Move over banksters, it’s time for catsters. A cat just beat a group of professional stockbrokers in picking the best stocks for the year.
Basically, the Observer newspaper asked some middle/high school students, some professional stockbrokers, and a cat, to pick £5,000 worth of stocks ($7,918) and see how they fare after one year.
The cat won.
After one year, the cat ended up with £5,542.60, compared to the stockbrokers’ £5,176.60. No word on how the students did, but it sounds from the article like they ended up last.
And I love how they got the cat to pick its stocks. From the Guardian:
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.
A similar experiment was done in 1988 with hypothetical monkeys, played by Wall Street Journal staffers throwing darts at a wall in order to pick stocks. While the professionals beat the dart-monkey, it wasn’t by a ton. Investor Home describes the results:
On October 7, 1998 the Journal presented the results of the 100th dartboard contest. So who won the most contests and by how much? The pros won 61 of the 100 contests versus the darts. That’s better than the 50% that would be expected in an efficient market. On the other hand, the pros losing 39% of the time to a bunch of darts certainly could be viewed as somewhat of an embarrassment for the pros. Additionally, the performance of the pros versus the Dow Jones Industrial Average was less impressive. The pros barely edged the DJIA by a margin of 51 to 49 contests. In other words, simply investing passively in the Dow, an investor would have beaten the picks of the pros in roughly half the contests (that is, without even considering transactions costs or taxes for taxable investors).
The pro’s picks look more impressive when the actual returns of their stocks are compared with the dartboard and DJIA returns. The pros average gain was 10.8% versus 4.5% for the darts and 6.8% for the DJIA.
The clear lesson here is that cats come before brokers, which come before monkeys.
But any cat owner could have told you that.