When the British newspaper The Observer set up its 2012 investment challenge, the editors invited a team of three experts from a wealth management company, a stockbroking firm and a fund management firm to compete against a team of students … and a cat.
Guess who won.
Each team invested an imaginary £5,000 ($8,000) for a year, and with the opportunity to change any of their investments every three months.
While the professionals used their decades of investment 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.
By the end of the third quarter, it looked like the professionals were coming out on top, with a profit of £497, compared with a profit of just £292 in Orlando’s portfolio. But then Orlando leaped ahead to end the year at £5,542.60, compared with the professionals’ £5,176.60.
The students finished last, but had an excellent final quarter when the stock price of one of the property companies they’d invested in increased by 17.4%.
Martin Hutchinson, the Global Investing Strategist at Money Morning, explains why cats are not just as good as or better than humans at picking stocks, they’re way ahead of dogs. Dogs, he says, have completely the wrong approach to life to ever be successful investors.
Dogs are herd animals, rushing madly in the same direction as the rest of the pack. Thus it was no surprise when it was recorded that there were many dogs making share applications in the Facebook IPO.
Dogs are also trusting, a hopeless personality trait for success on Wall Street.
Cats on the other hand are by nature contrarian, objecting strongly if other animals intrude into their chosen investment sector. Their inquisitiveness helps them find values in obscure corners of the market.
And their hatred of disruption and change helps them identify long-term value propositions, avoiding fly-by night losers.
Cats are also noted for their intense focus on regular feeding. For this reason they indignantly reject stocks that don’t pay dividends. They also have no interest in companies that make large share buybacks, gorging their shareholders in good times, then come back begging for more capital in downturns.
The feline favorites are companies that have paid regular dividends for decades, ideally the “heirloom stocks” that have increased their payouts for 30, 40, or even 50 years.
Food that arrives with complete reliability and regularity for decades, the portions gradually increasing over the years, is a cats’ dream, and their investment preferences reflect this. Studies will show you that this feline selection technique has substantially outperformed the market, in bull and bear periods, for decade after decade.