On Our Minds: What an Internet Hamster Can Teach Us About Investing

Social media has allowed investors to connect like never before. But far away from Reddit threads, the trading Twitterati and our own community, new (old) ideas are being explored – in a cage.

Enter Mr. Goxx. He is a German hamster who shot to internet fame for making cryptocurrency trades that, at least for now, are beating the S&P 500. Mr. Goxx selects trades by running through an electronically rigged hamster wheel, named his “intention wheel," and subsequently entering one of two “decision tunnels," labelled “buy" and “sell." The results are posted online by his “human business partner."

Beating the market is no easy task for a seasoned trader, let alone for a rodent on YouTube and Twitch. Yet here we are. Is it humbling? Absolutely. But the conversation goes beyond a hamster beating us smart humans. The furry trader has many of us asking: Can random trading be a legitimate investing strategy?

It's not the first time investors and economists have wondered. Burton Malkiel theorized in his 1973 book, A Random Walk Down Wall Street, that "a blindfolded monkey throwing darts at a newspaper's financial pages could select a portfolio that would do just as well as one carefully selected by experts." Malkiel's Random Walk Theory has been tested by media organizations, traders and bloggers over the decades. Having reviewed dozens of these experiments, all boasting varying degrees of success and failure, about the most definitive thing I can say about the effectiveness of random trading is, well, that there is nothing definitive about it. It wins some, it loses some.

If the jury's out on random trading, why do investors keep experimenting with it? What might they hope to find?

Let's consider how much traditional investing wisdom focuses on emotion, or the lack thereof. Indeed, there is a general sentiment that the human element doesn't belong anywhere near a trading dashboard, and that emotion can lead to more unnecessary risk. We can see the hamster as a natural, though extreme, extension of investors' desire to remove emotion from decisions.

But there are more measured ways we can do that, and many of us already employ these tactics. Careful, deep research of data from many sources is one way we can take some of the emotion out of our buy and sell decisions. (You can brush up on research strategies with our guide.) Investors may pursue balance in their portfolio, striving for an ideal asset allocation. We can also take the time to define our risk tolerance, and trade within it.

Of course, so-called “rational" investing styles aren't foolproof. They still carry risk. We can misinterpret the numbers we find on detailed quote pages, or see what we want to see. Investors who swear by charts and trends can commit the fallacy of suggesting past performance can predict future growth. The chaotic, analysis-defying rise of certain growth and meme stocks in recent years further highlights the limits of facts-first investing. (And let's not forget about "fat finger" blunders.)

Which leads me to the point of this exploration: it's not so much about finding an investing strategy that carries zero risk. That doesn't exist (unless you're investing only in government-guaranteed treasury bills, or T-Bills). Random trading won't guarantee you returns, and neither will all fact-based approaches. It's about finding an investing strategy that works for you, your risk tolerance and goals, and finding the discipline to stay true to it. And isn't it a little comforting knowing that we can never truly take the human out of the trade?