Investment Lessons from the President and the Supreme Court

Politics is one of those topics many of us avoid discussing at family meals. We know it can lead to disagreements and ruin a perfectly enjoyable evening. Another topic usually avoided in polite company is money, a subject that can also lead to disagreements. But, there are many times these two topics merge into professional discussions since political decisions can affect financial markets and determine how much money investors earn.

Politics and money also come together in disclosure statements that reveal what might be the richest group of Americans own. Members of Congress, senior congressional staff, Cabinet members, the president and vice president and Supreme Court justices are required to file annual reports disclosing their personal finances.

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  • These forms record earned and unearned income, assets and related transactions, liabilities and other information about finances of the office holder along with their spouse and dependent children in many cases is reported in broad ranges.

    This information is always interesting because it offers insights into the wealth of a group of individuals with access to better than average financial advice. America is a land of opportunity and wealth and about 1% of all Americans are millionaires. In Congress, that number is usually between 40% and 50%. With so much money, politicians will generally have the ability to use investment managers that are inaccessible to Americans of average wealth. Those required disclosure forms give us insight into what their advisors are telling them to do.

    To start reviewing the finances of politicians, we will look at the President and members of the Supreme Court this week. We’ll look at investment trends of Senators and the members of Congress in a future post.

    According to Forbes, President Donald Trump has an estimated fortune of $3.7 billion, mostly in real estate. Trump also holds liquid investments worth as much as $170 million, including millions of dollars’ worth of stock. This represents a small portion of his wealth which is mostly in real estate but the stocks he owns are generally safe.

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  • According to the disclosure forms he filed last year, Trump owns anywhere from $500,000 to $1 million worth of shares in Citigroup, JP Morgan Chase , Wells Fargo, Morgan Stanley and Goldman Sachs. The forms group assets in broad categories and do not provide precise values but these are significant stakes, even for someone of Trump’s wealth.

    Another stock he owns in the financial sector is Berkshire Hathaway, which seems surprising given Berkshire chairman Warren Buffett’s frequent criticism of Trump. This demonstrates that although Trump does respond to criticism, he is willing to put his emotions aside in pursuit of profits.

    Trump also owns shares of Ford Motors shares (worth up to $1 million) and as much as $2 million worth Apple. His portfolio also includes Google, Pfizer, Merck, Celgene and GlaxoSmithKline; retailer Walmart; consumer goods firms Procter & Gamble and Johnson & Johnson; and multinational oil companies including Shell, Chevron, Exxon Mobil and Phillips 66.

    Among the less well-known companies in Trump’s portfolio are Kinder Morgan, a pipeline company looking to complete projects connecting the Canadian oil sands to Vancouver, British Columbia. Trump also has a small investment in Canadian energy company TransCanada, the developer of Keystone XL pipeline. Other

    Canadian holdings, include $500,000 to $1 million investments in the Bank of Nova Scotia and Toronto Dominion Bank and $1 million to $5 million worth of shares in the Royal Bank of Canada.

    Based on his financial disclosure statement, Trump appears to be a conservative investor. He owns multiple companies in a sector, seeking diversification, and seems to emphasize income. His equity investments may be intended to offset the risks and illiquidity of his real estate investments. The emphasis on income makes sense given the numerous financial setbacks Trump has faced.
     Several Supreme Court justices are also rather wealthy. Three of them hold significant investments in individual companies’ stock.

    Chief Justice John Roberts holds stock worth $250,000 to $500,000 each in Time Warner Inc. and Microsoft Corp., and smaller investments in other technology and communications companies. He is more aggressive but may have a great deal of knowledge about these companies related to his time as a corporate lawyer.

    Roberts has an estimated net worth of about $7 million. This makes the investments in these two companies worth a significant portion of his net worth. He has investments of similar sizes in bond funds and an international stock fund. All told, Roberts has more than $4 million invested in 42 different stocks and mutual funds. While his large positions seem to carry a large amount of risk relative to the size of his wealth, he is well-diversified, although his mutual funds holdings include several funds with higher than average expense ratios.

    Justice Samuel Alito is also well-diversified. His net worth is estimated to be at least $7.5 million and he reported 96 stocks and mutual funds worth at least $3.4 million. His largest holdings are money market and short-term bond funds which are free of potential conflicts of interest for a judge, an important consideration for a member of the Supreme Court. But, any mutual fund can shelter the Justice from a conflict of interest.

    Alito also owns relatively small positions in a number of stocks. He reports positions in Boeing, CR Bard (his largest holding with up to $350,000 worth of shares) Du Pont, Jacobs Engineering, Johnson & Johnson, Kinder Morgan, Merck, Oracle, PNC, Proctor & Gamble, Schlumberger and Wells Fargo.

    Overall, we are again seeing a well-diversified and conservative portfolio. In this case, it’s reasonable to question whether or not Alito is too conservative. But, he has unparalleled job security, a guaranteed pension and the ability to make money from speaking opportunities that can support him in retirement if he chooses. Alito, and the other Justices, may be unique among investors in that they have no need to consider a need a growth in their investments.

    Justice Stephen Breyer has an estimated net worth of about $12 million, making the wealthiest member of the Court. His largest position, worth more than $1 million, is in British media and education company Pearson PLC. Breyer’s wife is part of the family that founded the company.

    Breyer reported 51 mutual funds and stocks worth at least $5.6 million. His individual stocks include Cisco Systems, IBM, EMC, Sysco and United Technologies.

    In reviewing the holdings of President Trump and three of the wealthiest members of the judiciary, we see a preference for large cap stocks and conservative investment styles. They seem to be focused on using their equity investments to preserve wealth rather than building wealth. This could be a reasonable perspective given their financial circumstances.

    The most important lesson from this review may be that stock market investments need to support a comprehensive financial plan. These are wealthy individuals and they don’t appear to be taking aggressive positions because they don’t need to grow wealth to support their retirement plans or to fund their children’s college education. They also seem focused on risk and may be actively seeking to reduce risk by avoiding concentrated positions.

    Would their plans work for most of us? Probably not. But there are important lessons we can learn from them.

    Most of us need to grow our wealth and secure income streams that can support retirement. We should, like wealthy political leaders, diversify. This could mean avoiding stocks in the sector we are employed in and maintain minimal exposure to the stock of the company we work for. That avoids the potential problem of losing a job and nest egg all in one day.

    We also need to be sure our investments support our financial plan. If we want growth, mimicking Trump’s portfolio will be a disappointment. But, we can see the value of duplicating his process and ensuring we won’t lose everything if one economic sector crashes.

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