The UK’s Observer newspaper ran a competition way back in 2012 to find out. It pitted the stock-picking abilities of Orlando, a ginger feline, against three experienced money managers and a gaggle of high schoolers. The cat and the other two groups were each given an imaginary £5,000 at the start of the year to invest in stocks. By year’s end, the students were down to £4,840, while the professionals had actually made money, accruing £5,176. Meanwhile, Orlando, who selected his stocks by throwing a toy mouse on a grid of numbers allocated to different companies, had amassed £5,542.
This was more fun than science, but it underlines a serious premise that has come to dominate the academic literature on finance in the last 40 years (and which Chicago Booth faculty helped develop): that professional stockpickers who beat the market are merely lucky, rather than more skilled.
Are you employing professional people to look after your money but can’t seem to bring yourself to sack them? You could buy a cat instead.
Take a look at this post from the Chicago Booth Business School. Click here. Whilst over the years fund managers have skills, the problem is that it’s all managers, not one, have improved skills. That means the competition has increased making it difficult to outperform.