Believe it or not, there are a few things Mr. Goxx can teach you about investing.
It’s been suggested that a million monkeys on typewriters could reproduce the works of William Shakespeare given enough time. The general idea behind this poetic conjecture is that, with a long enough time frame, anything that fits with the laws of nature is technically possible.
Obviously, it would take a very long time for a monkey to write more than a single word. But what does it tell us if one of these monkeys we’ve placed on a typewriter somehow clicks together a recognizable quote?
Introducing Mr. Goxx – the Hamster that Beat the Market.
Now, instead of a bored ape, this article will focus on the investment genius (or chaos) of a hamster named Mr. Goxx. His anonymous owner and benefactor provided him with a “Goxx Capital Office”, a box attached to his cage.
Running the wheel, he can select a specific cryptocurrency based on where it stops. This is the wheel of intention, which rotates through 30 or so cryptocurrencies. Once he hops out, he can run through one of two tunnels — determining whether to buy or sell $20 of that cryptocurrency. The hamster’s cage is streamed on Twitch and his financial transactions are automatically posted on his Twitter and Reddit.
But here’s the thing, since he started trading back in June, the hamster has outperformed the S&P 500, gaining roughly 20% in returns. The hamster isn’t up all night reading the news and analyzing the market while anguishing over every buy or sell decision. In fact, he isn’t so much different from a monkey that sits down at a typewriter and begins writing.
There are actual lessons that we can learn from Mr. Goxx about cryptocurrency and predicting chaotic events and outcomes. First of all, simply by being a hamster, Mr. Goxx avoids many of the pitfalls and biases that our primate brains typically fall for. Additionally, it’s likely that his portfolio is highly correlated to Bitcoin, thus closely following its trajectory.
Can Animals Predict Random Outcomes?
Mr. Goxx is just the latest in a long history of animals that successfully predicted future events. Paul the Octopus, an animal with no spine but nine brains, predicted the winner of eight straight FIFA World Cup matches in 2010. Assuming Paul picked randomly, the chances of observing this outcome are 1 in 256, less than 0.4%. Meanwhile, several animals in the Chemnitz Zoo including a porcupine, a hippopotamus and a tamarin failed to make correct predictions.
The conclusion here isn’t that the octopus is psychic or more knowledgeable about soccer than these other animals. In fact, these strange coincidences might happen more often than one might think. In this case, only one animal managed to make the correct predictions purely by chance.
With Mr. Goxx, I think there is something even more incredible going on. Making correct market predictions requires a lot more random chance than guessing the winners of a soccer match. Especially when playing the dangerous day-trading game with relatively volatile assets.
Chaos and Fluctuations in Markets
Why is it that we can predict with some level of certainty whether the price of a particular stock or cryptocurrency will increase in the next year, yet we can’t predict what happens tomorrow? This same phenomenon happens when we try to predict the weather day-to-day, often it is less successful than predicting the long-term climate.
The weather is one type of chaotic system which means that day-to-day fluctuations are difficult to predict. There are multiple random variables that can skew tomorrow’s forecast that we simply can’t model in the short-term. However, when we look at a much larger period of time, we can see patterns emerge that take some of the uncertainty out of this calculation.
Day-to-day stock market and cryptocurrency prices are another type of chaotic system. However, it is much more difficult to accurately calculate because unlike the weather, it is influenced by our emotions and predictions. In addition to all the random and market variables, our own decisions will drive the price of our crypto assets the next day.
In part, this is what makes day-trading extremely difficult — unless you have a supercomputer or insider information. But even if we had the right information, there’s no guarantee that we wouldn’t ignore it or accurately respond.
Hamsters Avoid the Most Common Psychological Biases. As Far as We Can Tell.
Here’s the thing about being human, our brains are prone to making a lot of mistakes and overthinking. There are plenty of biases that would hinder our day-trading abilities. Part of the reason many people cannot outperform the market may be due to these common errors in judgment.
Confirmation bias, perhaps more than anything else, leads to terrible investments. Thanks to the wonderful social media algorithms, a lot of the information you see fits within a certain bubble or point of view. This is horrible for our decision making because we will favour information that confirms what we already believe.
Say you want to invest in Cardano. You’ve been following several crypto enthusiasts that talk a lot about why Cardano is going to take off. Anyone who disagrees seems to be spreading FUD – fear, uncertainty, and doubt, so you don’t even bother reading into their criticisms. With confirmation bias, we give more weight to any evidence that agrees with what we already believe.
But this effect also impacts the way we seek out information. Through the congruent heuristic, you will be more likely to ask loaded questions and seek answers that are congruent with your beliefs. For example, you would Google: “Is Cardano better than Ethereum?” Your search results will be loaded with links explaining why Cardano is better than Ethereum.
Since we are consciously unaware of the pitfalls in our thinking, we are prone to make investment mistakes. By making completely random choices, Mr. Goxx is immune from these biases, conferring a trading advantage over primate schmucks like me.
This is his headquarters:
I have instructed my human business partner to get me a decent computer setup for my office. Best of all: It’s safe to eat 🐹 #hamster #Crypto #CryptoNews #trading pic.twitter.com/O3kXJjXV9Y
— Mr. Goxx (@mrgoxx) July 16, 2021
Is Mr. Goxx Really Outperforming the Crypto Market?
Now, I’m not usually one to hamster-shame but I don’t think what Mr. Goxx is doing is all that impressive. Let’s take a look at some of the data. Mr. Goxx isn’t always ahead of the market, experiencing a significant dip near the end of July (compiled by Protos). Taking a snapshot at that point would give us a completely different picture and headline in the media: “Hamster Sucks at Trading Crypto.”
Mr. Goxx’s performance also tracks very well with Bitcoin, which is the single cryptocurrency with the largest market cap. In some sense, the rest of the cryptocurrency market is tied to the price of Bitcoin. None of the other index funds that are shown look directly at changes in cryptocurrency over time. Instead, it looks like Mr. Goxx is closely mirroring the price of Bitcoin with his investments.
There is also another explanation, and a reason why Mr. Goxx might slightly outperform Bitcoin in the future. He has more than 10000 followers on Twitter, 1000 members in his subreddit, and almost 500 followers on Instagram.
If more people follow Mr. Goxx and mirror his decisions, it leads to a sort of self-fulfilling prophecy. Mr. Goxx buys more of Cardano, you buy more Cardano, Cardano price goes up. Of course, the chances of Mr. Goxx experiencing sustained success with continual day-trading is really low unfortunately; we would suggest he retires while he’s ahead.
Starting with a mere $390 in June, Mr. Goxx made almost 20% in profits as of September 25th, 2021. While his day-trading has proved successful, it also underlies why we aren’t very good at doing the same. The cryptocurrency market is a type of chaotic system where many known and random variables greatly impact prices day-to-day.
Additionally, this type of chaotic system is also influenced by humans and especially our confirmation bias. Not only does successful day-trading require us to understand the math of complex systems, but also human behavior. Mr. Goxx avoids these biases naturally, as he is a hamster.
Finally, the snapshot of his performance reveals that Mr. Goxx’s portfolio follows the fluctuations of Bitcoin. This makes a lot of sense since the price of many cryptocurrencies are affected by Bitcoin. This is much easier than having a monkey type out a few pages of Shakespeare. If anything, this tells you that Bitcoin is a pretty good investment, but unfortunately it doesn’t tell us much about the hamster’s trading abilities.