Who would you want to manage your portfolio? A group of professional wealth managers or this guy:
The Observer, a UK-based publication, pitted them against each other in a year-long stock-picking challenge.
Justin Urquhart Stewart of wealth managers Seven Investment Management, Paul Kavanagh of stockbrokers Killick & Co, and Schroders fund manager Andy Brough, and a team of students took on Orlando the kitty in the contest.
Each team invested a notional £5,000 in five companies from the FTSE All-Share index at the start of the year. After every three months, they could exchange any stocks, replacing them with others from the index.
By the end of of the third quarter of 2012, the team of professionals had posted just under a 10% return. Meanwhile, Orlando the cat was trailing with a modest 6%. In an unexpected reversal during the fourth quarter final quarter, the cat's portfolio increasing by an average of 4.2% to end the year at £5,542.60, compared with the professionals' £5,176.60.
While the pros relied on decades of investment knowledge and experience, Orlando selected stocks by throwing a toy mouse onto a grid of numbers allocated to different companies.
The result show that the "random walk hypothesis", popularized in Burton Malkiel's book A Random Walk Down Wall Street, is more valid than professional investors want to believe. Burkiel's book explores the idea that share prices move completely at random, making stock markets entirely unpredictable.
Professional investors will undoubtedly see the results as an aberration. For some of them, it is true. But considering only 38% of actively managed funds managed to beat the S&P 500 index last year, many of the pros should probably avoid joining any similar competitions.
No comments:
Post a Comment