Why you don’t want to invest like a pigeon

28 October 2020

4 minute read

What lessons can we take from animal behaviour when considering our own, and should investors try and time the market?

Who's it for? All investors

The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.

What you’ll learn:

  • Similarities between how birds negotiate risky environments and decision-making biases in humans
  • What is probability matching
  • How to stack the odds in your favour.

Fowl behaviour

The behaviour of animals, and pigeons specifically, may appear an unusual place to look for investment guidance. However, animal behaviour researchers have discovered some remarkable similarities between how these birds negotiate risky environments and decision-making biases in humans. In one series of experiments, researchers trained pigeons to peck at coloured lights by rewarding them with food. The scientists change the probability, timing and quantity of food to see how they responded. The experiment was then set up so that pecking the green light delivered food 60% of the time it was pecked, but the red light only for 40% of pecks.

What does this have to do with investing? Well, it is a similar experience of investors who feel they have to make a choice trying to decide whether they should be invested or not every month. During the last 50 years, most developed world stock market indices have posted gains in around 60% of months, with losses in the other 40%1 (although past performance is not a reliable guide to future performance so we can’t conclude that this will happen in the future). You only get to make one choice at a time: if you’re invested in the market rewards will be forthcoming in the up months, but you’ll go hungry if the markets drop. If you’re not invested, you’re rewarded in the months the market falls.

Birds of a feather

When pigeons encounter the problem in the experiment they tend to use a strategy called probability matching – meaning they learn the chance of getting food from the lights and end up pecking the lights in the same proportion – so peck the green light 60% of the time and the red light 40% of the time. Interestingly human subjects, given a similar task, also tend to do this probability matching, hence why we often feel the desire to only be invested some of the time.

However, when the process that generates the results is essentially random, this is the wrong strategy. When you have little or no way of knowing what the next result will be, the best (or maximising) strategy is always to peck the light that has rewarded the most often. Pigeons, or investors, who peck the green light at every opportunity can expect to be rewarded 60% of the time, any other strategy is expected to underperform. The natural tendency of both humans and pigeons, for probability matching, results in a reward 52% of the time2, an 8% penalty versus always choosing the option with the highest chance of reward.

Finding the signal in the noise

Of course markets are not entirely random and the future doesn't follow the same path as the past. Meaning there may be times when an investor feels they have enough confidence in market performance over the near term to justify moving in or out of the markets. However, beware of trying to ‘time the market’ by making large, frequent shifts in your portfolio as you will likely fall short of simply sticking to long-term investment trends. Over short-term horizons, there is a large amount of chance in markets as they are buffeted by many unpredictable events. Once the likely path of these events becomes clearer, markets have usually already reacted, meaning any confidence might be misplaced.

Given the difficulty in discerning these moves with any accuracy3, a long-term investor should only be tilting the make-up of their portfolio by small amounts. As Terry Smith, manager of Fundsmith – one of the UKs most popular funds – said: “When it comes to so-called market timing there are only two sorts of people: those who can’t do it, and those who know they can’t do it.”


Predictions over the longer term can be even more difficult. As the economist, John Kenneth Galbraith said, “The only function of economic forecasting is to make astrologers look respectable”. However, you can be comforted by the fact that if you are invested in a portfolio that is spread across different investment types, industries and geographies, you are stacking the odds in your favour. So, when you find yourself wanting to choose to hold cash for a while, remember to resist your inner pigeon. Peck the green light, get invested and stay invested.

Where to invest

We believe that the best way to achieve your long-term investment goals is to have a diversified portfolio. To help you we’ve created our Funds List – it’s made up of funds we like from the sectors we believe are key to building a diversified portfolio. Within each sector, there’s a mix of investment focus and investment approaches to choose from. So why not take a look at our selection? 

Alternatively, you may prefer to consider our own Barclays Ready-made Investments (RMI). The RMI are just one example of a range of diversified funds which allow you to select the level of risk you are most comfortable with. These multi-asset funds invest across a range of asset classes and regions, offering a globally diversified one-stop solution for investors. Ready-made Investments are not the only funds that we offer and they won’t be appropriate for everyone. 

We don’t offer personal investment advice so if you’re unsure you should seek that independently.

Funds are designed for the long term so you should only consider them if you can stay invested for at least five years.

All of these investments can fall in value as well rise; you may get back less than you invest.

These are our current opinions but the future, as ever, is uncertain and outcomes may differ.

Find out more about our Ready-made Investments.

You may also be interested in

The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.

Investment ISA

A simple and tax efficient way to start investing

Boost your savings by investing up to £20,000 in our Investment (Stocks & Shares) ISA per year completely tax-free.

If you've used your ISA allowance this tax year, you can open a regular Investment Account or transfer in another ISA to us.4

Investment ISAs

Self-Invested Personal Pension (SIPP)

A self-invested personal pension (SIPP) is a type of tax-efficient personal pension that usually offers you access to a wider choice of investments than other types of pension.