Bloody active investment managers and those pesky dividend investors, eh. Thinking their so smart, choosing their stocks based on value, fancy P/E ratios, even fancier CAPE ratios, the spooky Q ratio or a great but unhinged management team. I type this in jest.
I have chosen to adopt the passive approach, away from the wizardry of actively selecting individual investments. The more gentle approach to investing, slinging money at as broad an index as I can find, leaving it for the long term and hoping that the citizens of the world work their sweet collective arses off for my benefit (and that includes YOU).
I choose the passive approach partly from laziness (not really), because in the long term I expect returns consistent with long run averages, I shouldn’t be beaten by the market and because it avoids me;
1) – becoming obsessive.
2) – spending more hours hunched over Excel.
3) – developing a nervous twitch questioning the nature and timing of decisions.
The blind monkey
While the temptation has been there, to delve into the seedy underbelly of valuing equity, to concoct my own wonderful ratio that no one has though of before (Mr Z’s Creepy Ratio), to build a really fucking sweet model, I resisted.
I even resisted the offer from a clairvoyant monkey in helping to choose stocks.
|Bob the Clairvoyant – claims his crystal ball is crystal clear|
I am going to smother sensibility with a pillow of insanity and let the random function in excel invest £500 for me, as part of Weenie’s Monkey Stock experiment.
The basic premise is taking a few paragraphs from A Random Walk Down Wall Street very literally, where Burton Malkiel suggests that a monkey selecting stocks by throwing darts is as likely to beat the market in the long term than a professional investor making active trades. So the challenge is to invest £500 in 5 different stocks from the FTSE 350 index, either randomly or by active selection and see how we go over the next year. Quite a few people have selected some random stocks, others have actively selected their stocks and we’ll see who comes out on top at the end.
Weenie, Cerridwen and Mrs FFB40 have let the deity of randomness choose their stocks and I’ll be joining them.
I downloaded the entire FTSE 350 stock list, all 351 of them, assigned each a number between 1 and 351 and then let the following do it’s magic;
My only criteria was that each stock was from a different sector (who doesn’t love diversification after all). With the formula replicated over 5 cells I tentatively pressed SHIFT + F9 to refresh the tab, after a slight mis-fire with two stocks in the “Pharmaceuticals & Biotechnology” sector I was left with the following stocks;
|The Undead Monkey Fund|
Interesting. I shall name you ‘The Undead Monkey Fund’, may you bring me untold wealth.
A quick google of the companies and I see Evraz described as “a falling knife to avoid”. Nice. Well, thanks a bunch Excel, you bastard. Just because my models are never particularly elegant you do that. I imagine the random function monkey in Excel would do stuff like this;
|Random Function Monkey in Excel – evil & vindictive|
Along side my normal investment in some ETF’s, £100 of each of the stocks has been added as part of my regular investment in my ISA, set to invest on the 10th of September. £500 invested in the name of a challenge and decided by, controlled, randomness.
I haven’t done much more than ‘select’ the stocks for the moment, but I’m going to have a go a digging into each of them in the near future. If anyone has any thoughts on them, I’d love to hear it. I may even have a go at seeing which one I think is the best value.
What am I hoping to get out of this?
Am I hoping to beat the market? I might do and I might not. Given the % costs involved with investing £100, the odds are really stacked against me.
To beat those actively choosing their stocks? If my randomly selected group of 5 stocks, The Undead Monkey Fund, do end up on top of the challenge I’m not going to rub it in the face of people that have spent time analysing their selection while screaming “kiss my decomposing undead behind”. Equally I’m not going to be too beat up if at the end of this all the random portfolios are at the bottom and all the actively selected stocks are at the top. Besides, I’ll just claim it hasn’t been long enough and the sample size is too small to be conclusive 😉
It should be a good way to stay engaged with the PF community and introduce a wee bit of friendly competition. I’ve used some of the funds that have been building up in my current account to fund the challenge, so it has helped to increase my savings rate. Which is most excellent, as that’s what the name of the game is during the accumulation phase.
If I’m honest I am a little worried I will get a taste for analysing and selecting stocks, but if that keeps me interested in investing and Financial Independence and forms part of a diversified strategy, that’s all good.
Come on The Undead Monkey Fund, lets see some unprecedented exponential growth.