a prodigy emerges with a brilliance so inhuman it boggles the mind. We’re talking A Beautiful Mind times Rain Man to the Albert Einsteinth power. Any individual investor, hedge fund manager, or market analyst will tell you that financial markets are near impossible to predict. Unless, of course, you have insider information.
Former community college psychology professor turned congresswoman Judy Chu is apparently one of these prodigies, and since her election in 2009, she has day traded her way to a lofty $3.5 million net worth. This wouldn’t be surprising unless you take into account the fact that she had to deal with Los Angeles’ high cost of living over her 20-year professorial career, her pension from that career totals between $100,000 and $250,000 (broken down into annual disbursements), and her husband is only worth six figures at best himself.
Well, we may have uncovered a clue in this mystery, other than the fact that she’s clearly a genius and a better day trader than any institution out there. In the article, nine pages of day trades, yes nine pages of them, for ONE MONTH of trading are shown from her filings. Now, this could all be good and fine in the day trading world, but the nature of the trades are very suspect. These trades were calls and puts on not only the S&P 500, but also volatile indexes like the VIX volatility index. In layman’s terms, these are very advanced high leverage, high risk trades. Most brokerages won’t let you trade options at all unless you have a long investing track record with either them or another firm. More suspicious are the sizes of these trades, ranging from $1,000 to $15,000 per trade. Nine pages of high risk, high leverage trades up to $15,000 each in one month. That’s a lot of money to risk.
So, what can we conclude here? At first we could assume that Ms. Chu is simply taking advantage of Congress’ exemption from regulatory oversight in financial markets (which, frankly, is a bullshit benefit). I know if I could legally insider trade, I’d abuse the hell out of it. But even with insider information, her feat of what had to be 60+% compounded annual gains (assuming she was willing to risk the entire value of her pension on day one) is truly miraculous. Obviously if she started trading with less money her compounded annual gain was much, much higher. To give you an idea of how this compares to the pros, billionaire George Soros’ Quantum Fund boasted 30% annual compounded returns over a decade. In other words, Congresswoman Chu’s success just a little sketchy. Then again, she may just be a genius or had some really good insider information. If it’s the former, I’d be happy to invest my entire nest egg in any hedge fund she may decide to start. .
[via Zero Hedge]
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