Cat beats Wall Street Professionals in Stock Picking
During 2012 in The Guardian’s Investment challenge, the contestants were given £5,000 pounds to invest in any 5 stocks in the British market. To their surprise the winner of the challenge was… you guessed right… A CAT.
“During the year the cat picked his stocks by throwing his favorite toy into a grid of numbers allocated to different companies.” According to The Guardian. What was more interesting is that Orlando (The name of the Cat), beat many students and Wall Street Professionals that year, bringing a total portfolio gain of £542.60 pounds. Wall Street professionals only brought gains of £176 pounds.
“While the professionals used their decades of investment knowledge and traditional stock-picking methods, the cat selected stocks by throwing his favorite toy mouse on a grid of numbers allocated to different companies.”
This gives us an indication that not even Wall Street professionals know what they are doing. To the home investor, stories like Orlando’s gives them a sense of reassurance that they don’t need “professionals” to manage their stock investments, if the cat beats Wall Street professionals in stock picking so can they. In other words you don’t need a college degree to invest in stocks.
There have also been studies in which monkeys were asked to draw circles around stocks they thought would outperform. To their surprise the monkey’s stock portfolio also brought some gains that year.
Perhaps it is all in our investment psychology, this all relates to behavioral finance. It is hard to keep a cold head when we are making investment decisions; many investors find it difficult to watch their stock portfolio lose money. As it was mentioned in the 21 golden rules of investing “Stick to the numbers or the market will stick it to you”.
The Guardian concluded:
“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.”
Let me know in a comment below if you think this was pure luck or if there is some truth to it.