It’s not a thing to hide that a lot of professional and reputable wealth managers are faced with a strict criticism regarding how often they tend to change their price-lists. The funds they demand are way higher than they’re actually worth. For that reason getting a fluffy little one that either spends all day long sleeping in an arm-chair or scratches itself mindlessly is a new hit.
A stock-picking pro cat named Orlando managed to beat a group of investment experts and a team of students in a special stock-picking experiment. The latter was conducted by the professionals of the UK paper “The Observer.” Guess what? The winner of a year-long experiment was… the cat.
Every team was provided with a sum of £5 000 to use as an investment capital for five different companies. After every other quarter, the members of each group had an opportunity to swap out any stock they pick, if there was any. The homo sapiens participants did that in an old-fashioned manner, while the house cat simply threw a toy mouse directly at a grid of numbers that indicated different organizations. Things were getting better for the professionals in September, when their profit reached the £497 level, while Orlando’s return was £292.
However, in the last quarter of 2012 the fluffy expert stock picker managed to increase his profit to the level of £5,542.60! Thus, a ginger tabby has successfully beaten the two-legged participants by £366. As for the amateurs category that was represented by students, they’ve landed in the third place.
The members of “The Observer” community managed to describe the winning strategy of the cat. First, all but one of the cat’s stocks rose during the last quarter of 2012, including foam company called “Filtrona” that the fluffy investor had quickly swapped for Scottish American Investment Trust underperforming during September.
In contrast to the Orlando’s choices, the experts decided not to swap the stocks when the third quarter was almost over. But they paid the price. While Imagination Technologies fell by 16.8%, British Gas dropped by 19%. This has significantly dragged the professionals’ portfolio down.
The victory of a fluffy little stock picker, who turned up better than a well-paid specialist, made the experts smile, of course. The experiment proved that in real the experts of the Wall Street do not seem to know what they are actually doing. The whole point comes down to the fact that choosing stocks is an absolutely random process, just like throwing a toy mouse at the company logos. Even cats do mistakes sometimes, but the truth is that even a losing cat can do better in the investment segment than a skilled expert, and usually funnier than humans.
References:
- Rashes, M.S. (2001), Massively Confused Investors Making Conspicuously Ignorant Choices, Journal of Finance, Vol. 56(5), pg. 1911-1927.
- Graham, J.R. (1999), Herding Among Investment Newsletters: Theory and Evidence, Journal of Finance, Vol. 54(1), pg. 237-268.
- Elton, E.J. and M.J. Gruber (1995), Modern Portfolio Theory and Investment Analysis, 5th Edition, John Wiley and Sons, New York.
- Barber B.M. and T. Odean (2000), Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors, Journal of Finance, Vol. 55(2), pg. 773 -806.
- Mark King. Investments: Orlando is the cat’s whiskers of stock picking, The Guardian, January 2013.
- Paul Mladjenovic. Stock Investing For Dummies, Wiley Publishing Inc.
- Jason Kelly. Neatest Little Guide to Stock Market Investing.