Skip to comments.Monkeys Are Better Stockpickers Than You'd Think: Dart-throwing primates demolish S&P 500 returns
Posted on 06/20/2014 6:46:43 AM PDT by SeekAndFind
"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," Burton Malkiel famously argued in his classic 1973 book, A Random Walk Down Wall Street.
Malkiel may have given too little credit to monkeys.
Start with the record: U.S. large-company mutual funds have routinely failed to beat the Standard & Poor's 500 index since S&P began keeping score in 2002. Over the past five years, for example, 73% of active funds have fallen short of that benchmark. Today's fund families may appear well-stocked with winning funds, but that's in part because 26% of U.S. stock funds were merged or closed during the past five years.
Now consider that the S&P 500 isn't a good proxy for the stock-picking prowess of monkeys. Most of them, given enough darts, would have clobbered the index in recent years. That's because the S&P 500 weights companies by market capitalization, or the cost to buy all of their shares. Large companies have the most sway in determining returns. Monkeys don't care for cap-weighting; they prefer to equal-weight companies as their darts find their mark.
A March study by London's Cass Business School found that among 10 million randomly created indexes, each with 1,000 U.S. stocks in equal weights (that is, monkey portfolios), nearly all of them beat a cap-weighted index from 1968 through 2011.
In a recent report, Tim Edwards and Craig Lazzara at S&P Dow Jones Indices point out that the S&P 500 Equal Weight index has returned 9.1% a year over the past 15 years, beating the S&P 500 cap-weighted index by a whopping 4.6 percentage points a year.
(Excerpt) Read more at online.barrons.com ...
Now, if you can get enough of them together with typewriters.....
I think the first version of this story I read was 1968.
I’m sure a guy reading that same story at that time was thinking.....
the first version of this story I read was 1918.
I realized this after employing an investment advisor for a year. All that SOB was focused on was accruing transaction fees.
They should have their own investment firm and blog, Koko, Bubbles and Curious George LCC. I would be interested in next week’s stock pics.
Smartest guys on Wall Street!
And in DC as well.
This has been true forever. I remember being at a party 35 years ago when some brokers there agreed that was the case.
"Trust me, would I pick stocks by flinging poo?"
Back in the mid 90s I took a business class taught by a great conservative self made very successful guy. He mentioned the monkeys and stock picking story a few times.
If you want to be in this market: RSP beats SPY over all 10 year timeframes. It’s the only advantage the little guy has.
They also make better Federal Reserve chairmen.
Does the monkey have a newsletter?