Cool for Cats
The Observer newspaper staged an experiment, pitting a panel of market professionals against a ginger cat called Orlando in a competition to see who would have the most success in picking stocks in 2012.
Each team invested a notional £5,000 in five companies from the FTSE All-Share index at the start of the year. After every three months, they could exchange any stocks, replacing them with others from the index.
The professionals used their experience, insights and market knowledge to select stocks. The cat’s method was rather less elaborate. Orlando simply threw a toy mouse onto a grid of numbers allocated to stocks in the index.
The newspaper reports that Orlando out performed the professionals by 4%. While hardly scientific, this does provide another reminder about the difficulty of generating consistent above-market returns by picking individual stocks or making forecasts. And it’s something to keep in mind when you are confronted by media and market prognostications for 2013.
Many forecasters began 2012 by issuing downbeat calls for equity markets – but according to MSCI nearly all share markets posted very strong returns in 2012.
It should be plain by now that basing your investment strategy on someone else’s forecast is a haphazard way to build wealth. No matter how diligent and expert your forecaster is, unexpected events have a way of messing up their expectations.
The good news is you don’t need a crystal ball to build wealth. You just need a regularly rebalanced diversified portfolio of assets designed for your needs and risk appetite. You also need to keep an eye on costs and taxes.
Most of all you need to keep your cool and exercise patience. Like a cat.
1. ‘Orlando is the Cat’s Whiskers of Stock Picking’, The Observer, Jan 13, 2013