Who invests better: a monkey or a human?

Ever seen a monkey sell stock? Still, maybe they can do it better than us. A blindfolded monkey would make better investments than humans. Just by throwing darts at a newspaper page full of stocks. Is that correct?

Fund managers sell stocks worse than monkeys

Researchers at the US National Bureau of Economic Research also wondered this in 2021. That is why they compared the investment decisions of a monkey with those of experienced fund managers between 2000 and 2016. The managers together managed nearly eight hundred investment packages (portfolios) for clients. And not just any portfolio: on average they were worth $573 million each.

Now the researchers didn’t have a real monkey on hand, so the random trading choices had to come from a computer program. The researchers then calculated what results the managers would have achieved if they had made each choice haphazardly, just as a blindfolded monkey with darts would do. 

Buying shares

What turned out? The experts were better off buying shares than the digital monkey, because they got more profit from that. But selling shares did the monkey better. So a draw between professional investors and monkeys. Does this also apply to the average investor?

Blindfolded monkeys also invest better than a passive fund

The average investor has less experience than a trained fund manager and therefore makes less good investment decisions. Fortunately, there are tools, such as a passive index fund, that skip all the typical investor fallacies. This gives the average investor another chance against the monkey.

2016 was a peak year for investing digital monkeys

Armed with such a passive index fund, researchers at the University of London (UK, 2017) took on billions of blindfolded monkeys, also digital this time, who bought and sold stocks at random. In 2016, the Chinese year of the monkey, they compared the performance (return) of the index fund with that of the digital monkeys. In addition, 88 percent of the primates came out better than the fund.

Was 2016 a lucky year for monkeys by any chance? Not necessarily, previous research compared the same index fund with digital monkeys from 1968 to 2011. Again, the monkeys beat the fund by a margin.

But don’t worry, monkeys don’t always beat us. The English researchers also looked at five other, less common, indexing methods. The allbirds stock price prediction is found online. And they did better than the primates.

In short, whether you outperform a blindfolded monkey depends on how you invest. Although winning against such a digital darting monkey is no easy feat. Well, this year is the Chinese year of the tiger. Would that animal beat us (too)?

Online course: Investing for beginners

Do you want to learn how to beat monkeys (and other investors)? Quest, together with Quote magazine, created the scientifically research-based, but light-hearted, course Investing for beginners. In it you will learn everything about what you can invest in, how you do that and how you can avoid psychological pitfalls.