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Looking for a broker? This cat beat experts in picking best stocks

Published: Monday, Jan. 28 2013 10:52 a.m. MST

It was a lineup of U.K. financial adviser powerhouses versus a cat.

The players (including a group of high school students and the cat) each had £5,000 (about $7,917) of money to invest.

According to Mark King at The Observer, it was part of The Observer's "share portfolio challenge."

The financial experts and students presumably used their brains and research to make their picks. The cat Orlando, a ginger feline, played with a toy mouse on a chart. Wherever the mouse landed was a stock pick.

The cat beat the professionals (and a group of high school students) and made the best stock picks in 2012. King writes: "By the end of September the professionals had generated £497 (about $ 787) of profit compared with £292 (about $462) managed by Orlando. But an unexpected turnaround in the final quarter has resulted in the cat's portfolio increasing by an average of 4.2 percent to end the year at £5,542.60 (about $8,776), compared with the professionals' £5,176.60 ($8,197)."

The idea was to see if "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."

Jacob Goldstein at NPR weighed in on what people should learn from this: "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."

Of course, having a cat do the picking means there are going to be less fees to pay.

Joe Hotchkiss at The Augusta Chronicle spoke with Simon Medcalfe, an assistant professor of finance at Georgia Regents University's James M. Hull College of Business, and asked him about why an animal could do better than "seasoned investors."

"It tells me that the stock market's pretty efficient," Medcalfe told Hotchkiss. … "If you can identify an undervalued stock, and I can, then everyone's going to realize it's an undervalued stock and we're all going to buy it, and so eventually the price will rise to reflect its fundamental value."

Apparently, according to an article on WEWS TV/NewsNet 5 in Cleveland, animals are better at picking things randomly than humans are: "In an experiment with flashing lights , birds and rodents selected the correct random light that showed up more often than humans. Researchers said rodents and birds are good at maximizing their success rate, while humans tend to only perform worse as they devise ways to get the right answer."

So we end up with a parrot that beat stock traders in 2009, according to Sky News.

As Jason Unger at Automatic Fianances reports, even monkeys can get game: "In his popular personal finance book arguing that investors can't consistently beat the market ('A Random Walk Down Wall Street'), economist Burton Malkiel says that 'a blindfolded monkey throwing darts at a newspaper's financial pages could select a portfolio that would do just as well as one carefully selected by experts.’ ”

The Mail says one simian, a circus chimp named Lusha, proved this in 2010: "But perhaps the job of an investment banker is not quite as difficult as it might seem. A chimpanzee in Russia has outperformed 94 percent of the country's investment funds with her portfolio growing by three times in the last year."

EMAIL: mdegroote@deseretnews.com

Twitter: @degroote

Facebook: facebook.com/madegroote

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