Would an Octopus Make a Successful Fund Manager?
I enjoyed a visit to the Living Coasts exhibition in Torquay the other day (well worth doing if you are in the area).
The main attractions are the penguins and seals but they also have an octopus. Seeing him (or her I wouldn’t know how to sex one) got me thinking about Paul the octopus that shot to fame during the 2010 football World Cup having enjoyed a successful run in predicting the outcome of Germany matches.
Paul’s carer in his German Sea Life centre home would provide two boxes containing food decorated with the flags of Germany and their opponents in the next match. Whichever box Paul ate from was predicted to be the winner of the game.
In the 2008 European Championships Paul correctly predicted 4 out of Germany’s 6 games and 7 out of their 7 games in the 2010 World Cup. He also predicted Spain as the World Cup winners. A total success rate of 85%.
There was some who would say there is an animal six sense that enabled his success but most would reasonably conclude it was just a matter of luck.
This led me to compare it to the fund management industry where star fund managers are paid millions (funded by annual manager charges levied on pension and ISA savers) to predict which markets and companies will either generate higher returns or to protect from stock market crashes.
The industry will have you believe that they have the expertise and abilities to predict winners and avoid losers but there is no evidence to suggest that, like Paul the octopus, this is nothing more than luck.
There is however, substantial evidence to show that a top fund manager in one period fails to replicate it the next.
When Paul’s running streak came to an end and Germany were knocked out of the World Cup by Spain there were calls on him to be eaten. Whilst this may be acceptable for an octopus your best revenge for an over paid fund manager is to sack him and divert your pension and ISA portfolio to a low cost passively invested portfolio allowing you to keep more of the returns.
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