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Back in early 2011, a strange article appeared on the HuffPost website — it pointed to an incredible link between an Oscar-winning actress and the price of one of the biggest companies on the NYSE.
“One thing appears to be certain: When Anne Hathaway makes headlines, the stock for Warren Buffett’s Berkshire Hathaway goes up,” said the web post.
The evidence looked compelling…
On the Friday before the Oscars, Berkshire Class A shares rose a whopping 2.02%. And on the Monday just after the Academy Awards, they rose again, this time 2.94%. There’s more, too:
- Jan. 5, 2009 — Bride Wars opens: BRK.A up 2.61%
- Feb. 8, 2010 — Valentine’s Day opens: BRK.A up 1.01%
- Nov. 24, 2010 — Love and Other Drugs opens: BRK.A up 1.62%
- Nov. 29, 2010 — Anne announced as co-host of the Oscars: BRK.A up 0.25%.
What could have caused this sort of bizarre relationship? The algorithms, of course.
The story speculated that automated trading programs were picking up positive news spikes for Anne Hathaway and erroneously buying up shares of Berkshire Hathaway.
It was some interesting detective work.
And the story spread like wildfire. Outlets like CNBC, the Financial Times, Time magazine… even Nobel Prize-winning economist Paul Krugman mentioned it on his New York Times blog.
The only problem was that it was nonsense.
For starters, the idea that trading robots were transacting in shares of Berkshire Hathaway’s Class A shares was preposterous.
That class of stock cost more than $100,000 per share back in 2010 and wasn’t liquid enough for algorithmic trading — only 445 shares traded hands on one of the days used as an example.
Statistically, the tiny sample size and sometimes insignificant return numbers made the relationship likely to be nothing at all.
What about the incredible Berkshire Hathaway performance around the Oscars the year Anne Hathaway hosted?
It just so happens that Berkshire chairman Warren Buffett released his closely watched annual letter to shareholders that very weekend, delighting Wall Street by saying that he had “an itchy trigger finger” for acquisitions.
Sorry, no robot trading conspiracy.
At the time, investors were eager to eat up a story about stupid algorithms running amok on the market. And the financial news never bothered to give the story a sanity check.
Don’t think things are any better today.
The ironic thing is that new trading tech can actually help us to cut through the opinions and guesses about what’s moving the market and hone in on what’s actually driving things.
We’ve been working on just that sort of technology here in the trading lab. I’ll share some insights with you shortly. Stay tuned.
Jonas Elmerraji, CMT