(BFM Bourse) – Mr. Goxx is a trader whose performance has outperformed that of the S&P 500 or Berskshire Hathaway since he started “investing” in cryptocurrencies at the end of June. He’s also a hamster. But he is not a genius investor.
No offense to seasoned investors, it is now established that luck plays a major role in investment. Several experiences of “stock-picking” attest to this. As early as 1963, Princeton professor Burton Malkiel claimed that “a blindfolded monkey throwing darts at the financial pages of a newspaper could select a portfolio that would do as well as a portfolio carefully selected by experts.” “Malkiel was wrong” then declared 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.
The company specializing in asset management has in fact tested this hypothesis by creating 100 portfolios of 30 stocks chosen at random from the 1,000 largest American capitalizations, and this each year from 1964 to 2010. The results are edifying: on average, 98 of the 100 “monkey” portfolios (with random “stock-picking”) have outperformed the market-cap-weighted index of 1,000 stocks every year.
Another experiment carried out by TradingMarket (company providing tools and advice to investors) in 2006 came to the same conclusion. This company had in fact asked 10 “playmates” from the erotic magazine Playboy to choose 5 stocks as part of a trading contest. Diana Brooks (May 1998 Playboy Miss) won the latter with a solid annual return of 43.4% (against +13.6% for the S&P), outperforming 90% of asset managers that year. 4 other “playmates” had also posted a performance superior to that of the S&P 500, against only 33% of active managers.
A cryptocurrency trading hamster
Luck is therefore a determining factor in an investor’s stock market performance, and this is further confirmed with the latest sensation on the net: the hamster Mr Goxx, whose bets on cryptocurrencies have shown a return of almost 20% since it started trading last June.
When he arrives at his office called Goxx Capital (a small box next to his usual cage, whose name refers to the Japanese bitcoin exchange Mt. Gox, market leader until its bankruptcy in 2014), a live Twitch launches and its audience (more than 7,400 subscribers on the platform) follows its movements carefully, these determining its “investment decisions”. Mr. Goxx’s office is indeed equipped with a wheel and two tunnels. The wheel, called the “wheel of intention”, revolves around around thirty cryptocurrencies and one of them is selected when the rodent descends from it. He can then use one of the two tunnels, which triggers either a buy or sell order – with real money – on a cryptocurrency platform.
The designers of this experiment are German and explain that they started the project “as a hobby”. The owner of Mr. Goxx says he likes to get 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 the two friends, who also plan to add ” lots of features that would make the whole thing a whole lot more fun to watch and give Mr. Goxx even more room to play.”
A performance to put into perspective
While the experience is indeed amusing, comparisons between Mr. Goxx’s performance and “star” asset managers like Warren Buffett or Cathie Wood should not be taken too seriously. On the one hand because they do not invest in the same type of assets, the rodent betting exclusively on cryptocurrencies, ultra volatile assets, when investment companies focus on the equity markets. On the other hand, of course, because Mr. Goxx has no idea what he is betting on. His human partners are also keen to emphasize with each tweet that Mr. Goxx’s decisions should not be taken as investment advice.
Finally, managers have limits and constraints that are not comparable to these experiences. To limit risk, for example, managers cannot have too large a line of shares in their portfolio and must ensure the liquidity of the shares held. Finally, beyond a certain size of assets to be managed, the managers are unable to invest a significant part, as in the experiments described, of the money entrusted by their clients in certain companies. Quite simply because these sums can be much higher than the stock market valuation of the companies in question.
Quentin Soubranne – ©2022 BFM Bourse