The Future of Portfolio Management

Even though the world's financial markets remain in turmoil, recent rises in equity markets have re-kindled interest in stock-picking, with many investors desperate to make their money back.

An article in yesterday's Evening Standard highlights the difficulty in choosing a portfolio that will actually make money. They set out to discover "Who is better at picking shares in the midst of a major recession — a highly trained, media-friendly stockbroker, or the office cat?"

The result? Over the past six months, the stockbroker's portfolio beat the overall FTSE 100 return, achieving a 6% gain, but failed to match the cat's strong 14% gain over the period.

Separately, Metro reports that rattraders.com uses trained rats to choose whether stock prices will rise or fall by pressing levers. When they make the right decisions, the rats receive bonuses just like real traders, although the rats get food rather than cash.

Rattraders.com says:

Our program is a professional service to the financial industry; rats are being trained to become superior traders in the financial markets. Using our own methodology in accordance with well-established animal training techniques, our subjects learn to recognize pattens in historical stock and futures data as well as generating trading signals. We provide solutions for tick based trading data and day based data. RATTRADERS rats can be trained exclusively for any financial market segment. They outperform most human traders and represent a much more economic solution for your trading desk.

Potential cat-rat office politics aside, for those calling for serious reform in financial market practices, perhaps the day has arrived.

I know I'm putting my cat to work on my portfolio immediately.