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New Twitter-Based Hedge Fund Beats the Stock Market

samzenpus posted more than 2 years ago | from the how-to-become-rich-in-142-trades dept.

The Almighty Buck 209

nonprofiteer writes "Derwent Capital, a new hedge fund that makes trades and investments based on Twitter sentiment, beat the market — and other hedge funds — in its first full month of trading. From the Atlantic: 'Using an algorithm based on the social media mood that day, the hedge fund predicted the market to make the right trades. Sounds unbelievable that something cluttered with mundane musings and media links could have anything smart to say about the market. But it's working so far.' Blind luck?"

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209 comments

Cool (3, Funny)

itchythebear (2198688) | more than 2 years ago | (#37129588)

Twitter may have finally found a way to make a profit!

Re:Cool (1)

Svartalf (2997) | more than 2 years ago | (#37130272)

Heh... It's certainly nothing worse than anything else the hedge funds do to try to "make a profit".

Re:Cool (1)

wiedzmin (1269816) | more than 2 years ago | (#37130596)

In other news: Million monkeys typing on typewriters have written "War and Peace"! I suggest waiting until they are able to demonstrate consistent results as opposed to proclaiming great success after first month. I'm going with 'blind luck' on this one for now.

One whole month! (3, Insightful)

Anonymous Coward | more than 2 years ago | (#37129614)

It beat the market for one whole month? Wow! That puts them in the same class as 50% of high-school finance students!

Show me the three year and I might start to be impressed. If it doesn't go broke in 10 years, then I might take it seriously. A random pick of stocks has a non-negligible chance of beating the market as a whole in a single month.

Re:One whole month! (0)

Anonymous Coward | more than 2 years ago | (#37129752)

Exactly... I had to do a stock market sim in highschool and I beat the market for a few months. It wasn't all that hard. But I wouldn't consider myself an investment expert, nor do I play the stock market... I let the actual investment experts take care of my money.

Re:One whole month! (4, Informative)

TheRaven64 (641858) | more than 2 years ago | (#37130012)

There's an old scam that works because of this. You set up a few funds, say 30, and make random trades with each one. On average, most of them will do about as well as the market as a whole. A few of them will do much worse. You close these. A few will do much better. You then get people to invest in these (with the obligatory disclaimer that past performance does not ensure future returns).

Re:One whole month! (1)

Anonymous Coward | more than 2 years ago | (#37130122)

Ha! Sounds like you just described mutual funds!

Wait...

brbmovingmoney

Re:One whole month! (1)

rilister (316428) | more than 2 years ago | (#37130138)

"Even a stopped clock tells the right time twice a day"

Re:One whole month! (0)

Anonymous Coward | more than 2 years ago | (#37130586)

Coin-flipping is the more apt metaphor, I believe. You have a large room full of people take out a coin and flip on your command. Everyone who gets heads raises their hand and can proceed to the next flip. You repeat. Eventually you will find people who were so "good" at coin-flipping that they got 6 (or 7 or 8) heads in a row. Obviously, these hedge fund managers are geniuses - just look at their track record!

Re:One whole month! (0)

Anonymous Coward | more than 2 years ago | (#37130674)

Eh, you can "beat the market" today by just not trading. "Beat the market" and "beat the S&P" are overhyped terms that the press have gotten hold of to make people think they actually mean something. Most mutual funds "beat the S&P" - and I should fucking hope so because by just picking S&P stocks at random you should get the same return as the S&P. But at the end of the day beating the S&P by 1-2% is not enough when you're being charged 1-2% in management fees.

But fools and their money will soon be parted. I hope lots of people start buying this afternoon. We need another round of stops to take out near the 10,000 mark on the Dow... the speed at which this market is tanking is scary, but it makes sense. The only thing holding it is hot air. The minute the market gains any traction, crude oil shoots up a good few bucks. This means something. Rock, hard place. Glad I'm sitting on a bunch of gold bought in the 1990's at $400/oz. Made $3 million on paper from it this year. Not touching it though. It's not a rainy day - yet.

Just throw darts (3, Funny)

Jordan (jman) (212384) | more than 2 years ago | (#37129626)

I think twitter will have the same effect as a monkey throwing darts...

http://www.automaticfinances.com/monkey-stock-picking/ [automaticfinances.com]

Re:Just throw darts (0)

Anonymous Coward | more than 2 years ago | (#37130052)

Don't knock the darts!

Seriously, you might cut your hand or something...

Re:Just throw darts (1)

localman57 (1340533) | more than 2 years ago | (#37130080)

Not really. There is no correlation between darts and the stock market. Twitter stuff is based on the hive mind of humanity. The stock market is also based on the hive mind of humanity. It's resonable to expect that there is some correlation. But the correlation is only useful if some attribute of twitter can be shown to lead the market. If there's not a predictable correlation, it's worthless. If there's a correlation, but the market reacts first, and twitter lags, then its' worthless.

Re:Just throw darts (2)

spuke4000 (587845) | more than 2 years ago | (#37130524)

Sir, I would like to buy your monkeys.

Okay... (0)

Anonymous Coward | more than 2 years ago | (#37129634)

Okay, now get back to us when you have more than a single month of data. KTHXBAI.

One month? (3, Interesting)

Mabbo (1337229) | more than 2 years ago | (#37129638)

They did better than average for one month. I could buy a random subset of stocks, and still have a 50% chance of beating the average. Call me if they can maintain this for 12 months straight. Then maybe they can see some of my money.

Re:One month? (2)

elsurexiste (1758620) | more than 2 years ago | (#37129884)

I could buy a random subset of stocks, and still have a 50% chance of beating the average.

Heh, good luck with that! Actually, chances are lower because the increases in stock value are not homogeneous.

Re:One month? (1)

DanTheStone (1212500) | more than 2 years ago | (#37130082)

Illustration: There are 100 stocks. 1 goes way way up, like 100x. 99 go very slightly down. A random subset of 10 stocks does not have a 50% chance of beating the average, since there is not a 50% chance it will include the 1 that went up. (Yes, I know I'm agreeing with you.)

Re:One month? (1)

sribe (304414) | more than 2 years ago | (#37130242)

Illustration: There are 100 stocks. 1 goes way way up, like 100x. 99 go very slightly down. A random subset of 10 stocks does not have a 50% chance of beating the average, since there is not a 50% chance it will include the 1 that went up. (Yes, I know I'm agreeing with you.)

And what exactly are the odds of such an odd distribution? Rather small perhaps? Isn't it more likely that deviations from the average will be spread more evenly???

Re:One month? (1)

sribe (304414) | more than 2 years ago | (#37130222)

Heh, good luck with that! Actually, chances are lower because the increases in stock value are not homogeneous.

Your reasoning is backward, if the increases were homogeneous, the chance of a random subset beating the market would be 0%. On the other hand, if the deviations from the average are randomly distributed the chance would be 50%, and this seems pretty likely.

The details (1)

Ecuador (740021) | more than 2 years ago | (#37130150)

I am reading that the average hedge fund made 0.76% during the month, while this particular fund made 1.85%. Woohoo...
One month is a ridiculously small amount of time to judge an investment strategy.

Re:One month? (1)

medv4380 (1604309) | more than 2 years ago | (#37130210)

You really should look up the definition of Average. You're using the definition of Median not Average. Your definition of average only applies if the stock market results are normally distributed, or in another way equal number of winners and losers and anyone who watches the stock market knows that is rare otherwise it would go up and down. What they did was they managed to get a profit of 1.85% when the average went down by 2.2%.

A longer test would be nice but comparing them to the return rate for July of other hedge funds would be better. There was a test years back comparing random monkey picks to professional hedge fund managers. That was a better comparison then comparing it to the Average. http://www.automaticfinances.com/monkey-stock-picking/ [automaticfinances.com]

Of course they beat the market (0)

Anonymous Coward | more than 2 years ago | (#37129644)

There was a 50 per cent chance they were going to beat the market.

hmmmm (1)

rilles (1153657) | more than 2 years ago | (#37129652)

There is a movie (he takes some pills to make him "smart") based loosely on a guy making a fortune in the stock market by ignoring logic and stats - by just watching rumours and hype he predicted the market.

Re:hmmmm (1)

rwven (663186) | more than 2 years ago | (#37129778)

Limitless

Re:hmmmm (2, Funny)

definate (876684) | more than 2 years ago | (#37129942)

He knows the movie idea has limitless potential, but he just wants to know what the name of it was.

dead infants (0)

Anonymous Coward | more than 2 years ago | (#37130034)

There is so many things wrong with this thread I don't even know which one to begin with.

Re:hmmmm (1)

rwven (663186) | more than 2 years ago | (#37130072)

Re:hmmmm (0)

Anonymous Coward | more than 2 years ago | (#37130578)

WHOOSH!

Re:hmmmm (1)

monkyyy (1901940) | more than 2 years ago | (#37130112)

good work troll was worth a tiny laugh

Re:hmmmm (1)

definate (876684) | more than 2 years ago | (#37130258)

Thanks, though some really thought I was serious.

Brilliant (1)

Anonymous Coward | more than 2 years ago | (#37129666)

This is absolutely brilliant because it tracks what the stock market is actually driven by, personal opinion. There's a lot of data that goes into peoples' investment choices, but in the end the stock market is more about what people THINK is valuable than what is actually valuable (Keynes described this using a beauty contest analogy: http://en.wikipedia.org/wiki/Keynesian_beauty_contest). Twitter is a great way to tap into that data as people freely and in real time report how they are feeling about various stocks.

Of course this also suggests that stock markets are totally bogus, but that's another story...

WAKE UP (0)

Anonymous Coward | more than 2 years ago | (#37129668)

These algorithms have destroyed any reality in trading. Brother, can you spare a dime?

Twitter IS the market (0)

Anonymous Coward | more than 2 years ago | (#37129686)

This isn't really surprising. The market itself is just the result of the combined emotional responses of investors. And those responses are usually stimulated by public sentiment in the first place. Twitter is basically a raw expression of public sentiment (for a subset of the "public") so it makes perfect sense that it would match the activity of the market.

I misread..."New Twister-Based Hedge Fund Beats... (1)

farrellj (563) | more than 2 years ago | (#37129708)

Now a Twister-Based Hedge Fund would be a lot more fun than a Twitter-Based one...

ttyl
          Farrell

Re:I misread..."New Twister-Based Hedge Fund Beats (1)

ginbot462 (626023) | more than 2 years ago | (#37129758)

Probably just as accurate to boot.

Twitter? (0)

Anonymous Coward | more than 2 years ago | (#37129716)

They should point it at Slashdot! With all the (sub-)geniuses on here I'm sure it'd double their profits.

Re:Twitter? (0)

Anonymous Coward | more than 2 years ago | (#37129902)

Hail Bob!

Re:Twitter? (0)

Anonymous Coward | more than 2 years ago | (#37130722)

Buying $1000 worth of budweiser, drinking the beer, then selling back the empty cans would be a better ROI than LNUX.

little rationality exist in short term market (1)

haus (129916) | more than 2 years ago | (#37129724)

It should come as no surprise that markets often function (esp on the short term) based on rumor, gossip, mood swings vice reacting to actual intrinsic value of a company or a sector. Hence focusing on a form of media that specializes in the superficial is likely a reasonable decision for someone wanting to play a short term game.

Quick Everybody retweet me (0)

Anonymous Coward | more than 2 years ago | (#37129738)

#PennyStockUP

Limitless (2)

rwven (663186) | more than 2 years ago | (#37129756)

Sounds like the theory from the movie "Limitless" put into practice.

limitles (0)

Anonymous Coward | more than 2 years ago | (#37129780)

the movie used rumors as best source of info for predictions in stock market.
Reasoning (as i understood iT): stock prices have a lot to do with mass psichology and a bit less with data. The second one still influences the first though

It doesn't matter (0)

Billly Gates (198444) | more than 2 years ago | (#37129810)

I sincerely believe a selected few with HFT flash computers including Goldman Sachs control the prices. They get to trade before the bell opens and after the bell closes. Or more like set the market to raise or fall before you nor I get our transactions in (This was illegal until recently).

They get to eliminate spreads which raises the prices as a big sell off wont lower the price, and therefore the share becomes overvalued. They also have the power to keep a share price artificially low by buying a share quickly before the rest of us see it as an increase in demand.

Goldman Sachs has a monopoly on the market thanks to Leehman Brothers going bankrupt so if you had a startup and your shares were valued at $25 a share going in, guess who would demand you sell 50% of your shares for $5 each? Goldman Sachs, so that way they can flip them dirt dirt cheap while the rest of us are forced to pay $25 a share. I am not talking about preferred shares either. If you disagree Sachs will deny to allow you to go public.

Blind luck is right. Nothing is rational and to top it off Goldman Sachs and the High Frequency Traders make money both ways when it looses money by shorting it or betting agaisnt it and when it goes up in value. The only person being screwed is you.

Volatility (1)

mclearn (86140) | more than 2 years ago | (#37129830)

How much of this is attributed to excessive tweets due to, and in conjunction with, a highly volatile market?

Re:Volatility (1)

Tasha26 (1613349) | more than 2 years ago | (#37130326)

Month 2 - "Ummm... due to high volume of fake tweets from anon accounts, we made a massive loss. Net growth: 0."

Re:Volatility (0)

Anonymous Coward | more than 2 years ago | (#37130740)

#gorillapenis cost me my retirement :(

Maybe not luck (1)

poity (465672) | more than 2 years ago | (#37129832)

IANAE, but maybe in the current environment of uncertainty, there's more predictability in following the psychology and state of mind of investors than following the "fundamental" indicators. But it seems that also contributes partly to the problem where we see more and more mimicry, which leads to larger cascades of buying and selling, thus even more volatility and sense of uncertainty.

Re:Maybe not luck (0)

Anonymous Coward | more than 2 years ago | (#37130252)

What has being an engineer with this to do?

Irrational Exuberance and Irrational Fears (5, Interesting)

RobinEggs (1453925) | more than 2 years ago | (#37129834)

So by following Twitter trends he can make investments that beat other funds in the short run? Are we supposed to be even remotely surprised here?

Everyone knows the stock market responds faster to fear and to delusions of sudden prosperity than to hard data; that's a large part of its problem.

Detecting and exploiting those fears and delusions accurately is a good trick (and I'm sure it isn't easy, even with this method). But it doesn't make the man a genius by a long shot. Nor does it make him a useful investor: banking on the current "mood" means he's actually inflating the dangerous cycles of emotionally driven, short-term investment decisions rather than making any kind of long-term decisions.

I've been ripped before for criticizing short term trading, including HFT trading, but I still think the people who keep the market even remotely stable and the people who make the market useful for it's true purpose (giving corporations a bond market and investors a place for potentially stable returns) are long term investors who follow the data.

And following twitter isn't what I mean by data-driven decisions.

Re:Irrational Exuberance and Irrational Fears (1)

HerculesMO (693085) | more than 2 years ago | (#37130696)

Well said, and there's the argument that if capital gains go up, investors will be more likely to calm down because they will take tax hits on short deals rather than long term ones.

I guess time will tell :)

Failsafe Investing (1)

trout007 (975317) | more than 2 years ago | (#37129838)

Harry Browne wrote a book about investing called "Failsafe Investing". In he he makes a pretty good statement. You can't beat the market long term. Any investment you make based on past performance is not logical. He proposed a thought experiment. Take a room of 100 people. Ask them to individually pick heads or tails. Flip a coin 6 times. You will likely have at least one person that picked all 6 right. Are they psychic? Are they the best coin flip picker? Nope they were lucky. The same with investors that try to beat the market. And if you put your eggs in their basket they are subject to the same luck as everyone else.

His advice that has helped me grow my portfolio?

25% in S&P 500 fund
25% in Gold Bullion
25% in 30 year US Treasuries (Sell and buy new ones when they get within 25 years of maturity)
25% in Money Market.

Rebalance once a year.

Re:Failsafe Investing (1, Interesting)

Billly Gates (198444) | more than 2 years ago | (#37129940)

That looks obsolete. First off Gold is overvalued now and it is time to sell. Treasuries are no longer AAA and for short term the Us can repay its debt, but there is risk the TEA party will hold it hostage and by 2020 the GDP to assets ratio will be too much and will cause the US to be insolvent. Too much risk if you are looking for a safe investment ot offset more risky ones.

I do not trust Wall Street and I am broke currently. If I had money I would avoid Wall Street altogether as they are driven by flash trading and people who trade before and after hours by looking at our transactions pending and setting the price before they go in and ripping us off.

I guess in this economic age I would only trust bonds, but the interest is crap. What a terrible time to invest.

Re:Failsafe Investing (1)

trout007 (975317) | more than 2 years ago | (#37130240)

Let me elaborate the rebalancing. If any one gets below 15% or above 35% of your total holdings you sell and buy those categories to return to 25%. This allows you to automatically buy low and sell high.
Also as you put more money into your account you put it in the cash holdings.

I've been using this for about 10 years now. So I have been selling gold for the last few years as it climbed and took up more of the portfolio.
Also during the crash in 2008 bonds spiked and I had to sell some and buy stock to rebalance.

Since I've been using this I've averaged about an 8% per year return. You don't have to believe me run the numbers yourself they are all available.

Re:Failsafe Investing (1)

nedlohs (1335013) | more than 2 years ago | (#37130556)

Since I've been using this I've averaged about an 8% per year return. You don't have to believe me run the numbers yourself they are all available.

I suspect it would be dependant on when you do that annual rebalance.

But yes that mix will have done well, a much better idea that trying to pick stocks. Very US centric though,

Re:Failsafe Investing (1)

Abstrackt (609015) | more than 2 years ago | (#37130530)

What a terrible time to invest.

I completely disagree, there are some fantastic sales going on right now! Don't look at it as the market losing value, look at it as stocks being offered at one hell of a discount. ;)

If you're looking for a reasonable return on investment and have any kind of debt you can just focus on paying that off instead. It's not a glamorous way to acquire extra money but you're guaranteed to "earn" (save) that amount of interest.

Re:Failsafe Investing (1)

RobinEggs (1453925) | more than 2 years ago | (#37130016)

I don't agree with you.

There are managers who've become famous for "beating the market" simply because they rationally examine what other people refuse to see and leave a field once they realize the ratings are all shit or they realize that data-driven investing has yielded to emotional positive-feedback loops.

You don't beat the market with bold declarations about a coin flip, you beat it with cynicism and independent thought; few if any people can predict the economy or the performance of a particular company, but many people can make more rational decisions than most given the available data or detect and respond to increasingly emotional behavior in other investors.

Sometimes this means making better investments than others; quite often it's as simple as getting off the train two stops before everyone else. I know it's considered a myth that you can time your entry and exit in the market, but sometimes it's really very possible, especially with the exit.

Re:Failsafe Investing (1)

iONiUM (530420) | more than 2 years ago | (#37130108)

I kind of agree with you. In reality, nobody can predict the market. But in practice, you don't need to. It's pretty easy to see a downtrend in the broad market, and when that happens you move from equities into bonds. And then when the market begins to trend upwards again, you do the opposite.

All you really do is follow the trend, without making any risky moves, and you will always make money both when the market goes up, and when it goes down. It's not rocket science, but it does require moving money every few months (well, only lately. before it was pretty safe just sticking with index mutual funds or straight equity).

I never understood this "diversify everything!" sentiment that plagues bank managers. It comes off as lazy, as no matter what 25% part of your portfolio (in the above example) goes up, another part will go down, since gold hedges stock and vice versa. You're always gaining/losing, hoping the gains outweigh the losses. How strange.

Re:Failsafe Investing (1)

trout007 (975317) | more than 2 years ago | (#37130274)

You are forgetting the rebalancing. When gold goes up and stocks go down enough you sell gold to buy stocks. When it reverses you do the same. He recommends rebalancing when one goes more than 10% from 25%.

Re:Failsafe Investing (1)

MozeeToby (1163751) | more than 2 years ago | (#37130336)

You can't beat the market long term.

Is like saying that playing poker is all luck. Yeah, luck plays a part in it, maybe even a big part, but it's still the same group of 20 top players that finds themselves at the final table at tournament after tournament. People like Warren Buffet didn't become ludicrously rich just because they got lucky.

Re:Failsafe Investing (1)

medv4380 (1604309) | more than 2 years ago | (#37130616)

I'd lump gold and bonds into the same bucked and use what Buffet suggested one time and keep 1% in Bonds for each year you are. So if you're 35 then you keep 35% in the safe bond bucket. That way by the time you retire you already have most of your money in the safe buckets for your retirement.

Re:Failsafe Investing (1)

Bob the Super Hamste (1152367) | more than 2 years ago | (#37130678)

That actually doesn't look too different from what I have for my 401k and other investments. I have less in money markets but generally it is similar. A more general form is label the categories would be stocks, commodities, bonds, and cash.

Now It is possible to get better than market returns fairly consistently but it requires that one studies and analyzes the data for long term gains and not chase fads, or has a planner who's job it is to do that. Over the last 7 years I have had an average return closer to 10% and that includes the worst year (2008) where I still came out ahead (it was only about 1% but it was still up for the year). Every year things get rebalanced and within each category there are other buckets. All of this is managed by the financial planner my wife and I have (he is a real certified financial planner) so we don't have to keep up on all of the details of analyzing and picking the various funds.

Regression Towards the Mean (1)

barlevg (2111272) | more than 2 years ago | (#37129840)

The article didn't say HOW WELL it "beat the market" (that is, what percentage return), nor does it say how it did on a day-to-day basis. So I'm treating "beat the market in its first month" as a single data point.

We'll see how it does next month, and the month after that, and the month after that... [wikipedia.org]

Re:Regression Towards the Mean (1)

MozeeToby (1163751) | more than 2 years ago | (#37130456)

From the source of the source...

[Twitter based trading] made 1.85 percent in its first month of trading, ending in July. This not only beat the S&P, which fell 2.2 percent that month, but it also beat out the average of other hedge funds, at 0.76 percent.

So it's pretty significant. It's all based on a paper which showed that there's a 5-8 day lag in the correlation between Twitter sentiment and stock price. If something is getting negative attention on Twitter, there is a nearly 90% chance that it's stock price will drop ~1 week later with a similar relationship for positive attention. I imagine people hear something on twitter, make an appointment with their financial adviser or make a note, then a few days later actually do the trade based on the information they gathered. There's hardly anything illogical in basing stock trades on consumer sentiment, this is just a new way to gauge consumer sentiment in near real time.

Keep in mind, this is a business where people make millions of dollars based on having information 10 ms before the competition.

One month isn't much ... (1)

PPH (736903) | more than 2 years ago | (#37129868)

... but the idea of gauging a companies prospects by watching customer sentiments is quite valid. There have been a number of anecdotal cases (sorry, can't recall any links) about people (sometimes just kids) who have done well in stock market games just by walking through the shopping mall, looking for popular stores.

Sure, there's got to be some due diligence. One has to weed out the outfits with great product ideas but crappy business plans. But everything boils down to customers and market. Find happy customers and you'll generally find successful businesses. The other variable here is consumer confidence. Not a judgment of a single business, but the willingness of people to go out and spend. Particularly for discretionary items. Twitter is probably as good a place as any to track social trends that affect these kinds of variables.

Um (0)

Anonymous Coward | more than 2 years ago | (#37129870)

It's not like the "market" is this amazing rigorous logical thing, subby. It's meaningless beyond human sentiment.

This will no longer work (1)

maxwell demon (590494) | more than 2 years ago | (#37129882)

Even if it worked and their success was not just random chance, it will now no longer work for the simple fact that now it's widely known. After all, Twitter isn't exactly a secret resource. People will start gaming the system, for sure.

Re:This will no longer work (1)

maxume (22995) | more than 2 years ago | (#37130014)

I imagine competitive utilization of the information would have a bigger impact on the profitability of the scheme than data poisoning (because the information can be utilized with partial understanding of the system, whereas poisoning may not be effective without total understanding).

In other news... (0)

Anonymous Coward | more than 2 years ago | (#37129900)

An algorithm based on twitter has correctly predicted the outcome of one coin flip. Sounds unbelievable that something cluttered with mundane musings and media links could have anything smart to say about coin flips. But it's working so far.

day trading vs fundamentals (1)

roman_mir (125474) | more than 2 years ago | (#37129906)

IFF any of this is true, then this methodology maybe useful for day trading, quickly getting into market, quickly getting out of it, things like that. This is not for investments made based on understanding of market fundamentals. Of-course none of the advices that are given by main stream 'economists' and speculators have anything to do with fundamentals. If you want to invest and not day-trade, you have to understand the fundamentals, and to do this you cannot rely on anything that is considered main-stream, because main-stream is all completely off, it's all Keynesian in nature, most of it is about 'sentiment', so they are talking about feelings and things they consider to be 'fair' or 'unfair'. Hopes and feelings have nothing to do with the fundamentals, there you have to follow real economics, and it's Austrian, so for fundamentals look at Jim Rogers, Peter Schiff, Ron Paul, Max Keiser, Marc Faber, people like that. Why does it make sense? Well, consider that by understanding the fundamentals Ron Paul predicted where the US economy was going to (see my sig), Schiff predicted the Internet and Housing bubbles, same with Rogers (the guy made over 4000% profit in the last decade alone.)

Sudden crash? (3, Insightful)

djlemma (1053860) | more than 2 years ago | (#37129920)

I wonder how the twitter fund is doing with the sudden 500 point drop in the Dow this morning...

Re:Sudden crash? (0)

Anonymous Coward | more than 2 years ago | (#37130078)

lol - it was responsible for it!

Re:Sudden crash? (0)

Anonymous Coward | more than 2 years ago | (#37130152)

Who cares? What matters is how it's doing compared to the average fund. Everybody loses money when the Dow is down, it's who loses *less* money.

Re:Sudden crash? (1)

medv4380 (1604309) | more than 2 years ago | (#37130312)

The wild swings of late have more to do with computers being setup to do trading. They get new input then they start doing rapid wild trades which results in it down 500 one day then up 500 the next.

Re:Sudden crash? (1)

hosecoat (877680) | more than 2 years ago | (#37130672)

I wonder how the twitter fund is doing with the sudden 500 point drop in the Dow this morning...

makes it a lot easier to beat the market..

Derwent Capital (0)

Anonymous Coward | more than 2 years ago | (#37129924)

I like the name, it describes what will happen to the fund in a few more months: There-went the Capital!

Gaming the bot (1)

ojintoad (1310811) | more than 2 years ago | (#37129968)

Would love to see someone figure out how it works and get it to buy some crappy penny stock in order to dump it. What a great use of twitter spam.

Blind luck? (1)

Thu Anon Coward (162544) | more than 2 years ago | (#37129996)

As others pointed out,

"This is absolutely brilliant because it tracks what the stock market is actually driven by, personal opinion"

"The market itself is just the result of the combined emotional responses of investors"

having gained and lost $250k in the stock market myself in the go-go dot.com days, I can look back with 20/20 hindsight and can categorically state that the market is just the herd instinct. Remember the Eddie Murphy/Dan Aykrody 1983 movie "Trading Places"? remember how the Duke brothers tried to corner the orange juice market? and then the other traders in the pit said "hey, let's get in on that action!"

from wikipedia:
"The story about the Dukes' cornering of the orange juice market was probably inspired by the "Silver Thursday" market crash of 27 March 1980, during which the Hunt brothers of Texas tried to corner the silver market and subsequently failed to meet a $100 million margin call."

since they are tracking the herd mentality via social media, they will probably have more winning averages than not. time to take a closer look at their business model.

now that we know... (1)

l3v1 (787564) | more than 2 years ago | (#37130024)

..we can influence their predictions by coordinated postings of a large number of targeted "mood" tweets

and here goes your tweet-based prediction out of the window

Re:now that we know... (1)

dkf (304284) | more than 2 years ago | (#37130094)

..we can influence their predictions by coordinated postings of a large number of targeted "mood" tweets

and here goes your tweet-based prediction out of the window

Except you'll likely persuade lots of real traders that they've got to change their positions too, at which point you'll end up trampled by the stampede of mooing morons. That's the point when the rest of us will really laugh.

Rephrased. (1)

clinko (232501) | more than 2 years ago | (#37130050)

"A change in emotions expressed online would be followed between two and six days later by a move in the index, the researchers said, and this information let them predict its movements with 87.6 percent accuracy"

Say What?:
- "A change in emotions expressed online" (50/50)
- "would be followed between two and six days later" (2-6 attempts)
- " by a move in the index" (50/50)

Rephrased:
- Flip 2 coins, you'll get the same face 87.6 percent of the time, if you keep trying up to 6 times.

I know i'm stepping into the Gambler's fallacy here, but does anyone want to expand on the coin analogy, i'd love to see it.

A million monkeys working at a million keyboards (0)

Anonymous Coward | more than 2 years ago | (#37130074)

Month One: "It was the best of times"
Month Two: "It was the blurst of times"

Mr Burns: "You stupid tweeters!!"

Of course Twitter is more powerful (1)

John Allsup (987) | more than 2 years ago | (#37130096)

The mathematical models need access to a large number of independent human minds to effectively control the level of uncertainty exhibited by the stock market. Formal (and hence finitary) mathematical methods just cannot cope properly and reliance on them is usually the cause of stock market bubbles and crashes.

wisdom of the crowd (0)

Anonymous Coward | more than 2 years ago | (#37130172)

This is a real effect called the wisdom of the crowd.

  http://en.m.wikipedia.org/wiki/Wisdom_of_the_crowd

Basically for every idiot that overestimates a call, there is another that underestimates. Cancelling, leaves the ones who are right on the money.

Should allow the fund to lead at least the slower half of market. But doesn't include all the oldies who can't use Twitter and have all the money.

DOESN'T predict black swan events. But will still lead the slower folks in the market.
Problems of scale work both ways. Small data set inaccurate obviously. How many people are tweeting about the latest bucket design.

Large hedge fund is too big to buy and sell all at appropriate time. Ie. If enough people use this algorithm. It has no gain.

Baynesian Search (1)

darkmeridian (119044) | more than 2 years ago | (#37130190)

I was reminded of Bayesian Inference [wikipedia.org] , where experts make their best guesses along with probability limits. Twitter isn't exactly like that, but the stock market is driven by sentiment. People should buy low and sell high but they tend to buy high and sell low. ("Stocks are crashing! SELL! SELL SELL! Stocks are going up! BUY! BUY! BUY!") Measuring the mood of the crowd might be a good way to figure out the herd mentality and try to get some money out of it.

Not saying it works, but that's probably the theory behind it.

Wisdom in crowds (1)

DaveAtWorkAnnoyingly (655625) | more than 2 years ago | (#37130216)

I saw something on a BBC show called The Code. A guy walked around an office asking people how many jelly beans were in a big jar. Answers ranged from 40 to 80,000, when the actual answer was something like 1440. He asked 160 people, and when averaged, the final figure was 1445.

There is wisdom in crowds. Specially regard the stock market, which it's the crowd sentiment that determines the stock price, not the value of the company.

Re:Wisdom in crowds (0)

Anonymous Coward | more than 2 years ago | (#37130294)

Without the guy who said 80,000, the final figure would have been 945. I must get around to watching The Code so I can moan at how wrong it is.

Re:Wisdom in crowds (0)

Anonymous Coward | more than 2 years ago | (#37130454)

Perhaps you should watch it before you make a comment. I find it interesting how you can determine an average when a number is removed from a data set without the actual data set to hand. With your magic, you could even beat that hedge fund!

I'm going to ... (1)

lwriemen (763666) | more than 2 years ago | (#37130350)

... tweet me a new minivan!

Not surprising (1)

Limburgher (523006) | more than 2 years ago | (#37130352)

Something that takes as it's input random psychological output from many sources does well at predicting the performance of a system that takes as it's input random psychology? Makes sense, actually. The stock market isn't always governed by rational decision making. What they seem to be attempting is to cut out trying to evaluate the rationality of people's though processes, but just observing them. The danger here is that if enough people behave stupidly, this thing might enhance that through it's transactions and the resultant feedback, but that's a danger of any system.

Insider Trading (1)

Culture20 (968837) | more than 2 years ago | (#37130356)

Not blind luck: Insider Trading. If Twitter's not a news source and is instead a "social medium" then you're getting hot tips from insiders somewhere in that mess.

Correlate the tweets with movements (1)

petes_PoV (912422) | more than 2 years ago | (#37130538)

Does it count as "insider" trading if the same information is available to everyone?

What would be interesting and extremely valuable (and open to manipulation, even by the tweeter if they became aware they were an indicator) is to come up with a "hot list" of people who's tweets had some sort of correlation with market movements. Whether you'd have to go further and demonstrate direct causality (maybe the CEO's children: we're going on a long cruise / no ski-ing holiday this year) would be an interesting question.

If anyone could pull this off, they'd make a fortune until someone, somewhere made it illegal. I guess the trick would be to not tell people how you did it - though that WOULD lead to charges of insider trading.

WE NEVER LEARN (0)

Anonymous Coward | more than 2 years ago | (#37130508)

See, it works now because there's little correlation between the market and twitter, it's just a source of info.

Now every hedge fund will use this algorithm, there will be a strong correlation, and feedback loop set up, which will cause catastrophic crash.

Not a good business model (0)

Anonymous Coward | more than 2 years ago | (#37130542)

Not a good idea to base your business solely on another business (twitter) or on a social media website. If twitter goes under, what will you do? What if they (twitter) change something and you are locked out? And as soon as people learn of it they will try and exploit it.

Mood-ring Market Analysis? (1)

geekmux (1040042) | more than 2 years ago | (#37130560)

If an algorithm based on "mood swings", coupled to the utter crap that comes spewing out of Twitter 99% of the time, is being used to determine market investments, I don't know how that could speak any louder as to just exactly how ridiculous investment planning has gotten.

Oh, and all you Wall Street professionals, you might want to start looking for a new job. Sounds like you were just replaced with Twitter. Yeah, I know, I'm as shocked as you are, your new boss is a hash tag. Don't worry though, you can always go into dart board sales, I'm sure we'll be using a lot of those next to predict futures.

Madoff (0)

Anonymous Coward | more than 2 years ago | (#37130632)

You'd think people would know by now. Anyone who "beats the market" is actually running a ponzi scheme. Lets hope they figure this one out sooner than they did the last one.

Not luck (1)

wisebabo (638845) | more than 2 years ago | (#37130638)

While the market in the long-run does follow "Data", as a famous Economic Nobel Laureate said "in the long-run we're all dead".

The long-run is, of course, made up of lots and lots of short runs. On a time-scale of days/hours/minutes/seconds (even micro-seconds now) the market looks brownian, or fractal, or like noise. As any serious trader knows it is emotions not logic that drive it in the (very) short-run. (Excepting purely quantitative imbalance corrections, sorry I forget the term).

Consequently this result looks very interesting. If it really proves to be statistically significant, one can expect more and more traders using these sorts of algorithms. Perhaps real-time aggregate data like this WILL prove to be very valuable. As a previous poster mentioned, maybe this is Twitter's "Killer App". With more and more real-time social networks coming into play, what other sources of data might be useful? What will happen to the market if a substantial portion of trades is driven by sentiment driven algorithms? Will it become wildly unstable (like when some computer trading programs run amuck?). Or will it become very smooth with short-run sentiment merging seamlessly into long-run data?

I wonder if this hedge fund is still open to new investors?

Can't google (0)

Anonymous Coward | more than 2 years ago | (#37130704)

predict the market too, but Schmidt says it was illegal?

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