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Subject:  Re: CAPS is not meant to be a mirror of performa Date:  2/1/2007  12:17 PM
Author:  woof321 Number:  4791 of 9790

The most obvious way to illustrate that is to consider two hypothetical players over the course of a year. Player A picks three stocks that rack up returns (relative to SPY) of +30%, -3%, and -3%. Player B picks six stocks that all outperform the index by exactly 5%.

I agree that Player B deserves kudos in this case for being perfect, and indeed my efficiency formula would give him a 100% rating, versus just 83% for player A. The problem is when player B does not hold all his stocks for exacly a year, but closes them at opportune times when they're ahead by over 5%. Now, his accuracy is meaningless. The problem is that he wasn't really saying "I think this stock will beat the market over the next year", but rather "I think this stock will be ahead at some arbitrary point between now and the end of time".

Accuracy could be saved if we kept watching the stock after it was closed up into the point when the original prediction interval expires. So, if a player predicts a stock will beat over a year, but closes after a week for 5 points, you could certainly award the points and never take them away, but you keep watching the accuracy of that prediction up until the full year. At the end of the year, you lock it in as right or wrong.

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