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The top cat of stock-picking

January 17, 2013
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Regular readers of this blog will know that we wouldn’t, under any circumstances, recommend anyone pays a professional stock-picker to buy and sell shares on their behalf.

However, if you really are determined to try to beat the market, how about hiring the services of the family pet?

You might want to reward them with some tasty treats depending on how successful they are, but you’d otherwise avoid the hefty fund charges that active managers tend to impose. And, chances are, because luck plays a far bigger part in higher-than-average returns than skill, your furry friend is just as likely as the so-called experts to outperform. 

Take Orlando the ginger moggie. At the end of 2011, The Observer newspaper challenged Orlando to pit his investing acumen against a team of top investment professionals - Justin Urquhart-Stewart of wealth managers Seven Investment Management, Paul Kavanagh of stockbrokers Killick & Co, and Schroders fund manager Andy Brough. 

Orlando and the experts each 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 and replace them with others from the index. While the professionals used their in-depth knowledge and traditional stock-picking methods to inform their decisions, Orlando selected stocks by throwing his favourite toy mouse on a grid of numbers allocated to different companies. 

Fair play to the experts... They’d actually generated £497 of profits compared with Orlando’s £292 by the end of September. But while the experts refused to adjust their portfolios for the final quarter, Orlando shuffled his pack and comfortably overtook Urquhart-Stuart and Co. by the end the year. 

The professionals finished with £5,176.60, and Orlando with £5,542.60 - an increase of 4.2%. Far less, of course, than he would have achieved by investing in a FTSE All-Share index fund instead, but a creditable effort nevertheless. 

Urquhart-Stewart apparently took it in all in good spirits. "It's time to crack open the Whiskas," the Observer quoted him as saying. "The cat's got talent." 

To celebrate his success, Orlando's owner, journalist Jill Insley, bought him a red collar in the style of Urquhart-Stewart's famous red braces. 

All very amusing, of course. Except that for millions of British investors, this is no laughing matter. 

We’ve been persuaded by a combination of advertising and constant media exposure that active fund managers really do justify the charges we pay for their “expertise”, when in fact they rarely do. 

As a result, ordinary working men and women are seeing the value of their investments seriously eroded over time by consistent underperformance and unreasonably high costs. Our loss is the fund managers’ gain. 

Orlando, meanwhile, has given up stock-picking to focus on terrorising local rodents. He, for one, has earned a comfortable retirement.

(Picture of Orlando copyright The Guardian/Jill Insley) 

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