What do cats and monkeys have in common, besides being adorable and often hilarious? They can both pick stocks better than investment professionals, and also Jim Cramer.
A ginger tabby named Orlando beat a team of investment professionals and a group of students in a year-long stock-picking experiment conducted by the British paper The Observer. Orlando picked his stocks by throwing a toy mouse at a grid of companies, while his human opponents possibly used methods involving "research" and "thinking."
At the end of the year, Orlando's picks had returned nearly 11 percent, while the pros had gained just 3.5 percent. The students lost money on the year. (In comparison, the Standard & Poor's 500-stock index rose 13 percent last year; they all would have been better off just buying an index fund.)
Orlando joins a long list of famous stock-picking animals that have made stock-picking humans look ridiculous through the years. They include Adam Monk, the cinnamon-ringtail monkey who successfully picked stocks by circling their ticker symbols in the newspaper, beating the market and shouty CNBC personality Jim Cramer.
Then there's Lusha the Russian circus chimpanzee, who reportedly beat 94 percent of Russian investment managers one year by picking cubes with company names.
And then there is what may be the ur-investing-monkey, Raven the chimp, who threw 10 darts at a wall full of internet stocks and picked 10 winners. It was the time of the dot-com bubble, to be sure, but Raven's performance allegedly placed her 22nd among more than 6,000 Wall Street pros that year.
These experiments highlight a sad truth on Wall Street that nobody seems to believe: Not even the professionals know what they're doing, really. Picking stocks is as random as flipping coins or throwing toy mice or your feces at company names. Even the monkeys lose sometimes -- though even a losing monkey can still be better, and often funnier, than Jim Cramer.
The great thing about letting a cat pick your stocks for you is the low fees, mainly consisting of cans of Fancy Feast, some kitty litter and maybe one of those nice scratching posts. Way, way cheaper than the typical hedge-fund take of two percent of assets and 20 percent of profits, fees they almost never deserve. And can a hedge fund do this?
10. Gilead Sciences
<strong>10. Gilead Sciences Opening price: $41.86. Dec. 26 price: $72.48. Growth: 73 percent</strong> As a <a href="http://www.amazon.com/gp/product/038549081X/ref=as_li_ss_tl?ie=UTF8&tag=slatmaga-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=038549081X">Handmaid’s Tale </a>fan, I can’t help but feel this is a creepy name for a biotech company, but in many ways it’s the happiest story on our list. Gilead makes a number of drugs, including the influenza treatment Tamiflu and Cayston for cystic fibrosis. But its strong 2012 was driven primarily by the Food and Drug Administration’s approval of Gilead’s tenofovir/emtricitabine combination drug marketed as Truvada—the first prophylactic pharmaceutical shown to substantially reduce the risk of HIV infection among high-risk populations. This is good, old-fashioned, innovation-driven growth, where firms prosper by inventing useful new things. This year clearly isn’t going to go down in the history books as the greatest year in American economic life. The unemployment rate was high, and most Americans’ earnings were flat. But the list of top-performing S&P 500 stocks shows unmistakable signs of an economy on the rebound. Players in housing, appliances, finance, and travel all benefited from a general return to economic normalcy with other standout performers scattered across sectors whenever they caught a lucky break. Not the best of times by any means but something like a normal time. If things get even better in 2013, expect to see fewer firms on the list that benefit from generic growth and more stand-out innovators driven to the top by new products rather than a simple increase in production.
9. Seagate Technology
<strong>Opening price: $16.40. Dec. 26 price: $30.38. Growth: 85 percent</strong> This company makes hard drives, which actually isn’t much of a booming sector because PC sales have stagnated in the face of the iPad and ever-smarter smartphones. The optimistic corporate line is that the strong year reflects successful reorganization after the return of former CEO Stephen Luczo. The more cynical take is that their main competitor, Western Digital, <a href="http://www.channelregister.co.uk/2012/02/29/seagate_bouyed_by_thai_floods/">had a lot of factories destroyed by floods in Thailand</a>. Lefty Gomez famously said he’d rather be lucky than good, and the same thing applies in the business world.
8. Tesoro Corporation
<strong>Opening price: $24.47. Dec. 26 price: $43.34. Growth: 77 percent</strong> Tesoro is another energy player, an independent refinery and gas station operation headquartered in San Antonio, Texas. Its seven refineries in the western United States have benefitted from the combination of increased gasoline production and not-so-large increases in the country’s refining or crude oil export capacities.
7. Marathon Petroleum
<strong>Opening price: $33.41. Dec. 26 price: $61.66. Growth: 85 percent</strong> Last year was all about growth in the oil and gas industry. This year has seen broader economic growth and a more diverse set of winners. But the technological innovation driving increased oil and gas production in the United States marches on. Marathon Petroleum was one of the biggest beneficiaries this year, especially since its summer 2011 spin-off of Marathon Oil left it focused exclusively on the booming refining and pipeline sectors.
6. Lennar Corporation
<strong>Opening price: $19.89. Dec. 26 price: $38.01. Growth: 91 percent</strong> Another homebuilder, Lennar is an even bigger company than Pulte though with a slightly less booming year. Homebuilders across the board had a strong year, re-enforcing the breadth of the housing recovery.
5. Expedia Inc.
<strong>Opening price: $29.66. Dec. 26 price: $57.93. Growth: 95 percent</strong> Expedia launched the year by spinning off its TripAdvisor group of travel-related media sites and focusing on its core set of online travel tools. That’s Expedia itself, but also Hotels.com, Hotwire.com, the corporate travel agency Egencia, and a travel website in China called eLong. A good position in the Chinese marketplace is an asset for any company these days, but travel in general is, like appliances, something that fluctuates with the overall ups and downs of the economy. Firms and households have a relatively easy time cutting travel spending when they need to tighten their belts, but an overall better outlook had those belts loosening this year instead.
4. Bank of America
<strong>Opening price: $5.80. Dec. 26 price: $11.54. Growth: 99 percent</strong> The most troubled of America’s troubled big banks had a very solid if belated comeback year. That said, this is more a case of the shares being nearly worthless a year ago than of anything extraordinary happening today. The company is still trading well below a notional book value of $20 per share worth of assets, reflecting ongoing concerns about legal liability and a perception that the company is simply too large and diverse to be managed properly.
3. Whirlpool Corporation
<strong>Opening price: $48.51. Dec. 26 price: $99.74. Growth: 106 percent</strong> At the intersection of the underhyped housing recovery and the overhyped manufacturing recovery lies Whirlpool Corporation, America’s leading manufacturer of the big stuff you put in your house. This is a bigger company than you think, since they make Maytag, KitchenAid, Jenn-Air, and Amana appliances along with the ones that actually bear the Whirlpool name. They also make some Ikea-branded appliances, as well as producing for the Sears and Home Depot house brands. Home appliances aren’t sexy, but that’s exactly what makes them a great indicator of core economic well-being. A sexy company can thrive even in a bad economy. To sell washer, dryers, and stand mixers, you need a climate of reasonably broad prosperity.
<strong>Opening price: $6.37. Dec. 26 price: $13.37. Growth: 110 percent</strong> This isn’t a household name, but as a major homebuilder, the PulteGroup is a decent bellwether for the American economy. Construction activity closed 2012 at what’s still a very low level by historical standards, but it’s way up from where it was a year ago. After years of stagnation, we’re back to adding houses faster than we add people—meaning folks are finally moving out from their parents’ basement or their sister’s spare room.
1. Sprint Nextel
The extraordinary performance of the third banana of American wireless telephony was less about anything Sprint did than about Japanese telecom giant SoftBank’s decision to purchase 70 percent of the outstanding shares for $20.1 billion. Conventional wisdom panned the move as ego-driven and doomed to failure, and <a href="http://www.slate.com/blogs/moneybox/2012/10/16/softbank_buys_sprint_japanese_wireless_carry_buys_ailing_american_company.html">I have no contrarian Slate-y rebuttal</a>, but as a citizen, it’s good to know that when rich Japanese egomaniacs want to make a foolish investment, they still think of America as the place to do it.