Free for 90 days: Sign up now and get 90 days managed free after your first deposit. See offer details

<title>Dismiss</title>
Investing Basics

Cats Pick Stocks Better than Professional Wealth Managers

It’s the story all index investors love to hear – ordinary housecats beating professionals in a yearlong stock picking challenge.

Articles by Betterment Editors

By the Editorial Staff
Betterment Resource Center  |  Published: January 23, 2013

Here's the bottom line: Learn more about Betterment

The challenge, dreamed up by Britain’s The Observer, pitted three professionals, a class of students from a secondary school in Hertfordshire, and a marmalade cat – Orlando – against each other. Each was allowed to invest £5,000 in any five companies on the FTSE All-Share index. At the end of each quarter, the challengers could sell stocks, and replace them with others from the index.

The professionals used their decades of experience to select stocks; the students their research and instinct; while the Cat’s preferred method involved throwing his favorite toy mouse on a grid of numbers allocated to different companies.

Things started out well for the pros – the wealth manager, broker, and fund manager – who were in lead by the end of the third quarter. An unexpected turn around in the last quarter upset the balance, with Orlando coming out on top, the wealth managers pulling in behind him, and the poor students making a loss (according to their teacher they made the early mistake of selecting companies in risky areas).

The lesson for us all?

If you can’t predict the future – and no one can – you shouldn’t be picking stocks. If you already have a full time job doing something else, chances are you don’t have time for another full time job managing your money.

You can leave it to the professionals, or Orlando, or you can invest in a diversified portfolio that tracks the index.

We should add that while it’s fun to laugh at the suits, this is too small a sample to say all professional stock pickers will be beaten by a tabby. After all, we’ve all heard the stories of “my guy” who gets above average returns. But while that may be true in some instances, it’s very hard for any professional to consistently do so. Professor Eugene F. Fama of the University of Chicago Booth School of Business goes as far as to say that any success in active trading is sheer luck.

What do you think?

Recommended Content

View All Resources
Debt and Savings: Initial Moves for Effective Investing

Debt and Savings: Initial Moves for Effective Investing

Tackling your debts and saving money are prerequisites to investing and building wealth. Here are 5 ways to tackle your different financial priorities.

Acceptable Reasons for Holding Unused Cash in Smart Saver

Acceptable Reasons for Holding Unused Cash in Smart Saver

When you aren't yet sure when or how to spend or invest your unused cash, we offer Smart Saver, a managed account designed to handle your extra cash.

Our Team of Experts

Our Team of Experts

Our executive investing committee includes experts from a range of backgrounds. We make strategic decisions based on a systematic, evidence-based approach.

Explore your first goal

Safety Net

This is a great place to start—an emergency fund for life's unplanned hiccups. A safety net is a conservative portfolio.

Retirement

Whether it's a long way off or just around the corner, we'll help you save for the retirement you deserve.

General Investing

If you want to invest and build wealth over time, then this is the goal for you. This is an excellent goal type for unknown future needs or money you plan to pass to future generations.

Smart Saver

You could earn 20X more than a typical savings account with our low-risk investing account for your extra cash.

<title>Close</title>

Search our site

For more information and disclosures about the Betterment Resource Center, click here. | See our contributors.