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URL:  http://boards.fool.com/in-fact-we-may-collectively-underperform-and-25171848.aspx

Subject:  Re: CAPS is not meant to be a mirror of performa Date:  2/14/2007  10:40 AM
Author:  TMFEldrehad Number:  4896 of 8104

In fact, we may collectively underperform and stay underperforming after the first real down-draft. The reason I say this is because we don't have the counter-balancing effect of negative opinions that are reflected by market participants such as specialists and market-makers. We're the "all-positive all-the-time stock-picking network".

It's *way* too early to tell with any degree of certainty, but I don't see this as necesarily being a problem. Remember that CAPS stock rankings are relative. With that in mind, it's possible to have an imbalance between the number of outperform calls vs. underperform calls and still have CAPS stock rankings be a good predictor of performance. To be sure, the proverbial jury is still out on this one, but I don't see this as necessarily hamstringing us from the start (though I do think, like you, that it would be better if the calls were more balanced).

What would probably be more interesting would be to ASSIGN teams of people stocks they know something about - have them research the crap out of them - and bring back the findings for the benefit of the whole community, in a consistent format that can be digested and compared. Right now if 1000 people are putting in an opinion on Intel - imagine the duplication and wasted effort - and the difficulty in finding the few true insights that the majority have not picked up on.

I think assigning teams would be a mistake, and a worse system than we have now. As it stands now, players select themselves as members of these 'teams' by the simple fact of deciding to weigh in on a stock in question. While some may well (and do) piggy-back on others, I believe that in the long run and in general, people will gravitate toward those stocks they know most about in CAPS - just as they do in real life. I think the 'teams' with self-selected members will outperform 'teams' wherein members are assigned - but that's just one opinion.

Can CAPS be better than it is today? You bet. And every single interaction I've had with every member of the CAPS team tells me that they will continue to work tirelessly to bring those improvements to fruition. My guess is that they'll be the first to admit that not only is their work not done, it has barely even begun.

That said, I can say unequivocally that CAPS has already helped me, personally, to become a better investor and has helped me make some quite fruitful decisions when managing my real-life portfolio.

Case in point: I first stumbled onto Denny's as a possible investment as a result of CAPS. Upon reading some good pitches on the stock, I started to sniff around a bit on my own, and found that I liked what I saw, so I entered Denny's as a CAPS pick. A little time rolled by, and as a result of my CAPS pick, I continued to follow the pitches and opinions of my fellow CAPS players. Then, one day, one of the Fools who I follow most closely (and who has a phenomenal record both at the Fool in general and in CAPS) weighed in on Denny's, liking the stock for much the same reasons I did.

It was that day, or the next, that I pulled the trigger in my real money portfolio, and I've added a couple of lots since.

Now, how well my investment does in Denny's in the long run is yet to be seen, but so far I've done very well - especially when one considers that this is over a short period of time.

CAPS stock ratings a predictor of performance? Too early to tell.

CAPS already helping this Fool to find outperforming stocks? No question.

Regards,

Russell
a.k.a. TMFEldrehad




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