Building Wealth There is a single street in Washington, D.C., just a few miles from Capitol Hill, that has a profound impact on your portfolio's success or failure.
This street isn't highlighted in the tourist guidebooks. Schoolkids don't tour it on their class trips to the nation's capital. But you've probably heard of it...
It is called K Street. And it's the home of some of the world's most powerful lobbyists.
The revolving door between K Street... Congress... and the defense sector... should make you uncomfortable. As a Wall Street veteran and the most skeptical person I know, the size and influence of America's special-interest groups alarm even me.
In fact, lobbying is the single most popular post-Congress career choice for retiring members. As lobbyists, they can earn anywhere from three times their $174,000 congressional salary... to multiple millions of dollars.
More than 7,500 congressional staffers are said to be part of this revolving-door system.
The billions of dollars changing hands in this world is referred to as dark money. But for the companies that pay them, it's obviously worth it.
After all, why do lobbyists get paid so much? They take decision-makers out to lunch, chat about golf and sports, and finish up with a five-minute pitch for their industry. That doesn't seem like much work.
Businesses do work to win customers on their merits. But the government can annihilate an industry with a single rule or regulation.
If you were a management team of a public company, you'd be derelict in your duty if you didn't have operatives in Washington chattering in congresspersons' ears to prevent them from writing a rule that would be disastrous to your business.
Or even better, you could convince them to make rules that benefit you at the cost of your competitors.
Or even better than that, you could book multibillion-dollar contracts from the biggest-spending customer in the world: Uncle Sam.
Then there are times when lobbying pays off in a huge explosion of wealth.
For instance, corporations advocated heavily for a big tax cut in the American Jobs Creation Act of 2004. They spent about $282 million to ply Congress with their arguments for why a tax cut would help the economy.
And when the bill passed, they collectively saved $62 billion in taxes.
That's a return on investment of... 22,000%.
Spending money on K Street makes money for businesses and, in turn, money for investors in those stocks.
One study focused on the lobbying activities of 7,000 firms over nearly a decade. It found that – after adjusting for all sorts of other explanatory factors – companies that lobbied more had higher levels of adjusted income, net income, and cash flows than those that didn't.
Buying stocks of firms that commit to lobbying government officials can make you richer than buying those that don't play the game.
And one of the study's biggest conclusions is that companies that don't lobby heavily are missing out.
It's that good of a deal.
And we are not relying on one study. Politics pays off.
A 2013 study found that $1 in lobbying creates $200 worth of value for the firm.
In 2016, researchers found that pharmaceutical firms that lobby end up with a 67% greater chance of getting drugs approved.
A 2021 study from researchers at Brigham Young, University of Cincinnati, and Columbia showed that $1 spent on political influence returned $20.67 in future earnings.
A 2022 study found that firms with political connections get better government contracts.
Another study from Sparkline Capital compares firms' lobbying spending with the size of the company to create a "lobbying yield." And it turns out that stocks with high lobbying yields outperform the market by 2.3% per year.
If you know about compounding and how money grows steadily, an extra 2.3% will make you much richer over time.
And the situation is only growing. As firms have realized the returns on lobbying dollars, they've continued to pour more and more into lobbying, topping $4 billion in 2022 and likely more when we finish 2023...
Again, as investors, we need to deal with the world as it is, not as it should be.
I recently published a special report for my Retirement Millionaire subscribers where I shared the investment prospects of the four most-lobbied stocks. These are names you know and businesses you patronize, perhaps every day.
But they still look ripe for investment, not just for their role as businesses with political power, but as those that meet all of the strict criteria we apply at Retirement Millionaire.
I also shared the names of three under-the-radar firms that you likely haven't heard of. They don't spend as much as the top lobbyists. But relative to the size of their business, they do put lots of funds into currying favor in Washington... And they've got the government contacts and contracts to prove their money gets results.
In short, there is still plenty of money left to be made. But you must act now...
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Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
October 19, 2023