It is an interesting article in BBC about superstitious fund. So, the story is about an asset management company, pool the fund, and trade it under algorithm, but it based on numerology and astrology. The Shing Tat Chung, the “boss”, even stated that this fund is only operated based on human characteristic. The fund will not traded on 13th or during full moon. The full story can be seen at this link: http://www.bbc.com/future/story/20120731-bulls-bears-and-black-cats
Would you invest in a fund that trades on superstition? David Wolman has, and in the process he discovers unsettling truths about how we treat and handle money.
When Shing Tat Chung was a baby, his parents changed his name on the advice of a fortune teller. The soothsayer warned that the name they had given him at birth had “too much fire”, whatever that means. The new one, which also happens to be his current one, “is supposed to be more balanced and carry a good fortune,” Chung told me. “I will also apparently make lots of money with this name,” he says, laughing.
That’s a relief because I recently gave him some of my money. More specifically, I put $200 into an experimental investment fund Chung launched in June. Mind you, this guy is not some stock-picking savant who finished Stanford Business School at the age of 15. Chung is a 25-year-old newly minted graduate in design from the Royal College of Art in London.
Fascinated by superstitions and their wider, yet often overlooked, ramifications for society, Chung decided to start The Superstitious Fund Project. Some people trust Windsor-knotted stock traders and mutual fund managers to grow their money. Others use algorithms designed to respond to various market conditions so that – one hopes – they deliver earnings. Still others buy gold, plunk it in a vault, and pray that it will be worth more on some future date than it is today. How odd is it then, really, to calculate trade decisions by way of astrology and numerology?
The fund works like this: stock trades are carried out by an Automated Trading System (colloquially, a “robot”), which is a computer program that buys, sells or holds stocks based on a set of specifications encoded into the program’s governing algorithm. The code for Chung’s experiment was written by Jim Hunt, who runs a firm called Trading Gurus, and together with Chung they named it “Sid the Superstitious Robot”. (They also decided to make the source code completely transparent and free to download.)
Like many investment models, Sid is an automated speculator. But whereas other algorithms might take action based, for instance, on a stock’s recent performance or the price of oil, the criterion for this program are lunar phases and the affection and disaffection people have for certain numbers. “I wanted it to operate based on human characteristics,” Chung says.
Sid won’t buy anything on the 13th of the month, and steers clear of buying or selling any stock if its value happens to have a 13 in it. As for lunar phases, Chung explains with a hint of pride that the algorithm finds a new moon to be “good”, whereas a full moon is very, very bad. “The closer the moon is to being full, the more it effects us,” Chung says. So as the full moon approaches, the robot – instead of starting to grow claws and thick brown hair – sells more, as if it is nervous about the moon’s impact on multinational corporations and the decision-making capabilities of senior management. If you’re wondering how this automated yet temperamental trader handles an eclipse, one word: sell.
And get this: the robot’s beliefs evolve. People are constantly seeing correlations in the world and interpreting them as patterns that they can or should act upon. Sid also generates new, albeit irrational, beliefs and acts on them. Cautious not to leave any spiritual stone unturned, Chung went as far as seeking the advice of a fortune teller to help him determine the most prudent launch date. When her first suggestion conflicted with a prior engagement already on Chung’s calendar, she used her powers and a sacred pendant to “visualise” another option: 1 June.
t all sounds rather ridiculous, until you discover that Sid and the Superstitious Fund illuminate some disquieting truths. On the one hand, magical thinking is, of course, everywhere: unlucky numbers; the dangers of Friday the 13th; boosted birth rates in the year of the dragon; holding one’s breath when driving past a cemetery; black cats, rabbit’s feet, horoscopes, crossed fingers, lucky underwear, and every palm reader, healer, mystic, shaman, soothsayer and woo-woo yoga instructor from New York to New Guinea.
But the last thing you want is the steward of your money making decisions based on slight vibrations in the cosmos. When it comes to matters financial, we’re all business, right?
Hardly. A generation of behavioural economics research has demonstrated that standard predictions of how we treat and handle money have woefully misread Homo sapiens. Rational we are not.
For example, a tax incorporated into a price tag on supermarket shelves makes us more frugal, whereas an equivalent tax added at checkout is virtually ignored. We also spend the same money differently depending on whether it’s labelled credit, rebate, or bonus, and our willingness to pay for stuff is heavily influenced by the payment method. One recent article listed eleven ways in which consumers behave irrationally when confronted with maths. There are probably more. When it comes to moo-la, the technical term for us is “cuckoo”.
Inconsistencies born from biases and tricks of the mind are one thing; superstition is another. The idea of a “Friday 13th effect” came to prominence thanks to a 1987 study by Robert Kolb and Ricardo Rodriguez, two finance professors at the University of Miami, who found that you are more likely to lose in the stock market on that day, as opposed to a “normal” Friday. Their findings have since been disputed by other stock market studies, but Kolb and Rodriguez say the paper was published tongue-in-cheek. Their point was not that the day itself had an effect, it was to illustrate how superstition has an effect on our behaviour.
These beliefs have a massive, and largely negative, impact on the economy –boom times for fortune tellers notwithstanding. Chung has estimated that Friday the 13th costs the US alone hundreds of millions of dollars, due not only to all those elevators and buildings indicating the absence of a 13th floor, but also lost revenue due to shortened vacations and purchases bypassed because of that unlucky date. Realtors in Hong Kong have reported that apartments deemed haunted might sell for as little as 40% of what a comparable un-haunted apartment might bring in.
According to a recent Wall Street Journal article, the majority of stock traders in Shanghai are not bankers pursuing value based on market analysis, but everyday individuals who “gamble on numerical superstitions, with little understanding of concepts from the financial arena.” Not that those who have mastered said “concepts” have necessarily done great things for anyone of late. “Given the failure of all these sophisticated mathematical models that have turned geniuses into morons over the years,” says Marc Hochstein, executive editor of the financial services daily American Banker, “it’ll be interesting to see how a model [like Sid] that intentionally has no rhyme or reason performs.”
Three years ago, a finance professor in Copenhagen looked at 80 years worth of data from the New York Stock Exchange, S&P 500, the Dow Jones Composite Average, and the Dow Jones Industrial Average, and tried to determine whether the 362 solar and lunar eclipses that took place over that time period affected investment decisions and the economy. “ The stock market is an ideal breeding ground for superstition,” wrote Gabriele Lepori, who found below-average returns during times of “negative superstitious events”, like eclipses.
His and other researchers’ findings suggest that we resort more heavily to superstition when there is high uncertainty, the stakes are high, and when we perceive outcomes to be essentially beyond our control. The great irony, of course, is that superstitions are supposed to protect us from misfortune. Yet they do the opposite. They are expensive, and their cost is borne by believers and eye-rollers alike.
For Chung, the whole thing was personal at first but it quickly snowballed. He comes from a family that subscribes to many superstitions. His mother never orders seven dishes at a restaurant (unlucky number) and has filled the house with lucky bamboo and statues of the Buddha holding gold (lucky vegetation, deity, and metal respectively). More recently, she decided at the last minute not to buy a house because the feng shui of the place was off; a decision made because of the direction the toilet faced.
After maintaining a blog about superstition for a while, Chung decided that a fund that actually trades on the FTSE100 would be an interesting way to explore the murky intersection of value, faith and the economy. “Where money and risk are involved,” he says, “superstition is there lurking in the background” – at casinos, of course, but also on Wall Street. “I wanted to poke fun at our superstitions,” he says, “but I also wanted to highlight our irrational nature in a way that is less critical and more about encouraging dialogue.”
At present he plans to let the fund run for a year, tracking its performance against various indices and other funds, both managed and automated. Should there be gains, he will send dividends to people like me who threw down for a stake in this otherworldly approach to playing the markets. (Yes, his mother is an investor, to the tune of £100/$157) If the whole thing tanks, the money is gone. Poof. But at least investors are aware of that risk ahead of time, not to mention reminded of it in every correspondence from Chung, which now includes the cautionary e-mail tag: Please be aware, that this is an unproven, highly speculative, experiment and a project with the risk of total loss.
Meanwhile, everyone and their cousin is reaching out to him to share titbits about their personal superstitions, and he is currently making the rounds to talk with future-of-money thinkers in London, audiences at Microsoft, CNBC, CNET, The Wall Street Journal, among others.
Has the whole experience made him want a career in finance? “Definitely not,” says Chung; he finds the prospect of losing other peoples’ money quite worrisome. After three weeks of trading the fund had dropped 12% from its starting value of £5,000, while the NASDAQ100 and Hang Seng Index rose around 4% during this period. It has since rebounded a little; at the time of writing the fund is around -5% of its starting amount.
Is losing 5% of value horrible? Depends whom you ask and what you compare it to. In the age of Libor, Lehman, Madoff, and sovereign debt write-offs, maybe it’s not so bad. I guess I’ll find out next spring, and BBC Future will follow up with Chung to find out how both he and the fund have fared over the course of this experiment. Besides, speculation is just that: not a sure bet. “When you gamble,” says Chung, “you either win or lose.” When you put it that way, maybe the more rewarding way to lose $200 would have been an impromptu trip to Las Vegas. Then again, I’m a Cancer, and Cancers aren’t prone to such rash behaviour. [BBC]