Buying Stocks Is Easy. Selling is Hard.

A recent study suggests that blindfolded monkeys might be able to do a better job choosing stocks than the average institutional investor—with the caveat that the monkeys are “given the darts when it’s time to sell holdings, not when deciding what to buy.” This according to an article in Bloomberg.

The study, which evaluated more than 4 million trades in 783 portfolios from 2000 to 2016, found that stockpickers possess skill on the buy side but that sales cost them as much as a full percentage point of returns (100 basis points) “compared with a no-skill strategy of simply selling holdings at random.” The reason for the discrepancy, the study concluded, was that investors spend more time analyzing the buy than they do the sell.

According to the article, monkeys with darts—a concept made famous by Princeton economist Burt Malkiel—”would have one big advantage over human fund managers when it comes to selling. The animals couldn’t get emotionally connected to the stocks in their portfolio.” The article offers a few examples of the complex strategies used by professional investors to correct this tendency.