Are you better than a cat at investing?
The Dollars & Sense Podcast - Episode One Newsletter
A strange question we know, but something all inspiring investors should ask themselves.
During our first podcast, Tim shared an entertaining tale of Orlando the cat, who was challenged to beat a team of professional money managers at picking stocks. With the emergence of DIY investment apps at our fingertips, more and more Kiwis are having a go at stock picking. Now this is by no means an attack on having a go by yourself, we are actually very positive about people trying to learn more and give investing a go. However, we believe that if you’re going to invest by yourself, only invest what you can afford to lose, and understand what other options are out there.
But what does this have to do with a cat?
Back in 2012, a British paper called The Observer ran a contest challenging three parties to make the most money on the share market in a year with a beginning balance of £5,000. The competitors included a team of three professional money managers, a group of high school students, and a rather unconventional participant - a cat named Orlando.
So, how did they do? When the dust settled and the results were in, Orlando the cat emerged victorious. The professionals applied their extensive knowledge to exploit market opportunities, while Orlando, in a playful twist of fate, simply tossed his toy mouse onto a grid of numbers representing different companies.
At the end of the year, the professionals had increased their portfolio value to £5,176, the students were down to £4,840, and Orlando had amassed £5,542. Now we won’t fall down a rabbit hole discussing the “random walk hypothesis” but perhaps this theory that share prices move completely at random, and stock markets are entirely unpredictable may hold some weight.
Of course, this study only tracked one year of results - but it begs the question, if professional managers struggled to beat a cat during the year, what makes individuals with their own full-time jobs, families, and hobbies think they can do it effectively by themselves?
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