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New Twitter-Based Hedge Fund Beats the Stock Market

Posted by samzenpus on from the how-to-become-rich-in-142-trades dept.

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?"

9 of 209 comments (clear)

  1. Cool by itchythebear · · Score: 3, Funny

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

    --
    If what I just said sounded like a troll, it was probably just a failed attempt at humor.
  2. One whole month! by Anonymous Coward · · Score: 3, Insightful

    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.

    1. Re:One whole month! by TheRaven64 · · Score: 4, Informative

      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).

      --
      I am TheRaven on Soylent News
    2. Re:One whole month! by greg1104 · · Score: 3, Interesting

      I always liked the related scam for selling stock selection services. You e-mail a group of marks "stock XYZ will go higher in the next month!", breaking them into (say) 4 groups. The next month, you contact everyone who got a good recommendation the last time with "stock ABC will go higher in the next month!". Repeat a few layers deep. After 3 or 4 such calls, a fraction of the people you contacted have now gotten nothing but winning picks from you; them you try to sell your picking service to.

  3. Just throw darts by Jordan+(jman) · · Score: 3, Funny

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

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

    1. Re:Just throw darts by localman57 · · Score: 3, Funny

      Fuck that guy. I've written a program that models the monkeys with a high degree of accuracy, and it's for sale now. Equally accurate results, with no bannanas necessary, and no monkey shit to clean up.

  4. One month? by Mabbo · · Score: 3, Interesting

    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.

  5. Irrational Exuberance and Irrational Fears by RobinEggs · · Score: 5, Interesting

    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.

  6. Sudden crash? by djlemma · · Score: 3, Insightful

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