May 8 (Bloomberg) -- The second-floor loft on William Street in lower Manhattan, normally abuzz with young equity-options traders connected to Sang Lucci Capital Partners, was quiet for a week last month.
The Sang Lucci crew went to Los Angeles in a quest to find an upgrade for a piece of trading software they say others in the profession have neglected: the human brain.
As part of a study, the traders took a supplement meant to improve cognitive acuteness while buying and selling options and stocks on a simulated platform. All the while a quantitative electroencephalography, or EEG, recorded electrical activity in their brains. A company called TruBrain Inc. ran the tests to see how their pill works on the mind of a trader.
“These guys, their whole profit and loss statement is being determined by their mind, and yet they have no way to analyze it,” Charlie Bathgate, a 27-year-old partner at Sang Lucci who dabbles in psychology and organized the study, said during an April 10 interview. “There’s this big gap there. So we’re trying to fill that a little bit.”
Sang Lucci, a pseudonym for 30-year-old founder Anand Sanghvi, raised money through family and friends, according to partner Peter Zhang. While the fund only manages about $2 million so far, it’s created a buzz in academic circles and social media by allowing outsiders to scrutinize more than just its traders’ brains. One gimmick is to regularly post daily profit and loss statements on Twitter, regardless of how the session went.
The firm has attracted the involvement of Haim Bodek, the former Goldman Sachs Group Inc. programmer who has achieved celebrity in the debate surrounding high-frequency trading.
Bodek, made famous in “Dark Pools,” a book by Wall Street Journal reporter Scott Patterson, has campaigned to reform markets because of scalping he says put his options firm Trading Machines LLC out of business. He used automated, computerized strategies rather than hand-picking options to buy and sell like Sang Lucci’s traders do.
“I got my degree in cognitive science, so I get a kick out the experiment,” he said via e-mail on April 16. “Most of the hand traders that are surviving now are exceptional in one way or the other, so it is always interesting to see them in action.”
To make ends meet while trading a portfolio that is microscopic by hedge-fund standards, the firm created Sang Lucci Trading LLC, an educational company that teaches online trading classes and counts Bodek as an instructor. They also sell access to their chatrooms, where transactions are discussed as they happen.
The Sang Lucci loft’s trading floor, with an electronic drum kit for the video game “Rock Band” tucked away in a corner near the sectional couch, doubles as a classroom and occasional party space. The dress code is mostly jeans, shorts, sneakers, T-shirts and hoodies, though blazers have been sighted when young women come to party.
Through its blog and more than 27,000 posts on Twitter, the firm gives outsiders a peek at its trading, and it will soon let researchers examine its trades, said Zhang, who is 26. Robert Battalio, professor of finance at the University of Notre Dame, said in an April 22 phone interview that the data Sang Lucci will provide should help as he examines equity market structure issues.
The firm will also be observed by Ann-Christina Lange, a Copenhagen Business School assistant professor who’s studying the role of crowd dynamics and psychology in today’s electronic financial markets.
The Sang Lucci employees and other traders recruited by the firm, wearing EEG electrodes, went through two 90-minute sessions of simulated buying and selling and underwent follow-up questioning during the week of April 21. Each took TruBrain before one session and a placebo before the other. While the trades were simulated, Bathgate said the participants’ intensity was for real.
“If you could see their faces when they were sitting down, you would’ve thought they were all trading with a million bucks,” he said.
Instead of relying on caffeine as many energy drinks do, TruBrain’s main ingredient is piracetam, a type of nootropic that’s purported to improve mental functions. Fish oil is another component. The blend was designed by neuroscientists Andrew Hill from the University of California at Los Angeles, who ran the tests, and Christoph Michel from the University of Geneva.
Sang Lucci is still waiting for Hill and his colleagues to analyze the data they collected during the test, according to Bathgate. He said 26 traders took part in the study and the researchers may conduct another test with double that amount.
The vitamins, minerals and amino acids that are in TruBrain each have been studied independently and show they help improve cognitive abilities, said Robert Graham, internist at Lenox Hill Hospital in New York who specializes in integrative medicine. There’s no evidence of how well they work when blended together, said Graham, who was not involved in the study.
“Studies like the one with the traders are interesting, but it’s going to be a hard sell in terms of the medical world really embracing something like this without clinical trials,” Graham said in a phone call on April 24. “Those are nearly impossible to do with supplements.”
While an EEG test can show changes to the brain, it doesn’t necessarily mean the mind is working better, he said. TruBrain’s claim to help without the need for stimulants is promising, Graham said, compared with ingesting a substance such as caffeine. On the other hand, there’s evidence that slowing things down, for example by meditating, can also help.
“You try to jack the brain up, but at the same time calming the brain before a task has been known to heighten function,” he said.
To contact the editors responsible for this story: Nick Baker at firstname.lastname@example.org Philip Revzin