Ordinary Housecat Beats Professional Wealth Managers in Year-Long Stock-Picking Challenge
Britain's The Observer has just concluded a year-long investment challenge which sought to determine if decades of experience gave seasoned stock market professionals any stock-picking advantage over a common household cat.
Per the rules of the challenge, each group of participants — three professionals, a class of students from a secondary school in Hertfordshire, and a ginger cat named Orlando — were allowed to invest £5,000 in any five companies on the FTSE All-Share index.
While the professionals used their decades of investment knowledge and traditional stock-picking methods, the cat selected stocks by throwing his favourite toy mouse on a grid of numbers allocated to different companies.
Every quarter, the teams were permitted to switch stocks around if they so chose.
By the end of the third quarter, wealth manager Justin Urquhart Stewart, stockbroker Paul Kavanagh, and fund manager Andy Brough earned their clients a commendable profit of £497 versus Orlando's £292.
However, a sudden fourth-quarter decline in the market value of the professionals' stocks — which remained the same — compared with a sizable increase in the value of Orlando's portfolio resulted in a stunning upset by year's end.
All told, the cat made a cool £542 in profit; the professionals, a paltry £176.
It's worth noting that, though the schoolkids' finished the year with a net loss of £160, their fourth quarter gains were by far the strongest thanks to the property company Savills, whose stock climbed 17.4% in three months.
The result indicates that the "random walk hypothesis", popularised in economist Burton Malkiel's book A Random Walk Down Wall Street, is perhaps truer than we thought. Burkiel's book explores the idea that share prices move completely at random, making stock markets entirely unpredictable.
In other words, save your money and buy a cat.
