Investment: Why the Apes Can Match the Experts on the Stock Market ; Beating the Stock Market Is a Tough Challenge Which Most Professionals Cannot Meet
Davis, Jonathan, The Independent (London, England)
It is sad to report that the monkeys have thrown their last darts in the long-running competition that has graced the pages of The Wall Street Journal for the past 14 years and which set out to establish, admittedly unscientifically, whether there was any truth in the theory that stock markets are so "efficient" none of us can hope to beat them over time.
Every month since 1988 four professional investors have pitted their stock-picking skills against four darts thrown at the share price pages by members of the Journal staff. The objective has been to see which group recorded the highest share price gains over the subsequent six months.
It started as a bit of fun, prompted by the success of one of the great classic books about stock market investing, A Random Walk Down Wall Street (published in 1973, now into its ninth much-revised edition and still well worth reading).
The author of the book, Professor Burton Malkiel, of Princeton University, was one of the first academics to popularise the notion that it is near- impossible to predict accurately and consistently in advance which shares will outperform in the future. The argument behind efficient market theory, as it is known, is that all available information is quickly absorbed and reflected in current share prices.
As a result, you can argue - and Professor Malkiel does - that shares chosen at random are just as likely to perform well as those selected by professionals. "Taken to its logical extreme", he wrote, it means "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 the experts".
The Wall Street Journal is not the only paper to set out to test this theory in a literal sense. Readers of The Independent will know that the Business and City Editor is prone to ask his young daughter to undertake a similar exercise when attempting to select his share of the year at Christmas. Those who have bought the argument that indexing is a worthwhile strategy for many investors are, in part at least, endorsing the same theory, though the darts in their case are chosen rather more scientifically, by a powerful combination of computers and members of the index selection committee at the London Stock Exchange (don't dream of calling them monkeys, please).
It is not clear why the Journal has stopped its competition. Three years ago, it extended the rules of the game to allow readers as well as professionals to choose stocks in competition against their ersatz monkeys. Now it says that the feature has simply run its course and it is time to make over the space to something fresher. (I can think of various alternatives on the same theme, as I am sure can you).
I wonder whether the decision has anything to do with the dart- throwing contest not coming up with what seems the right answer any more. That is to say, while the "monkeys" started off strongly, the most recent evidence is that the professionals have actually been winning more often than the theory suggests they should. …