Tracking Brain Waves to Boost Investment Returns
In a quest to improve its trading methods, hedge fund Sang Lucci Partners Capital sent a crew of traders from New York to Los Angeles last month to have their brains tested. As the traders bought and sold options and stocks on a simulated system, computers recorded their brains’ electrical activity. “These guys, their whole profit and loss statement is being determined by their mind, and yet they have no way to analyze it,” says Charlie Bathgate, a Sang Lucci partner who organized the test. “There’s this big gap there. So we’re trying to fill that a little bit.”
Anand Sanghvi, 30, started Sang Lucci in 2010 as a website devoted to educating traders. Two years later he raised money from family and friends for a fund that now manages $2 million, according to partner Peter Zhang—a minuscule sum by hedge fund standards. While aiming to profit from options trading, the seven-employee firm makes money by running online trading courses and charging for entry to its chat rooms, where people discuss investment strategies and opportunities.
The firm is embracing research on trading techniques and inviting scholars to observe its operations and study its data. “I got my degree in cognitive science, so I get a kick out of the experiment,” says Haim Bodek, a former Goldman Sachs programmer who founded a now defunct options trading firm and teaches courses for Sang Lucci.
Through its blog and more than 27,000 posts on Twitter—it tweets daily profit and loss statements—Sang Lucci gives outsiders a look at its trading methods and results, which are discussed in its chat rooms. The firm is also providing data to Robert Battalio, a professor of finance at the University of Notre Dame, who’s examining stock market structure issues. Ann-Christina Lange, a Copenhagen Business School assistant professor who’s working on a report about the role of crowd dynamics and psychology in electronic financial markets, will spend time on Sang Lucci’s downtown Manhattan trading floor this month.
The 26 people who participated in the Los Angeles experiment were a mix of Sang Lucci partners and traders and others recruited from its classes and chat rooms. They spent two 90-minute sessions doing simulated buying and selling while undergoing an electroencephalogram, or EEG. The tests were administered by TruBrain, a company that sells a nutritional supplement meant to improve cognitive acuteness. The traders took TruBrain pills before one session and a placebo before the other. While the trades were simulated, Bathgate says 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 says. TruBrain is still analyzing the data collected during the tests, according to Bathgate.
TruBrain’s main ingredient is piracetam, a drug that’s purported to improve mental functions. Fish oil is another component. The blend was designed by TruBrain neuroscientists Andrew Hill from the University of California at Los Angeles, who ran the tests on the traders, and Christoph Michel from the University of Geneva. While an EEG can show changes to the brain, those changes don’t necessarily mean the mind is working better, says Robert Graham, a doctor at Lenox Hill Hospital in New York who specializes in integrative medicine and has no connection to TruBrain. The company’s claim to help the brain without the need for stimulants such as caffeine is promising, he says. On the other hand, he adds, there’s evidence that slowing things down, 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.”