Cat Beats Professionals at Stock Picking
A house cat named Orlando did a better job managing investments over the year 2012 than a team of professional money managers, the British paper The Observer reports. The paper ran a contest where it gave three teams—a trio of money managers, a group of schoolchildren, and the cat—an imaginary £5,000 ($8.046.50 at today’s exchange rate) at the beginning of the year and told them they could make trades quarterly on stocks in the FTSE All-Share Index. The professionals were Justin Urquhart Stewart, of Seven Investment Management, Paul Kavanagh of Killick & Company, a brokerage, and Andy Brough of Schroders. The students were from John Warner School in Hoddesdon, England, a community institution for 11-to-18-year-olds. The cat, Orlando, is identified only as “a ginger feline.”
At the end of the year, the professionals had £5,176, the students were down to £4,840, and Orlando had amassed £5,542. How did he do it? “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.”
The pros were beating Orlando until the fourth quarter, but he cannily traded his shares in Filtrona, a plastics company, for “under-performing Scottish American Investment Trust.”
As the newspaper concludes:
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.
Read The Observer‘s article here.