By Damian Clarkson, senior editor, MSN Money
Picking shares at random would earn you more than a fund tracking the stock market, study finds.
Score one for the primates: it seems that ‘monkeys’ can make better stock picks than certain fund managers.
Cass Business School analysts created 10 million digital investment portfolios where stocks were picked entirely at random – thus simulating how a monkey would (theoretically) invest. The computer monkey investors, as we like to call them, could pick from any of the 1,000 largest companies on the US stock market.
The process was repeated for each year between 1968 and 2011 – the aim being to discover how well a strategy based on pure luck fared against a conventional market cap-weighted index.
The result? The conventional investment returned just under $5,000 since 1968, yet half the ‘monkeys’ managed to generate more than $8,700.
“Nearly every monkey beats the performance of the market cap weighted index,” says Professor Andrew Clare of Cass Business School.
But don’t expect to see a troupe of monkeys down the London Stock Exchange just yet: “Most monkey indices were outperformed by indices based on inverse volatility, equal risk contribution and risk efficient methodologies.”
So fund managers can rest easy – for now…