Leave the future to lucky red socks

How do investors reach decisions? Between pirate maps and long ring fingers, there is often more rhyme than reason.

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When I first considered building a share portfolio, I was very intrigued to learn how investors reached their decisions. I quizzed every trader I met in an attempt to understand their methods, because I knew that their actions could affect my money. Some told me it was all linked to charts. Like ancient pirates with a map of an island marked "treasure here" and a cross, they claimed to pore over charts, picking when a share had breached its trend line. That way it might set a new trend.

"The trend is your friend," they would trumpet. It sounded like nonsense to me. Another trader told me that his secret was that he read The Guardian newspaper, while just about everybody else read The Daily Telegraph or The Sun. The Guardian's city man was ahead of the competition, he explained, and he was the lucky beneficiary. This sounded implausible. "Counter intuition is the key," he said. That seemed unlikely. After all, didn't Warren Buffett say that you should invest in a company that an idiot could run, because after a while, an idiot will end up running it?

Another told me that it was all down to his lucky red socks. If he started having a successful run, he would not change his socks until he started losing money. This could last for a week, maybe even a month. Good for the bank's shareholders and his annual bonus, but probably not great for his colleagues. After the events of the last six months, I am now more sceptical than ever that none of these homespun investment tips is worthwhile. I prefer the competition that a newspaper used to run every year, when it compared how analyst's stock tips compared to throwing darts into a board. Few were the lucky analysts who beat the board. But new research is on hand to show just what is required to make a success in the city.

Scientists at Cambridge University have analysed the hands of 44 city traders - yes, really that many - and discovered that those traders who succeed tend to have ring fingers that are longer than their index fingers. The link could be down to testosterone exposure in the womb, according to the National Academy of Sciences. This exposure may improve rapid decision-making skills and has been linked with aggression.

Imagine the scene: you finish your education - a first-class degree from Oxford or Harvard, including spells of work experience with all the best firms - then you go in for a final interview. They ask you about the Black-Scholes Options Pricing formula; they want to know your view on the Colombian economy and what to do about the Palestinian problem. They are impressed, you can tell the interview is going well. Then they ask you to show them your hands.

They measure the size of your ring finger compared to your index finger, shake their heads, and say thank you for coming. Then give the job to someone else. This is as fatuous a piece of scientific mumbo-jumbo as I have ever come across. It strikes me as the sort of thing that was a good idea to look into all the while the markets were going up. Now, who cares? And how, I wonder, did those long-fingered traders make out when the markets turned against them? Did their testosterone-charged fingers save them or get them into more trouble?

The researchers said that traders with longer ring fingers made 11 times more money than those with the shortest ring fingers relative to their index fingers. Did they lose money by a similar ratio? The scientists also pointed out that it also helped to be experienced in the job. In fact, that was as relevant as how long your ring finger was compared to your index finger. Which kind of makes the whole research redundant. A bit like all the brokers in Dubai who are being laid off because nobody is buying equities anymore. In order to stem the flood of bad news, the Dubai Financial Services Authority has issued a statement saying that it will no longer issue public announcements on whether people have been granted licences, or had them withdrawn.

I don't think this will fool anyone. Firms that win a licence will issue their own press releases. Those that leave will go quietly. But just because we don't hear about their exit, that doesn't mean they are still there. It is not like the conundrum of whether a tree falling in a forest makes a sound if there is nobody there to hear it. My suggestion to the DFSA is to issue everybody with "lucky" red socks. That should restore confidence, boost trading volumes and bring the exchange back into positive territory. Just as long as the socks get a wash every so often. [e-mail]