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ARE PROFESSIONAL fund managers a dying breed? Index trackers like Exchange Traded Funds that buy and sell shares in an automatic way have been increasingly competing for investors’ money, and now investment professionals have a new challenger – rats.
These rodents are being trained to make trading decisions for wealthy individuals, hedge funds and other financial institutions, according to a company that is selling rat trading systems. It says it has “more business than we can supply”.
RatTraders.com, based in the Cayman Islands, claims it has installed rat trading systems of 300 to 1 000 rats for pension funds and international banks. Michael Marcovici, the man behind the concept, says he has trained rats to make the right trading decisions. The best rats make the right decision more than 50% of the time, he says.
“The rats are all specialists. They are specialised in specific financial markets or segments. The best of the rats outperform most humans,” says Marcovici.
An added benefit, he emphasises, is that they are a “more efficient and economic solution”. This is a reference to the huge salaries and bonuses investment professionals generally earn, even though research has demonstrated that few have the skills to consistently beat the market or sector averages.
“The price of a trained rat is just a fragment of what a human trader will cost,” says Marcovici. He doesn’t reveal what this price is on his website.
The system “consists of rats, trading boxes, rat training, people to handle the rats. We provide a solution for the trading floor rather than just rats”. The rats are the “brain of the system”.
At first glance, RatTraders.com looks like a bit of a joke. Marcovici explains on videos how he selects the “most talented rats” and trains them over three to six months to make decisions to go long or short. If the rat makes the right decision, it gets food. The wrong decision generates a “small electric shock”.rat
Apparently, rats are very good at discerning patterns that computers can’t. This is, according to Marcovici, because computers focus on mathematical patterns while many patterns are “psychological” because “people influence prices”. Plus, he says: rats aren’t distracted by other things that distract humans.
First the rats have “general training” until they “understand the movement of markets in general”. Then they advance to specific markets and are “trained according to client needs”. This specialised training can take another six months.
RatTraders uses sound, with financial data converted into piano music.
The Financial Times, a respected financial newspaper based in London, says the idea of employing rats “is not totally absurd”. It quotes recent research, by the University of Leuven, showing that rats are better than humans at distinguishing certain kinds of striped patterns from others.
“The humans, it was hypothesised, were thinking too hard rather than relying on instinctive pattern recognition,” says columnist Tim Harford. He cites a paper titled “More complex brains are not always better”.
Marcovici claims that rats are “very efficient” and can be “trained for a lot of jobs”. He is working on new fields, including training rats for marketing and “classic management decisions”.
Can rats really make money for investors? Like Financial Times columnist Tim Harford I doubt that rats can trade places with humans.
Marcovici demonstrates how rats are trained, but he doesn’t provide evidence of success in his intriguing videos. He says: “We can’t use our trained rats for demonstration purposes because we will confuse them and interrupt their training pattern.”
Pardon the pun: I smell a rat.
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