How To Invest Like a Supreme Court Justice
What John Roberts' portfolio reveals about his character.
Journalists, politicians, and activists are scouring the legal writings of Supreme Court nominee John G. Roberts for insight into potential future rulings, but perhaps another kind of examination would reveal even more about his character. Does Roberts act rationally, or is he hotblooded and emotional? Is he prudent and patient, or a compulsive gambler in search of the next big score? Does he think for himself or follow the herd? Can he manage conflicts of interest? Roberts' legal writings offer only tentative answers to these questions. But his financial records supply clear ones.
To that end, here is a psycho-financial analysis of Roberts.
Roberts' complete financial records are private, but as a federal judge he must file annual financial-disclosure reports. Roberts' financial-disclosure report for calendar year 2003, the most recent one available, is posted here by the group Judicial Watch. Roberts will presumably file more up-to-date materials during the confirmation process.
The financial-disclosure report required Roberts to state his income, reimbursed expenses, financial transactions, and gifts received in 2003, as well as his family's assets and liabilities at the end of the year. Roberts listed non-investment income of just over $1 million from his old law firm Hogan & Hartson. That covered his last five months' work for the firm as well as a payout of his equity interest when he left to become a judge.
More interesting are the Roberts' family assets, which include
46 common stocks
31 mutual funds
four money market funds
three bank accounts
one exchange-traded fund
one real-estate investment trust
one coal unit trust
one-eighth share of a cottage in Limerick, Ireland
The disclosure form doesn't give an exact value for each asset, only a range (i.e., $15,000 to $50,000 or $250,000 to $500,000). At the end of 2003, Roberts' assets were worth as little as $3 million and as much as $7 million. (Given that the stock market has soared since then, the net worth could now be in the $10 million range.) Roberts' most valuable assets were his bank accounts, which held between $1 million and $2 million. (His house in Chevy Chase, Md., is not listed on the form.)
So, what do Roberts' investments say about him? He is rich, but not so rich that the $200,000 Supreme Court justice salary would feel like chump change. Still, he will be comfortable hobnobbing with other capitalists-turned-public servants in Washington (for whom $200,000 is chump change). Roberts benefits or will benefit from virtually all the various Bush tax cuts, from income to dividends to capital gains to estate taxes. His fortune is self-made, which suggests a bias toward self-reliance rather than entitlements and subsidies.
Roberts' one-eighth share of the cottage in Limerick (worth less than $15,000), combined with an investment in the "New Ireland Fund" (also less than $15,000) suggest a possible Gaelic fetish.
Roberts' stock and mutual-fund holdings in 2003 were highly diversified, consisting of domestic and international stocks in multiple industries. In keeping with Roberts' reputation for prudence, the equities consisted primarily of dividend-paying blue chips like Coca Cola (less than $15,000), AT&T (less than $15,000, sold), Merck (less than $15,000), etc. Those who view Roberts as a robotic starched-shirt, however, should note evidence of a romantic-idealist streak: a chunk of XM Satellite Radio worth between $100,000 and $250,000. This bizarrely out-of-character investment suggests that Roberts is either clairvoyant or not afraid to dream: The stock is up tenfold since early 2003.
Also in keeping with Roberts' clean-cut, churchgoing image, his investments did not include companies in vice industries (gaming, drinking, smoking, etc.). If Roberts ascribes to the Peter Lynch-school of amateur investing—buy what you know—one might thereby infer that he is not a chain-smoking boozer who is forever sneaking off to Atlantic City. One might also conclude that he will instinctively frown on rulings that make life easier for gaming, smoking, and drinking companies (Wall Street take note!).
Roberts' stock portfolio is a conflict-of-interest nightmare. If Roberts continues to own all these stocks, he may have to recuse himself from many cases before the Supreme Court. (While in private practice in 2003, Roberts represented 19 states in their antitrust suit against Microsoft. Yet his 2003 financial disclosure form shows Roberts holding $100,000 to $250,000 worth of Microsoft stock.)
On the whole, Roberts' investment choices suggest that his financial character is much like his legal one. In investing, he tends to accept prevailing conventional wisdom—which, in the case of the financial markets, often changes and is often wrong—and to apply it with above-average competence.
For example, to his credit, Roberts does not appear to have made the usual boneheaded mistakes of the late 1990s—assuming that "diversified" meant owning the stocks of eight fiber-optic companies instead of one, for example, or betting his entire 401(k) on one stock. He also does not seem unduly vulnerable to the alternating influences of fear and greed: He did not quit the market in a panic in mid-2003 or bet the farm on Internet stocks in mid-1999 (or, if he did, he jettisoned the evidence). Instead, he maintained a diversified portfolio and, largely, held onto it through thick and thin.
Still, Roberts' investment decisions do not show evidence of the rigorous, summa cum laude analytical skill that he is said to evince on the legal side. Either his own choices—or those of his investment advisers—suffer from common-but-flawed thinking. Roberts' stock portfolio, for example, is actually too diversified: He holds so many positions that the benefits of diversification are likely lost to trading and administration costs (monitoring the well-being of 40-odd stocks is more time-consuming than monitoring the well-being of 10), and the portfolio is so representative of the market that it might as well be the market. A wise investment adviser would tell Roberts to sell all his stocks and buy one low-cost index fund instead.
As for his fund and stock selection, Roberts does show some susceptibility to peer pressure—aka, what the majority thinks is smart at any given time. Positions in Cisco, Time Warner, Dell, Lucent, and PMC Sierra suggest that Roberts did not maintain iconoclastic clearheadedness through the 1990s but instead bought into the "do-it-yourself" stock-picking craze. Similarly, in 2003, when the mass of investors shied away from individual equities, he sold several stocks (at a bad time) and replaced them with funds. Roberts also owns a lot of high-cost, actively managed mutual funds, which suggests blind acceptance of the common-but-erroneous belief that professional investors usually beat the market (they don't). As with the individual stock holdings, Roberts would be well-advised to sell most of his high-cost active funds and add money to his few, low-cost index funds.
Bottom line? Roberts the investor is smart and conservative but, like most of us, prone to following the herd.
Photograph by Gerald Herbert/Associated Press. Photograph of John Roberts on the Slate home page by Mandel Ngan/Agence France-Presse/Getty Images.