How a cat beat professionals at stockpicking

A teachable moment.

The Observer spent 2012 challenging a panel of professional stockpickers – a wealth manager, stockbroker and fund manager – to beat schoolchildren and a cat at making a profit from the stock market. The cat won:

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.

By the end of September the professionals had generated £497 of profit compared with £292 managed by Orlando. But an unexpected turnaround in the final quarter has resulted in the cat's portfolio increasing by an average of 4.2% to end the year at £5,542.60, compared with the professionals' £5,176.60.

Click through for some awful puns.

Naturally, this is a teachable moment. Matt Yglesias points out that, even if the cat had lost, once fees are factored in it would almost certainly have beaten the professionals. The traditional "2 and 20" fee of hedge fund managers – that's two per cent of the investment and 20 per cent of the profit – is easily enough to turn a market-beating fund into a market-losing investment.

But the cat may have been aided by the year in which the competition took place. Zero Hedge reports that, over 2012, the S&P rose 16 per cent, meaning that:

A whopping 88% of hedge funds, as well as some 65% of large-cap core, 80% of large cap value, and 67% of small-cap mutual funds underperformed the market.

Barron's explains why a strong index is bad for hedgies:

Hedge funds typically lag behind broader indexes slightly during years with double-digit S&P gains—they do have to hedge, after all—but it's rarely by this much.

Managers across all strategies are concerned about another 2008-like market crash, but in the meantime, they've been hurt by central banks' persistence at keeping interest rates low. Add in volatility and a U.S. presidential election where the top three issues are the economy, the economy, and the economy, and it's clear that hedge-fund managers are more concerned about managing risk than gambling on equities. Investors and other industry observers say that for perhaps the first time since the phrase hedge fund entered the lexicon, hot or gimmicky strategies aren't worth investing in at all. It's the manager that counts.

The cat was picking from the FTSE rather than S&P, but much the same lessons apply. Markets have performed well this year; gimmicky stockpicking strategies haven't; and, of course, there was a healthy dose of feline luck.

But maybe hedge funds and stockpicking are always over-valued? Warren Buffett thinks so; he made a $1m bet in 2007 that:

Over a ten-year period commencing on January 1, 2008, and ending on December 31, 2017, the S&P 500 will outperform a portfolio of funds of hedge funds, when performance is measured on a basis net of fees, costs and expenses.

That's critical of funds-of-funds – which add another layer of returns-destroying fees – but it's representative of a growing trend. If you must invest in something more complicated than an all-shares index, try a dart-board and a list of stocks.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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What is the Scottish Six and why are people getting so upset about it?

The BBC is launching a new Scottish-produced TV channel. And it's already causing a stooshie. 

At first glance, it should be brilliant news. The BBC’s director general Tony Hall has unveiled a new TV channel for Scotland, due to start broadcasting in 2018. 

It will be called BBC Scotland (a label that already exists, confusingly), and means the creation of 80 new journalism jobs – a boon at a time when the traditional news industry is floundering. While the details are yet to be finalised, it means that a Scottish watcher will be able to turn on the TV at 7pm and flick to a Scottish-produced channel. Crucially, it will have a flagship news programme at 9pm.

The BBC is pumping £19m into the channel and digital developments, as well as another £1.2m for BBC Alba (Scotland’s Gaelic language channel). What’s not to like? 

One thing in particular, according to the Scottish National Party. The announcement of a 9pm news show effectively kills the idea of replacing News at Six. 

Leading the charge for “a Scottish Six” is John Nicolson, the party’s Westminster spokesman for culture, media and sport. A former BBC presenter himself, Nicolson has tried to frame the debate as a practical one. 

“Look at the running order this week,” he told the Today programme:

“You’ll see that the BBC network six o’clock news repeatedly runs leading on an English transport story, an English health story, an English education story. 

“That’s right and proper because of the majority of audience in the UK are English, so absolutely reasonable that English people should want to see and hear English news, but equally reasonable that Scottish people should not want to listen to English news.”

The SNP’s opponents think they spy fake nationalist outrage. The Scottish Conservatives shadow culture secretary Jackson Carlaw declared: “Only they, with their inherent and serial grievance agenda, could find fault with this.” 

The critics have a point. The BBC has become a favourite punch bag for cybernats. It has been accused of everything from doctored editing during the independence referendum to shrinking Scotland on the weather map

Meanwhile, the SNP’s claim to want more coverage of Scottish policies seems rather hollow at a time when at least one journalist claims the party is trying to silence him

As for the BBC, it says the main reason for not scrapping News at Six is simply that it is popular in Scotland already. 

But if the SNP is playing it up, there is no doubt that TV schedules can be annoying north of the border. When I was a kid, at a time when #indyref was only a twinkle in Alex Salmond’s eye, one of my main grievances was that children’s TV was all scheduled to match the English holidays. I’ve migrated to London and BBC iPlayer, but I do feel truly sorry for anyone in Glasgow who has lost half an hour to hearing about Southern Railways. 

Then there's the fact that the Scottish government could do with more scrutiny. 

“I’m at odds with most Labour folk on this, as I’ve long been a strong supporter of a Scottish Six,” Duncan Hothershall, who edits the Scottish website Labour Hame. “I think the lack of a Scotland-centred but internationally focused news programme is one of the factors that has allowed SNP ministers to avoid responsibility for failures.”

Still, he’s not about to complain if that scrutiny happens at nine o’clock instead: “I think the news this morning of a new evening channel with a one hour news programme exactly as the Scottish Six was envisaged is enormously good news.”

Let the reporting begin. 

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.