Trading Algorithm


Open Hazards Chairman John Rundle, a well-known seismologist who teaches physics and geology at the University of California of Davis, has been adapting his theories on natural disasters and financial markets with help from members of the Santa Fe Institute, a non-profit research organization that Miller has been involved with for decades.

Miller’s fund will use signals from the model to make daily determinations on whether to purchase or sell short securities that mirror the performance of the U.S. stock market, such as the SPDR S&P 500 ETF Trust, according to regulatory documents. The goal is to outperform the S&P 500 over periods of a year or more with less volatility.

Miller will likely employ the trading algorithm as an “overlay” to individual stock picks, Rapuano said. That could protect his hedge funds when markets are sinking and add to their returns when markets soar.


Mass Extinctions


The concept that seemingly unrelated catastrophes, ranging from mass extinctions to avalanches and stock market crashes, might follow similar underlying patterns dates back to the 1980s, when Danish physicist Per Bak began writing on the subject. Bak’s concept helped spawn an industry known as econophysics and triggered thousands of academic papers on the subject.

“It’s something everyone would like to do, but it is inherently close to impossible,” Gene Stanley, a physics professor at Boston University, said about trading stocks on the model.

Miller has long been a value investor, finding stocks that trade at a discount to their intrinsic value. But he’s not above relying at times on scientific theories rather than Wall Street’s traditional yardsticks to ferret out good investments. Some of his most profitable ideas came in part from the Santa Fe Institute where he is chairman emeritus and the largest donor.


Amazon.com Inc.


He was an investor in Amazon.com Inc. at a time when most value managers thought the company was overpriced, using standard industrial-growth metrics. Miller and Rapuano developed a model for how Internet businesses might grow based on network theory that they had picked up through the Santa Fe Institute, Rapuano said. They also received help from Doyne Farmer, an external scientist at the organization who explored chaos theory to make bets on Wall Street.