This stock picking cat will give you paws

January 14, 2013 12:57 PM

While the professionals used their decades of investment knowledge and traditional stock-picking methods, the cat selected stocks by throwing his favourite toy mouse on a grid of numbers allocated to different companies. [spoiler warning: the cat wins]
posted by latkes (27 comments total)

You should see how he signals you should "dump" a stock!
posted by The 10th Regiment of Foot at 1:01 PM on January 14, 2013 [8 favorites]

I would like to subscribe to his financial newsletter.
posted by Kitteh at 1:05 PM on January 14, 2013 [6 favorites]

That's not how spoiler warnings work.
posted by boo_radley at 1:06 PM on January 14, 2013 [10 favorites]

Sure, letting a cat make all your stock picks may sound like a good investment strategy, but what about the exorbitant amounts of tuna that the cat charges to manage your portfolio?
posted by wolfdreams01 at 1:07 PM on January 14, 2013

[spoiler warning]










I am bad at spoiler warnings.
posted by latkes at 1:09 PM on January 14, 2013 [11 favorites]

Were the professionals in close proximity to Oscar when he made his picks? Did they control for the YOU'RE A KITTY! effect?
posted by maudlin at 1:10 PM on January 14, 2013 [7 favorites]

I think the WSJ did this with a monkey in the 1980s and the monkey won against professional stock pickers then, too.
posted by Admiral Haddock at 1:11 PM on January 14, 2013

Well I'm convinced. I, for one, welcome our new kitty financial overlords. I mean, They are kitties! I just hope HMRC doesn't get after Orlando.
posted by Ad hominem at 1:11 PM on January 14, 2013

Dan Ariely's book 'Fooled by Randomness' has a good extrapolation of these principles. Essential idea: you have a big pool of newbies (lets say 1024) coming into Wall Street each year; they pick stocks, and it's essentially completely random whether they do well or not. So half of them survive to the next year. Repeat for eight or so years and you're down to a few gurus trading massive amounts of money, and extremely cocksure of the trading techniques that allowed them to get ahead on wall street, but they're really just the expected people who have survived the random process this long.

In fact, if my experience of undergrads doing multiple choice questions has any bearing, it would probably be better to have the cat or other random process making the picks. Humans are pretty good at underperforming in areas where a random strategy is optimal.
posted by kaibutsu at 1:19 PM on January 14, 2013 [7 favorites]

This is the thesis of A Random Walk Down Walk Street, first published in 1973. The basic experiment has been repeated many times since and almost always comes out ahead of deliberately, "intelligently" chosen stocks.

Basic premise: pin up the stock market pages from your local newspaper. Remember when those were printed? Yeah, not so much any more. Anyway. Take ten darts. Throw them at the paper. Re-throw any with a value under $5.00 or so or a market cap of less than $x million.* If you drop $1,000 on each of those stocks, you'll almost certainly wind up with more money at the end of the year than if you choose ten stocks "on the merits."

*The theory here is that penny stocks or small-cap stocks tend to be a lot more volatile. There are certain stocks which always trade in the $1.00-5.00 range, but many stocks which get below that value are about to be de-listed. Same goes for companies which are publicly traded yet have negligible market caps. Some of them are just small companies, but many are on the rocks. So you just filter those out.
posted by valkyryn at 1:22 PM on January 14, 2013 [2 favorites]

We clearly need better testing for this. Orlando is a lovely looking orange tabby, but perhaps grey is better at picking stocks? Tortoiseshells? Do cats do better if they have thumbs or if they don't? If they aren't neutered, do they go for risky but profitable investment strategies?

I need to know this so I can decide which of my cats will put together my investment portfolio.
posted by jeather at 1:38 PM on January 14, 2013 [4 favorites]

A spokeswoman for Orlando said he was not available to give an interview because of a claws in his contract.

/barfs on keyboard
posted by quadog at 1:39 PM on January 14, 2013

"A spokeswoman for Orlando said he was not available to give an interview because of a claws in his contract."

Every day is full of justifications for my theory that all you need to make it as a journalist these days is a knack for terrible puns.
posted by sarastro at 1:40 PM on January 14, 2013 [1 favorite]

wolfdreams01: "Sure, letting a cat make all your stock picks may sound like a good investment strategy, but what about the exorbitant amounts of tuna that the cat charges to manage your portfolio?"

In the book, the cats never actually manage to score any tuna.
posted by boo_radley at 1:40 PM on January 14, 2013 [1 favorite]

I'm sorry, I'm sorry. May I appease you, Orlando, with some tuna? Or have you bought yourself all the treats you need with your investment returns already?
posted by jeather at 1:42 PM on January 14, 2013

The basic experiment has been repeated many times since and almost always comes out ahead of deliberately, "intelligently" chosen stocks.

this isn't quite right. There are two anomalies that persist - price momentum and low price to book. Where you have a discussion surrounding those is the view that they are a result of greater risk, or a result of behavioral biases.

Pretty much anything else is crapshoot. And the fees charged by most managers who attempt to follow those strategies will tend to eat up the premium.
posted by JPD at 1:46 PM on January 14, 2013

Repeat for eight or so years and you're down to a few gurus trading massive amounts of money, and extremely cocksure of the trading techniques that allowed them to get ahead on wall street, but they're really just the expected people who have survived the random process this long.


I don't remember the math off hand anymore, but there is some factoid like you need 30 years of a positive sharpe ratio to show that investment returns are skill not luck.
posted by JPD at 1:48 PM on January 14, 2013

Good, I have been looking to diversify my investments. Now, what is the name of Orlando's mutual fund?
posted by ckape at 2:05 PM on January 14, 2013

Meowtual Series
posted by JPD at 2:12 PM on January 14, 2013 [1 favorite]

-1 for each cat pun.

+12 for CAT.
posted by JHarris at 2:19 PM on January 14, 2013

Nothing new in this. Years ago my wife and I established the Tang Index Fund based on the leanings of the dog.

Honda because he loved the car. Ralston-Purina for the food products. Merck because of some medicine he actually liked taking. I forget the rest.

Alas we did not back it up with real money, it did a whole lot better than the S&P for the time of the experiment.
posted by BWA at 3:24 PM on January 14, 2013

This is quite similar to the origin of Bear Stearns. The firm was famously founded by a bear by the name of Joseph, and his handler Robert Stearns. Decisions were made by way of a large wood framed grid, in each box within the grid a single salmon was placed. Bear Stearns, first regarded as a laughable case of pure Barnum, later grew famously respected after coasting clear through the Wall Street Crash of 1929. Things turned toward the tragic when, in 1941, Joseph the Bear mauled, then President of the Federal Reserve Bank of New York, George L. Harrison after he had gotten in between Joseph and his salmon grid. The attack was not lethal, but the outrage that followed certainly proved to be lethal to Joseph the Bear's career. In the spring of 1941, handler and long time colleague Robert Stearns put down his trusted friend. In the years to follow a number of replacements were tried, but none ever proved as effective as Joseph. Nevertheless, Robert Stearns continued the search until the day he died, much to the embarrassment of the company shareholders.
posted by TwelveTwo at 3:27 PM on January 14, 2013 [10 favorites]

"Fooled by Randomness" is by Nassim Nicholas Taleb
posted by bonkydog at 3:31 PM on January 14, 2013

I thought Hermann Rorschach pioneered the method.
posted by TwelveTwo at 3:34 PM on January 14, 2013

Ah, thanks bonkydog; I read that one and a book by Ariely pretty much back to back on a plane and got mixed up.
posted by kaibutsu at 3:45 PM on January 14, 2013

JPD: There are two anomalies that persist - price momentum and low price to book ...

and third, small caps.

Any system that depends on random selection from an equally weighted market of stocks is inherently biased toward small caps and to some extent value stocks, which have higher expected returns. This is because small value stocks vastly outnumber large growth stocks.
posted by JackFlash at 4:20 PM on January 14, 2013

A spokeswoman for Orlando said he was not available to give an interview because of a claws in his contract.

/barfs on keyboard

Dammit, kitty. No hairballs on the keyboard. Or carpet.
posted by HopperFan at 5:49 PM on January 14, 2013