HomeHome SearchSearch MenuMenu Our productsOur products

Would you let a monkey pick your portfolio? It might not be as crazy as it sounds!

by , 10 July 2013

When it comes to investing, it's easy to get bogged down with the nitty-gritty when researching new additions for your portfolio. That's where this more comical approach steps in. And surprisingly, this method of random share selection might not perform as badly as you'd think. Here's the lowdown on monkey portfolios…

If someone suggested to you to let a monkey pick your portfolio, you might think they were mad. But you may find it hard to believe that this method yields surprisingly good results, Gareth Stokes explains in Fear, Greed and the Stock Market.

Here’s why…

Letting the monkey choose your portfolio

You may have heard of a ‘monkey’ portfolio before. Essentially, it’s the process of picking a bunch of random shares.

The concept “started in 1973 when Princeton University professor Burton Malkiel claimed in his bestselling book, A Random Walk Down Wall Street, that “A blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts,” adds Forbes.

Does it work?

Well, according a study performed by Cass Business School, “ten million portfolios containing stocks randomly selected as if by monkeys managed to produce better profits than a tracker fund over 40 years, academic research has concluded,” reports The Telegraph.

And it’s not as bizarre as it sounds. Newspapers often do this – letting a few teams of expert stock analysts pick their shares for the next period – and then picking a ‘monkey’ portfolio to compete.

The only rule is the monkey portfolio should be picked in such a way that it would never realistically stand a chance of outperforming the serious picks.

How to select your monkey portfolio

There are a number of bizarre methods for choosing a ‘monkey’ portfolio:
  • Throwing darts at a list of JSE shares draped over a dartboard.
  • Having a child randomly circle a number of shares.
  • Get blind drunk and pick shares by pinning the tail on (yes you guessed it) the JSE!

The strangest thing about these randomly picked bags of shares is they often outperform the respected analysts by a long stretch. It’s a strange phenomenon – but has proven true time after time.

Now we’re not suggesting you try and pick a sensible portfolio in this manner, but give it a go and paper trade your ‘selections’. The outcome might surprise you.

Bottom line: No matter who picks your shares, at times your portfolio’s returns will simply be at the mercy of the market. But what the monkey portfolio highlights is that if you’re trusting someone else to make your investment decisions for you, they might not be doing the best job of it. So before handing your money over to a financial advisor or fund manager, make sure you’ve done your research and picked the best person for the job – based on a sound track record of success.

Would you let a monkey pick your portfolio? It might not be as crazy as it sounds!
Rate this article    
Note: 5 of 1 vote

Related articles

Related articles

Trending Topics