How was Nancy Pelosi able to get 150% return on her stock portfolio?

Insider information was required but insufficient

Perfect knowledge of the future does not have infinite value.

Suppose you knew to-the-penny how much three different stocks would be one month from now. The "value" of that information has value only if the performance of "best" of the three stocks is better than the market average. If all three stocks were "dogs", then the information has zero or negative value.

In that sense, insider-information is limited. To get really eye-popping results there needs to be more than just insider-information.

High-cost producers can produce the highest returns

That is counter-intuitive, isn't it. So it requires a bit of explanation.

Suppose you want to invest in gold and have three choices. You can purchase 10 ounces of gold for roughly $27,000 or you can buy $27k of mining stock in a company that is very efficient and can produce gold for $1000 an ounce or you can buy stock in a company that is a high-cost producer and it costs them $2600 to produce an ounce of gold.

Now, let's say the price of gold goes up by 33% ($900 an ounce). Your return on the physical gold (not including brokerage fees and spreads) is $9000.

The profits of the mining company that was efficient went from $1700 per ounce of gold produced to $2600 per ounce and the company stock likely increased by a similar percentage...so your $27k investment returned about $14k.

The profits at the high-cost producer went from $100 an ounce to $1000 per ounce and since (in our simplified model) the price of the stock also increased by a factor of ten. Your $27k turned into $270k.

So how does Nancy Pelosi come into the discussion?

One year, Nancy Pelosi's stock portfolio returned about 150% which was the average + 12 standard deviations. The odds of that randomly happening is somewhere along the lines of the heat-death of our sun happening next week.

One plausible explanation for how that could happen would be if she not only happened to have "insider" or prior knowledge but she (or her minions) purposely directed Federal contracts (perhaps through narrow language that forced a single bidder) to high-cost producers.

Frequently, the high-cost producer is hobbled by excessive fixed-costs due to obsolete legacy facilities, bloated management and antiquated labor agreements. As their market-share and volume decreases, the fixed costs do not. Producers who have excessive amounts of fixed costs (sometimes called "overhead") are exquisitely sensitive to changes in volume. Decreases in volume are very painful. Increases in volume...like a large Federal contract...cause an explosive growth in profits and stock prices.

So...legislators are doubly motivated to pump business to dying-dinosaur companies: Both to secure the votes of legacy employees with comfortable contracts and paychecks, but also to lard their own personal wealth.

Let me repeat: Legislators are not bound by the Sarbanes-Oxley Act so they free to avoid insider-trading laws that us peons are bound to obey. That means that they can generate astronomical returns and personally profit when they funnel Federal business to the LEAST efficient supplier.