How a herd of cows trampled on human stockpickers

Date published: 21 January 2020

Robin Wigglesworth

Investing is hard. So hard, in fact, that even highly-trained professionals who have dedicated their lives to mastering markets often fail. An unusual experiment in Norway, pitting pros against livestock, underscored just how tricky it can be.

In 2016 Norway’s state broadcaster NRK ran a programme featuring an investing contest involving two stockbrokers, an astrologist, two beauty bloggers, and a small herd of cows. Each team was given NKr10,000 ($1,122) to invest in Oslo-listed stocks for three months.

Contests like these have been done before. The economist Burton Malkiel argued in his 1973 book, A Random Walk Down Wall Street, that “a blindfolded monkey throwing darts at a newspaper’s financial pages” could do as well as the experts. Since then, people have tested that theory with actual monkeys, cats, dogs, rats and even a Swedish houseplant. But this was the first time someone has tried to find out if cows can — quite literally in this case — dump on the performance of professional investors.

A cow named Gullros and her fellow portfolio managers were led to a field where the producers had laid out a grid with the tickers for each of the 25 members of Norway’s OBX index. The cows picked their stocks by relieving themselves on the grass.

Their energy-intensive portfolio included Aker Solutions, state-controlled Statoil (now Equinor), Fred Olsen Energy and — perhaps to diversify — Schibsted, one of Scandinavia’s biggest media groups. Aker was the top pick, judging by the scale of the cows’ “conviction”, but the producers equal-weighted the portfolio.

The two brokers, meanwhile, were confident they would do well, arguing that “the more you know, the better you’ll do.” They selected salmon farmer Marine Harvest (now Mowi), Norway’s biggest bank DNB and cruise operator Royal Caribbean.

The astrologer was upbeat too. Since it was the year of the goat in the Chinese calendar — symbolising family, friendship and togetherness — he opted for DNB, Norwegian Air Shuttle and Orka, a conglomerate best known for making Norway’s unofficial national dish, the “Grandiosa” frozen pizza.

The bloggers seemed bewildered, admitting that they did not recognise any of the companies that make up the index. Stocks that caught their fancy were Marine Harvest and Royal Caribbean, mostly because the influencers fancied a sunny vacation.

The purpose of exercises like this is to show that markets are difficult to beat. And it is often hard to determine whether those that do manage it, owe it to skill or luck.

Warren Buffett expanded on the theme in a 1984 speech, imagining a “national coin-flipping contest” of 225m Americans, who would wager a dollar each day on guessing the result. Statistically, after 20 days one would expect 215 people to have correctly guessed 20 flips in a row, earning them $1m.

At this stage the successful coin-flippers would “probably start jetting around the country attending seminars on efficient coin-flipping and tackling sceptical professors with, ‘If it can’t be done, why are there 215 of us?’” Mr Buffett said.

Berkshire Hathaway’s chairman later won a decade-long, million-dollar bet with investment group Protégé Partners, that the S&P 500 would beat the bunch of hedge funds they selected.

In the Norwegian experiment, too, the professional stockpickers did not emerge with very much credit. They did manage to beat the OBX index over the period, gaining 7.28 per cent compared to the index’s 5 per cent return. This was better than the astrologer but only fractionally ahead of Cowpat Capital, which managed a 7.26 per cent return. The overall winners were the bloggers, who were up more than 10 per cent.

There was a twist, however. The presenters revealed that their own portfolio had gained almost 24 per cent — but only because they had entered 20 different combinations, and ditched all the worst performers. This was to illustrate a concept known as “survivorship bias”. Many funds that do badly in their early years are quickly shut down, allowing asset managers to show a roster of surviving funds with good, above-market results.

By adjusting for closed or merged funds, a truer indication of how the average fund performance emerges. S&P’s semi-annual scorecard does this, and reveals that just one in eight US equity fund managers outperformed the broader stock market over the past decade.

Moreover, picking winning fund managers is also tricky, as the “persistence” of their results is poor. S&P’s latest study shows that less than half of funds qualifying as top-quartile performers maintained that ranking in the subsequent year. Less than 3 per cent do so over a five-year period. Hiring these particular stockpicking cows may therefore prove to be a mistake, despite their solid run.

The Norwegian experiment was a fun gimmick, with a short time period that lent itself to quirky results. But it highlights a broader point. Most investors should forget about trying to beat the market, and stick instead to cheap, index-tracking funds.


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