Saturday, August 08, 2009

Lesson From a Parrot: Buy and Hold Blue Chips

SKY NEWS -- A five-year-old female parrot called Strawberry has proved to be smarter than human investors in a stock investment contest. The parrot from Papua New Guinea finished third in the six-week challenge, said Paxnet, an online stock market information provider. Strawberry competed with 10 stock investors in South Korea.

Human investors picked any stocks they wanted but the parrot, using its beak, made random choices from balls representing 30 blue chips, including Samsung Electronics. "The outcome of our contest was amazing. Strawberry stood third with her investment return standing at 13.7%," Paxnet general manager Chung Yeon-Dae said.

Human investors averaged a 4.6% loss, with only 2 beating the parrot - one by 64.4% and one by 21.4%. The human investors mostly chose to trade shares of small and medium-sized firms. They each made an average of 190 trades over the 6 weeks. Organizers gave the parrot 7 chances to pick shares over the same period. "Our experiment proved that making long-term investments in blue chips is safe and effective," Chung said.

Originally posted at Carpe Diem.

7 Comments:

At 8/08/2009 11:45 AM, Blogger BlogDog said...

Or that it takes a birdbrain to invest in the market right now....

 
At 8/08/2009 1:27 PM, Blogger adam said...

how does a 6 week test run prove that "Our experiment proved that making long-term investments in blue chips is safe and effective"?

last i checked, 6 weeks wasn't exactly "buy and hold" strategy.

 
At 8/08/2009 5:11 PM, Anonymous Anonymous said...

The irony (or ignorance) of someone who believes so staunchly in the efficiency of markets believing he can call a market bottom is astounding!

 
At 8/08/2009 5:45 PM, Anonymous Anonymous said...

But, isn't that what Warren Buffett always says? How has that been working out lately?:

Were it not for government bailouts, for which Buffett lobbied hard, many of his company’s stock holdings would have been wiped out.

Berkshire Hathaway, in which Buffett owns 27 percent, according to a recent proxy filing, has more than $26 billion invested in eight financial companies that have received bailout money. The TARP at one point had nearly $100 billion invested in these companies and, according to new data released by Thomson Reuters, FDIC backs more than $130 billion of their debt.

To put that in perspective, 75 percent of the debt these companies have issued since late November has come with a federal guarantee. ...

Reuters

 
At 8/08/2009 8:25 PM, Blogger 1 said...

"how does a 6 week test run prove that "Our experiment proved that making long-term investments in blue chips is safe and effective"?"...

So Adam when you wrote to Skynews and asked them that question did they answer you and if so what did they say?

"The irony (or ignorance) of someone who believes so staunchly in the efficiency of markets believing he can call a market bottom is astounding!"...

Hmmm anon @ 5:11 PM you should get together and discuss that point of view with Nouriel Roubini...

You two may generate some seriously interesting insights in how the market functions...

Just a thought...

 
At 8/08/2009 10:02 PM, Blogger 1 said...

Just one more question about the parrot and picking stocks, isn't that just a varient of the Random Walk Theory?

 
At 8/10/2009 10:38 AM, Anonymous Junkyardhawg1985 said...

My recollection is that a monkey with a dart beats 70% of stock analysts in predicting future stock prices.

My personal experience is with the Motley Fool CAPS contest. The CAPS contest keeps track of participants performance relative to the S&P500 index (equivalent of monkey with a dart). You get 1 point for each stock in your portfolio that outperforms the S&P500 by 1%. There is also an accuracy factor in calculating your score. Several months ago, my point scores relative to the S&P500 was at 0 (this means the percentage gains by my winners relative to the S&P500 match the percentage losses by my losers). When I had a zero score in the CAPS contest, I noticed that my ranking based on score was at the 70th percentile (I was beating 70% of CAPS participants). Apparently paid stock analysts are no better than the general population in picking stocks.

The parrot example of the report is the same as a monkey with a dart and got essentially the same results.

With this data, a friend described his "efficient market theory." The market is very efficient at taking money from a large group and concentrating it into the hands of a few investors.

 

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