How a Cat and Some Monkeys Outperformed the Experts

In the U.S., the most recent major sporting events were the NBA and NHL finals, but the rest of the world is more engaged with the Eurocup. Football ("soccer" to us Americans) is the world's biggest sport, played on the world's biggest stage, with most of its biggest stars. And when that kind of action is happening, you naturally get -- animal prognosticators. 

"What?" you ask. "Animal what?" Yes, there are animals that have an apparently more than random level of success at predicting the outcome of big-time athletic contests. That led Alison Southwick and Robert Brokamp to wonder how well some animals have done at beating active human investors. The answer might surprise you.

A transcript follows the video.

This podcast was recorded on June 21, 2016.

Alison Southwick: So yes, it is Eurocup. It's a thing. It's a big deal, apparently. You may remember that back during the 2010 World Cup, Paul the [Psychic] Octopus correctly predicted the winner of eight matches, and ever since then people have been looking for animal oracles for advice, even for the Eurocup. We have Nellie the Elephant, and a koala bear named Oobi-Oobi ...

Robert Brokamp: Oobi-Oobi?

Southwick: ... making predictions. Isn't that a great name? So far, Nellie's gotten one right and Oobi-Oobi has not. But whatever. So how do animals fare when it comes to stock picking? Because yes, people have made animals pick stocks.

Brokamp: [Laughs]

Southwick: Back in 2013, I believe it was the London Observer that decided to have a cat named Orlando pick stocks against a team of professionals -- stock-picking professionals and also some students. Each team invested about 5,000 pounds into five companies from the FTSE, and every few months they could exchange the stocks and replace them with others from the index.

While the professionals used decades of investing knowledge and traditional stock-picking methods, the cat selected stocks by throwing his favorite toy mouse on a grid of numbers allocated to different companies.

When it was all said and done, Orlando the cat managed to have an average return of 4.2% to end the year with about 5,500 pounds ...

Brokamp: Nice ...

Southwick: ... compared to the professionals at about 5,200 pounds.

Brokamp: Aw ...

Southwick: So the cat out-invested them. But, it turns out it's not just cats that are good at investing.

Brokamp: What other animals are good at investing, Alison?

Southwick: Monkeys!

Brokamp: Monkeys!

Southwick: But before we go into the monkeys, Bro, why would someone have monkeys do investing?

Brokamp: Well, when you read about this, it usually harks back to a book that came out in 1973 by Burton Malkiel called A Random Walk Down Wall Street, and one of his arguments -- and he was one of the first people to be making this argument back then -- is that it's very hard to beat the market.

Southwick: The quote is, "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."

Brokamp: Right. And the theory being that it's actually hard to beat the market, and the average "expert" actually doesn't do that well. And ever since he wrote that book, various people have tried to simulate his hypothesis one way or another ...

Southwick: With monkeys!

Brokamp: With monkeys and darts.

Southwick: So in 1999, it was a chimpanzee named Raven. You might remember her from Babe: Pig in the City. She threw 10 darts at a dartboard of 133 internet-related companies, and she managed to outperform more than 6,000 internet and technology money managers and earned an astonishing 213% return. Remember, this was in January of 1999.

Brokamp: Right.

Southwick: So apparently on MarketWatch.com there's a headline that said, "Chimp '99 champ! Makes monkey of Wall Street." Obviously she did very well, but then 2000 happened, and after the dot-com bust, she did very poorly, leading a finance professional to say, "Any monkey with a dart can potentially make money in a rising market."

Brokamp: Didn't they make an index named after her? I think they called it the Monkeydex.

Southwick: Yes! The picks were so impressive that they created the Monkeydex, an index based around her picks. Thrown with a dart. We also have the circus chimpanzee Lusha, who did very well in Russia. Her portfolio topped 94% of Russia's mutual funds. And then there was also a monkey name Adam Monk, which I would argue is the worst name for a monkey ever. Why would you name your monkey Adam Monk?

Brokamp: He was very contemplative.

Southwick: Eh, whatever. He worked for the Chicago Sun-Times. He's a Brazilian cinnamon ringtail cebus monkey, and he picked stocks by circling them in the newspaper with a red pen. He outperformed the indexes four years in a row, from 2003 to 2006, and he did it again in 2008 with a portfolio that only lost 14% while most money managers were losing upwards of 35%. So the bottom line -- monkeys!

Brokamp: Monkeys, everybody.

Southwick: Not only are they fun, but they're also really good at investing. This would make me feel like maybe Malkiel was right and I shouldn't bother investing in individual stocks.

Brokamp: Well, not necessarily. There are other studies that show things like this. Research Affiliates did a simulation of this where they would pick random stocks that also would beat the market. And one of the conclusions they drew is actually similar to what I mentioned earlier with "Answers, Answers" in that part of the reason why some of these dart-throwing monkeys and other stock-picking animals do well, at least compared to the overall market, is that by chance they're randomly choosing smaller companies, which historically do beat larger companies.

But it does go to show that a lot of what happens in the market, in terms of investing over the short term, is luck. I think that's one lesson about this. I actually sent this article -- the one about the stock-picking cat, Orlando -- to Tom Gardner, founder of The Motley Fool and CEO. I said, "Aha, isn't this pretty funny?"

And his response, and I dug it up today, was, "I find these stories kind of funny, but mostly absurd. One year tells me nothing as an investor. You put that cat up against Charlie Munger over 10 years and it will be begging for mercy."

A lot of these things are very short-term, and I think any stock picker and any mutual fund manager -- anyone who's managing any kind of money -- will tell you that they don't know what's going to happen over the next six months to a year. So who knows? Measuring a cat or someone over a longer period of time would be a little more interesting. Or not more interesting, but more meaningful, maybe.

Southwick: And that's what we're really looking for here.

Brokamp: We're looking for ...

Southwick: We're really looking to get some meaning behind monkey stock pickers. Rick, if you had a pet monkey, what would you name it?

Rick Engdahl: In high school we had a toy monkey that was passed around between people. It had, like, Alice Cooper makeup and a sword in his hands. It was really scary, horror-movie stuff. And it was named Zip the Monkey, and that is probably what I would name my monkey.

Brokamp: Zip the Monkey.

Southwick: Bro, how about you?

Engdahl: I'd want it to get Alice Cooper makeup, too.

Southwick: Yeah, absolutely. Bro?

Brokamp: Michael Nesmith, my favorite Monkee.

Southwick: Oh, that's cute.

Brokamp: Yeah, yeah.

Southwick: My monkey would be named Lord Archibald Fuzzy Britches.

Brokamp: That, by itself, is the funniest name

Southwick: Yeah, well ...

Engdahl: Monkey or no.

Southwick: Yeah, that's just a good name.