In 1973, Princeton economist Burton Malkiel wrote a line that still echoes today:
“A blindfolded monkey throwing darts at a newspaper's financial pages could select a portfolio that would do just as well as one carefully selected by experts.”
At the time it sounded like provocation. Today it is an empirically documented fact — and the cornerstone of what science calls evidence-based investing.
The most famous study: 10 million monkeys beat the index
In 2013, Cass Business School in London took Malkiel's anecdote seriously. The researchers simulated 10 million random portfolios from the 1,000 largest US stocks — each portfolio contained 30 randomly picked stocks, equally weighted. That's exactly what a monkey with darts would do across 1,000 tries.
The result was so unambiguous it ended up in textbooks:
- Nearly all 10 million monkey portfolios beat the market-cap-weighted S&P 500.
- Average outperformance was about 1.7 percentage points per year — gigantic over long horizons thanks to compound interest.
- The monkeys also beat the vast majority of all active funds available in the same period.
How can that be? The answer has nothing to do with luck. It has to do with maths, market structure and the fact that active stock-picking is systematically expensive and ineffective.
The three pillars of scientific investing
1. Efficient market hypothesis (Eugene Fama, Nobel Prize 2013)
Markets process new information in seconds. When Apple's quarterly report drops, the new information is priced into the stock within minutes — before a retail-investor TV tip even reaches the living room.
That means: there is no systematic advantage. Whoever thinks “Apple is undervalued” today has exactly the same information as 50 million other market participants. Anyone who still “beats the market” permanently has to do so at someone else's expense — which is mathematically impossible over long horizons once fees enter the picture.
2. Modern portfolio theory (Harry Markowitz, Nobel Prize 1990)
Markowitz proved mathematically: diversification reduces risk without reducing expected return. But only if you invest broadly. Three tech stocks aren't a diversified portfolio — even when they're running hot.
That's why the monkey study works: 30 random stocks are inevitably more diversified than the 10 top picks of a fund manager betting his career on tech.
3. Random walk (Burton Malkiel, 1973)
Price movements follow no predictable short-term pattern. The next move is a “random walk” — it depends on a new, still unknown piece of information. From which it follows: chart analysis, market timing and “riding the trend” are statistically worthless.
Why active funds lose long term
There's another reason the monkeys win — and it's depressingly simple: fees.
Actively managed funds typically cost 1.5–2.5% per year (TER + hidden transaction costs). Sounds small. But:
- At 7% market return, 2% fees = ~30% of your return gone.
- Over 30 years that eats up the difference between €500,000 and €280,000 in final wealth — with identical market development.
- World-index ETFs cost 0.07–0.22%. That's a mathematically decisive advantage.
The Cass study did not deduct fees from the monkeys. In real life the fee advantage comes on top.
What the real-world data says: SPIVA
The annual SPIVA reports (S&P Indices Versus Active) are the truth bible of the industry. As of 2024:
- Over 15 years, ~88% of all active US equity funds underperformed their benchmark index.
- European funds show a similar picture — over 80% lose against the index over 10+ years.
- The share of “winners” is also not persistent: whoever wins this year isn't necessarily up next year. It's essentially luck.
Put differently: you pick a fund manager who is statistically more likely to underperform the market — and pay him 2% of your return for it. That is the joke behind the monkey story.
What smart investors do instead
Step 1 — Accept that market timing doesn't work
If the pros can't do it, neither can you. That's not an insult — it's maths. Accept it, and you've already left 80% of retail investors behind.
Step 2 — Buy the market instead of trying to beat it
A world ETF (e.g. MSCI ACWI, FTSE All-World) automatically gives you a share in the 3,000+ largest companies in the world. You win when the world economy grows — and statistically it does so reliably over long periods.
Step 3 — Optional: factor tilts (Fama / French)
In 1992 researchers Fama & French showed that small companies (size factor) and cheaply valued companies (value factor) deliver systematic excess returns long term — as compensation for higher risk. Whoever wants to harvest this complements their world ETF with a small-cap or value ETF. That is not stock-picking, it's an evidence-based risk premium.
Step 4 — Discipline beats intelligence
The annoying part: the strategy is trivial. The discipline is hard. Don't sell when the market drops 30%. Don't “just briefly” chase the next hot stock. Don't check your portfolio every day. Whoever manages that beats not just the monkeys — but also most real investors.
The uncomfortable bottom line
Scientific investing is not a secret. It has been published for 50 years, awarded with Nobel Prizes and confirmed by millions of data points. Still hardly anyone listens — because the message is boring:
Buy the market. Hold it. Let compound interest do the work. The rest is self-discipline.
That's exactly why it works. And that's exactly why monkeys with darts will keep beating most fund managers over the next 30 years — and smart retail investors who simply buy the market will beat them all.