Market: why a hamster can’t trade cryptocurrency

(BFM Bourse) – Mr. Goxx is a trader who has outperformed the S&P 500 or Berskshire Hathaway since he began “investing” in cryptocurrencies at the end of June. He is also a hamster. But he is not a brilliant investor.

No offense to seasoned investors, luck has now been established to play a major role in investing. This is evidenced by several cases of “stock picking”. As early as 1963, Princeton professor Burton Malkiel stated that “a blindfolded monkey throwing darts at the pages of a financial newspaper can choose a portfolio that will fit just as well as a portfolio carefully selected by experts.” “Malkiel was wrong,” said Rob Arnott, CEO of Research Affiliates, in December 2012. “The monkeys are actually much better than the experts and than the market itself,” he added.

An asset management company actually tested this hypothesis by creating 100 portfolios of 30 stocks randomly selected from the 1,000 largest U.S. capitalization companies every year from 1964 to 2010. The results are instructive: on average, 98 out of 100 Monkey Portfolios (with a random “pick of stocks”) outperformed a market cap-weighted index of 1,000 stocks each year.

Another experiment conducted by TradingMarket (a company that provides tools and advice to investors) in 2006 came to the same conclusion. In fact, this company asked 10 “playmates” from the erotic Playboy magazine to choose 5 stocks in a trading contest. Diana Brooks (Miss Playboy in May 1998) won the latter with a solid annual return of 43.4% (versus +13.6% for the S&P), outperforming 90% of asset managers that year. 4 other playmates also outperformed the S&P 500, compared to only 33% of active managers.

Hamster trading cryptocurrency

Luck is therefore the determining factor in the performance of an investor in the stock market, and this is once again confirmed by the latest sensation on the network: the hamster Mr Goxx, whose crypto betting has shown a return of almost 20% since he began trading in June last year.

When he arrives at his office called Goxx Capital (a small box next to his regular cage, the name of which is a reference to the Japanese bitcoin exchange platform Mt. Gox, the market leader before its bankruptcy in 2014), Twitch live streams and his audience (read more with over 7,400 followers on the platform) keeps a close eye on his movements that shape his “investment decisions”. Mr. Gox’s office is indeed equipped with a wheel and two tunnels. The wheel, called the “wheel of intent,” revolves around thirty cryptocurrencies, and one of them is chosen when the rodent descends from it. He can then use one of the two tunnels, which initiates an order to buy or sell – with real money – on the cryptocurrency platform.

The designers of this experiment are German and explain that they started the project “as a hobby”. Mr. Goxx’s owner says he enjoys getting people interested in new technologies, and the other person involved, a programmer, is his best friend. The complex installation (including a single board computer equipped with software, custom-cut parts using a 3D printer, etc.) was carried out by two friends who also plan to add “a lot of features that will make it all much more fun to watch and give Mr. Gox even more opportunities to play.

Performance for perspective

While the experience is indeed amusing, comparisons between Mr. Gox’s work and “star” asset managers like Warren Buffett or Kathy Wood should not be taken too seriously. On the one hand, since they do not invest in the same type of assets, rodents rely exclusively on cryptocurrencies, ultra-volatile assets, when investment companies focus on stock markets. On the other hand, of course, because Mr. Gox has no idea what he’s betting on. His human partners are also keen to emphasize in every tweet that Mr. Gox’s decisions should not be taken as investment advice.

Finally, managers have limits and limitations that are not comparable to this experience. For example, to limit risk, managers cannot have too many stocks in their portfolio and must ensure the liquidity of the stocks they hold. Finally, beyond a certain amount of assets to be managed, managers cannot invest a significant portion, as in the experiments described, of the money entrusted by their clients to certain companies. Simply because these amounts can be much higher than the market valuation of the companies in question.

Quentin Subrann – © 2022 BFM Bourse

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