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|Subject: Re: CAPS is not meant to be a mirror of performa||Date: 2/14/2007 1:48 PM|
|Author: albaby1||Number: 4903 of 9017|
It's my opinion, though, that rewarding big pick lists, assuming the calls are right, is going to make CAPS much smarter than it'd be if CAPS encouraged small pick lists.
Perhaps. The big risk with CAPS - or any similar type of arrangement - is that you end up just chasing past performance.
Like other systems (portfolio games, multiple mutual funds, Hulbert's review of newsletters, etc.) CAPS is very good at identifying who has done well. That type of information is minimally useful compared to identifying who is going to do well going forward. Put 23,000 players into a stock-picking game, and some of them have to outperform the market.
Rewarding big pick lists doesn't necessarily make CAPS smarter - it all depends on why the lists are big. As MrCaps demonstrated, if you pick lots of stocks that move the same way - such as picking a particular sector to outperform or underperform - you can rack up massive changes in Score and Accuracy with what is essentially a single investment call.
This is vastly different from the real world, of course. In the real world, if you accurately predict that semiconductors (for example) will generally beat the market by 5%, you don't get 20 times the gain if you buy 20 semiconductor stocks that all rise by 5% instead of just buying one that rises by 5%. In CAPS, though, you get massively magnified gains (or losses) - your Score increases directly by the multiple of picks, and your Accuracy increases even faster.
CAPS provides greater rewards (and punishments) for people who make these types of calls - broad market calls or calls on one particular aspect of a company - than those who make calls on a specific company by really evaluating that company. The question is not whether correct calls are good or bad, but whether these types of calls should be weighted in the scoring system as much as they are.
In the end, this is important. Fewer than 5% of CAPS players have more than 50 active picks - but those players' active picks alone make up probably around a quarter or so of all stock picks in CAPS. Half of those players are All Stars (ratings of over 80). At this early stage, those big pickers are driving the CAPS bus.
The best way to see whether CAPS is getting smarter or not is to track the performance of the stocks in each basket. CAPS will be exceptional at measuring what it measures - the ranking of players under the specific CAPS criteria. Whether those rankings translate into better stock performance than the market is the real question.
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