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UpSheRises
A Genuine Wall St. Fat Cat! Cute and interesting.
January 15, 2013 at 8:59 AM

 

The UK Observer ran a contest last year, A bunch of investment managers invested in the best stocks they could find, while a cat named Orlando randomly chose stocks from a list. The cat won.

From the Observer:

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.

The challenge raised the question of whether the professionals, with their decades of knowledge, could outperform novice students of finance — or whether a random selection of stocks chosen by Orlando could perform just as well as experienced investors.

These kind of findings are pretty common (though usually less colorful). The idea is that it's very, very difficult for anyone — from the smallest individual investor to the biggest mutual fund manager — to beat the market average. In the case of this story, they're having a cat stand in for the market, to make the professional stock pickers look more ridiculous.

It's true that some stock pickers do better than average and some do worse. But of course this is what would happen if everybody were picking randomly.

Once you take into account things like management fees and transaction costs, actively managed mutual funds that try to beat the market typically end up doing worse than index funds that passively track the overall stock market.

The ur-text on this idea — definitely worth reading if you want to learn more — is is A Random Walk Down Wall Street.

http://www.npr.org/blogs/money/2013/01/14/169326326/housecat-beats-investors-in-stock-market-challenge?sc=tw

Replies

  • stormcris
    January 15, 2013 at 9:01 AM

    The cat is precious.

    Stock picks are very much like legalized gambling.

  • Whaaaaaa....O.o
    January 15, 2013 at 9:01 AM
    No picture?!?!? Awwww!! I wanted to see the cute cat!! :)
  • Whaaaaaa....O.o
    January 15, 2013 at 9:03 AM
    Nevermind. Clicked the link (duh). Soooooo cute!!!! I love cats especially mine. :)
  • angelenia
    January 15, 2013 at 9:04 AM
    i know, right?:) i was hoping to see a pic of the kitteh, too!


    Quoting Whaaaaaa....O.o:

    No picture?!?!? Awwww!! I wanted to see the cute cat!! :)

  • stormcris
    January 15, 2013 at 9:06 AM

    Financial genius.

  • Whaaaaaa....O.o
    January 15, 2013 at 9:08 AM
    Quoting stormcris:

    Financial genius.




    Like like like like like!!!!
  • UpSheRises
    January 15, 2013 at 9:28 AM


    Quoting stormcris:

    The cat is precious.

    Stock picks are very much like legalized gambling.

    I don't understand what the legal difference is. Especially considering the futures market.

  • stormcris
    January 15, 2013 at 9:35 AM

    They state because over time your chances of making money go up rather than down and it is not random, it is not the same.  However, the stock market is very much subject to consumer emotions and whims thus it is random and the predictability of such behavior is dwindling. Odds are based on inflation that stock will rise over the course of ones life but there is certainly guarantee that one crash will not ruin it. It is also stated there is no end game but if a company collapses then there is. 

    To me it seems all the arguements against them being different are filled with holes.

    Quoting UpSheRises:


    Quoting stormcris:

    The cat is precious.

    Stock picks are very much like legalized gambling.

    I don't understand what the legal difference is. Especially considering the futures market.


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