An investment portfolio randomly selected by the WSJ journalists happened to be 22% better than that of the experts
An interesting experiment was made by the Wall Street Journal journalists. They based it on a jocular statement of the investment world classic Burton Malkiel.
Half a century ago, in his book a Random Walk Down Wall Street, he joked that even a blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio not worse than most professional investors.
In their experiment, WSJ journalists acted as such monkeys and threw their darts five years ago. At the same time, participants of the Sohn investment conference — investment luminaries David Einhorn, owner of the hedge fund Greenlight Capital, and Duquesne Capital founder Stanley Druckenmiller — made their expert choices.
The results were compared five years later. The portfolio selected by throwing darts was 22 percentage points more successful than the one formed by the participants of the investment conference.
Such result could well have been coincidental, the WSJ admitted. So they again blindly threw darts at the Sohn conference last week. They promise to share the result in a year.
Whatever it turns out to be, evidence from many years of research largely confirms the ability of blind choice to compete with conscious choice on an equal footing.
In one study, for example, portfolios of 30 stocks were randomly selected between 1964 and 2012. All of them outperformed the market cap-weighted index.
Another analysis of estimates of the returns of tens of thousands of stocks from 1929 to 2019 has shown that about half of the success stories came from just 83 companies. The rest did not outperform standard Treasury bills in terms of returns.
The author of the “monkey” method himself, Burton Malkiel, is also observing the experiment with interest. He remains a proponent of investing in everything at once, based on an index, a strategy on which numerous index funds have been built since his book was published.
