Trading by numbers…The magic of financial markets

I remember speaking with a (highly) successful Hedge Fund Manager, and I asked him to explain the secret of his success: but he wouldn’t tell me. That, he said, “the key to the kingdom”, not to be given up lightly and certainly not to me. He was equally coy when I asked him again on various occasions, but eventually something shifted in his brain and he relented. In dark conspiratorial tones he opened up and let his secret slip: “if the price goes up three days in a row, I buy…and then if it falls”, he leaned closer to whisper, “if the price falls for two consecutive days…I sell”. Frankly I think I could have worked that out for myself…but there again most people could.

It wasn’t so much the key to the kingdom as basic common sense, and it made me wonder how this fellow had become quite so successful after all. Maybe he was pulling my leg, but a lot of traders and fund managers are just like that: whether it’s religiously slipping the left shoe on before the right every morning, carrying a lucky rabbit’s foot to the office, or imbuing numbers with near magical, talismanic powers (think 6666 in Asia), not everything happens through hard headed analysis: day to day decision making on financial markets can be primordially visceral and oddly illogical, especially for a group of folk already equipped with some of the world’s most sophisticated computer hardware as well as a bucket load of mind bending algorithms.

Trading by Numbers

In March 2009, driven downwards by the aftershocks of the 2008 Financial Crash, the S&P Index hit its lowest point for that particular recession, which was (I need hardly say) 666. Then, on 8 August 2011, the same index fell in a single day by 6.66%, making the name of the beast the talk of the town. And, of course, who can forget Donald Trump in the dog days of his Presidency, talking of the Dow Jones hitting the “sacred number” of 30,000. Subsequent market reaction to all three of those events looked a lot like trading by numbers: the S&P rose inexorably in the months after March 2009 (reaching 1,000 by September), and after the beastly drop of 2011, it soared to 1,154 in September, before climbing inexorably, month on month, to 3,295 over the years that followed. And after Donald had (sort of) explained just how “sacred” the number 30,000 was, the Dow went on to reach 34,742 within five months.

So what lesson do we draw from that? Well, it’s simple really, just like my friend the Hedge Fund Manager would (probably) say…never underestimate the power of numbers.

A Record Breaking Week for Indian Markets

It's a maxim that has particular relevance on the Subcontinent at the moment, where the Nifty Index last week hit 18,000 for the first time: who knows, perhaps that’s a sacred number too. The market may have softened a little since, but key movers like Reliance Industries (www.ril.com) and a number of banking equities worked together to drive the Index to its highest level ever, despite sluggish performance in IT as a result of lower than expected results from Tata Consultancy Services (www.tcs.com). And the Nifty wasn’t alone in its ebullience: Sensex also rose 400 points to a new record high of 60,441, which doesn’t sound quite so sacred as 18,000, but it certainly made a lot of investors very happy.

Of course, back in the working world, it’s not all about lucky rabbit feet and numerology: these figures also reflect the underlying strengths of an Indian economy that has confounded the severest challenges of COVID, and is emerging more resilient and buoyant than ever before. Still, though…it pays to keep an eye on the numbers.

Executive Overview

Financial markets continue to perform at record levels, and especially in India where the Nifty and Sensex indices hit all time highs last week. But it’s not all about numbers: it’s also about the underlying strength of the subcontinent’s economy.

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