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.

Categories: Stocks

Francisco

Frank is the Founder of Wall Street College and a dedicated stock investor. Having an enormous passion for Investing, Stocks, and Success, Frank decided to start WallStCollege.com with the purpose of educating people on how to put their money to work, teach them how to invest in stocks, and how to always strive for Financial Freedom.

4 Comments

Mike Huiwitz · 11 May, 2014 at 7:20 AM

Well, is that good news or bad news?

    Frank Alvarez · 12 May, 2014 at 5:32 PM

    Mike,

    I think that is great news for us (non-professionals trying to invest in stocks) investors. For me it proves that even professionals can’t keep their heads cold while investing.

    If you are investing in stocks is good to set an appropriate time frame and valuation in your stock and don’t deviate from that.

    What do you thing?

Anne @ Money Propeller · 7 July, 2014 at 6:33 PM

Well, I’ve never considered myself a cat person, but perhaps I should start? I’d like to see the outcome of a second or third year of this, there’s got to be some random acts of chance and accounting for risk 😉

    Frank Alvarez · 8 July, 2014 at 11:33 PM

    Anne,

    You bring an interesting point! They should’ve tested the experiment for at least another 3 years to bring more value and insight into stock picking at random. If you get a cat make sure you open a “Dummy” stock trading account and see if he would’ve beat the S&P.
    Let me know!

Leave a Reply

Your email address will not be published. Required fields are marked *

X

Forgot Password?

Join Us

Password Reset
Please enter your e-mail address. You will receive a new password via e-mail.