An experiment in finance: investing in chance
I’ve been reading a lot about the propensity of the human mind to mistake random events for controlled experience of late. I’ve also dabbled in the stock market on and off over the years, directly managing my own portfolio alongside investing in various managed funds. What has struck me the most about this experience is the complete lack of predicable consistency or patten when it comes to the stock market.
It was Taleb Nassim who first brought the random nature of the markets to my attention back in 2008. His book, Fooled by Randomness, succinctly explains the central role of chance in life: more precisely, how we perceive luck in our personal and professional experiences.
It is only because we fail to understand probability that we continue to believe events are non-random, finding reasons where none exist.
Given that my own portfolio and those funds that I have invested in rarely top a return of 6% or so, I figured why not test out Nassim’s thesis?
So I put together a very basic stock picker. Literally just three lines of PHP designed to pick a single listed company at random from the LSE.
Here it is -
$f_contents = file(“lse.txt”);
$line = $f_contents[rand(0, count($f_contents) - 1)];
You can download the file as a .zip, including lse.txt here.
For the purposes of this experiment I’ve invested £250 in ten randomly picked companies, £2,500 in total. I intend to maintain each of these holdings for a single month, at which point I will sell the five worst performing stocks and will then buy five more randomly selected stocks. I’ll repeat this for at least three months, possibly longer, and will be reporting the findings here.
- JPMORGAN GBL EMERG MKTS INC TST PLC (JEMI)
- FALKLAND OIL & GAS (FOGL)
- JOHNSTON PRESS (JPR)
- TRINITY EXPLORATION & PRODUCTION (TRIN)
- IFG GROUP (IFP)
- BEOWULF MINING (BEM)
- WOLF MINERALS listed (WLFE)
- FITBUG HLDGS PLC (FITB)
- CANACCORD GENUITY GROUP INC (CF.)
- DALATA HOTEL GROUP PLC (DAL)
Wish me luck!