Robert T. Miller is a law professor at the Antonin Scalia Law School at George Mason University.
Donald Trump wears many hats as president, but in his second term in office he has repeatedly styled himself as a stock adviser.
In an April post on Truth Social, the president wrote, “Palantir Technologies (PLTR) has proven to have great war fighting capabilities and equipment. Just ask our enemies!!!” For the president to praise a prominent defense contractor such as Palantir might not have been notable by itself. But the post included the ticker symbol for Palantir’s stock. After Trump’s post, the company’s share price rose.
That wasn’t the only time the president has endorsed a particular company or offered stock-trading tips to the public. Companies such as Dell, Micron and Intel have all seen their share prices increase thanks to a presidential promotion. In a social media post last year, the president declared, “THIS IS A GREAT TIME TO BUY,” shortly before he announced a suspension of his widespread tariffs and the stock market soared.
Endorsing individual stocks would be unusual behavior for any president, but in Trump’s case it is notable for a different reason: The president has disclosed owning shares in many of the companies he touts.
But as troubling as it may seem for the president to own shares in a company, praise it and profit from the rise in price, it is almost certainly legal. Nothing the president has done rises to the level of insider trading or market manipulation, the two crimes most associated with stock trading.
With insider trading, a person obtains material nonpublic information about a company that the individual is obligated to keep confidential, then makes profitable stock trades based on that information. For instance, an executive who knows that a company’s earnings will exceed market expectations cannot buy shares ahead of the public announcement to benefit from a rise in share price. Trump is simply broadcasting information to the public and removing any personal advantage that would have been gained from trading on it. If someone has material nonpublic information and wants to trade, they should disclose the information to the public before trading.
The president’s stock promotion could arguably be seen as a form of market manipulation, such as a pump-and-dump. In such schemes, crooks put out positive but false information about a company they control. Crook A then sells some shares to Crook B, who resells them back to Crook A at a higher price, who resells them back again to Crook B at a yet higher price, and so on. This creates the illusion that many people are purchasing the shares at ever-higher prices. Once innocent people start buying, the crooks dump their shares and the market collapses.
That isn’t what Trump is doing. For one thing, most of the president’s statements are, as a matter of law, mere puffery. His general positive statements do not involve any verifiable facts and are not actionable. Market manipulation also requires intentional deception, and as far as the public record shows, the president sincerely believes what he says about the companies involved.
Trump is further insulated by the fact that he isn’t making decisions about buying or selling the stocks he owns. The Trump Organization says the president’s portfolio is “maintained exclusively through fully discretionary accounts independently managed by third-party financial institutions with sole and exclusive authority over all investment decisions.” Many wealthy people, who have better things to do than manage their investments, use such arrangements. The president has prudently decided to do the same.
That doesn’t mean retail investors should look to Trump for stock tips. Securities markets today are so efficient that, after the president says something about a stock, flash traders will act on that information in less than a second. By the time any retail investor waddles in, the stock’s price will already reflect Trump’s advice. If you want to build wealth for the long-term, just invest in the S&P 500 or Russell 2000. That’s what I do.
Still, Trump’s stock posts are a good reminder of the perils of allowing government officials to buy and sell individual securities. Sen. Josh Hawley (R-Missouri) has introduced a bill to ban the practice, naming it after former House speaker Nancy Pelosi (D-California), whose husband Paul is a successful stock trader.
Such a policy would take its cues from some elite law firms, which are regularly privy to large amounts of valuable nonpublic information and prohibit employees from trading individual securities. These bans are easy to enforce and reduce the temptation to insider trade. If public officials were invested only in broad-based index funds, they would find their personal financial incentives aligned with the market generally. As Alexander Hamilton put it in Federalist 72, “the best security for the fidelity of mankind is to make their interests coincide with their duty.”
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