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Author: albaby1 Big gold star, 5000 posts Top Favorite Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 8074  
Subject: CAPS is not meant to be a mirror of performance Date: 2/1/2007 12:01 PM
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There's been a number of threads that have pointed out (correctly) that the way that CAPS measures performance is different than real world performance. However, that's intentional - because CAPS is trying to measure the ability to pick outperforming stocks, not the ability to construct an outperforming portfolio.

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%.

Player B will have a much better CAPS rating than Player A. Player B has a score of 30 and accuracy of 100%, while Player A has a score of 24 and an accuracy of 33%. However, if you were to construct a portfolio of Player A and Player B's selections, it would be Player A who outperforms - Player A would return 8% more than the index, while Player B would only return 5%.

The reason? The market doesn't pay you any more for having picked multiple stocks that yield similar returns over a given time frame than it would for picking one stock that would yield the same returns. Investing $100 in a stock that gains 5% yields the same ending portfolio balance as investing $50 each in two stocks that gain 5% over the same time frame.

But since CAPS is trying to measure stockpicking, not portfolio performance, it does reward multiple accurate picks in a way that the market does not. It ranks the player who picks two stocks that each return 5% (always relative to the market) higher than the player who picks two stocks that return 10% and 0%, and both of them higher than the player who picks two stocks that return 12% and -2% - even though all would have the exact same returns in the market.

So yes - there are countless changes you could make to CAPS to make its rankings more reflective of how a real-world portfolio would perform based on the stock selections. Weighting picks, tweaking accuracy ratings - all would work. But those are beside the point - CAPS is a stockpicking game, not a portfolio managing game, and it's not intended to rank players based on how their stock picks would perform in the real world. It ranks them based on how correctly they make stock picks.

Albaby
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Author: woof321 Two stars, 250 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4791 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/1/2007 12:17 PM
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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.

Dave

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Author: albaby1 Big gold star, 5000 posts Top Favorite Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4796 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/1/2007 12:59 PM
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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".

It's only meaningless under a specific definition of accuracy - one which CAPS is not using. A correct prediction that a given stock will outperform the market at some point in the future would be incredibly valuable. Indeed, one could make a solid argument that it's far more useful to be able to identify that a stock will have outperformed the market by 5% at some time in the future than to be able to determine which stocks outperform/underperform over an arbitrary time frame (a year, a quarter, what have you).

Being able to correctly predict that a stock may jump past the market by 10% some time in the next few months, even if it falls behind the market over the calendar year, would be a very useful skill - and one that could be valuable. CAPS tries to measure that skill, not necessarily the ability to predict relative stock prices exactly one year (or some other arbitrary time period) from now.

Albaby

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Author: woof321 Two stars, 250 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4799 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/1/2007 1:37 PM
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Okay, I predict that every stock in the Dow will be beating the market at some point in the future.

I also predict that every stock in the Dow will be losing to the market at some point in the future.

Let's see how I do. I bet my accuracy with both prediction sets is going to be phenomenal.

Dave

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Author: AssetMangler One star, 50 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4804 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/1/2007 3:53 PM
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But those are beside the point - CAPS is a stockpicking game, not a portfolio managing game, and it's not intended to rank players based on how their stock picks would perform in the real world.

Hi Albaby,

Then what use is there in giving stocks star ratings - if it's not meant to be applied to the real world?

Alhough I am warming up to the idea of not having deal with slogging through a balance sheet. It would definitely be more fun to build a portfolio around say, America's funniest stock symbols.

Cheers,
AM :)

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Author: albaby1 Big gold star, 5000 posts Top Favorite Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4808 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/2/2007 9:13 AM
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Okay, I predict that every stock in the Dow will be beating the market at some point in the future.

I also predict that every stock in the Dow will be losing to the market at some point in the future.

Let's see how I do. I bet my accuracy with both prediction sets is going to be phenomenal.


That's very likely for de minimis losses and gains, such as might occur during the course of a trading gain. It's probably likely over the near term. But it's less likely that you'll get over the 5% mark for those picks if you make both outperform and underperform calls. Even so, if you were in a world without transaction costs, you could make an awful lot of money in a real-world portfolio exploiting that effect. That's why CAPS has the 5% rule - to lock out exploiting those minimal gains.

The exercise that CAPS is trying to undertake is to get players to assess whether a stock is undervalued or overvalued relative to the market. The expectation is that the stock price will, over time, move (relative to the market) to eliminate the under- or overvaluation. Whether that happens quickly or slowly is not really what CAPS is measuring.

Note that this is a serious discrepancy between CAPS and the real world. In the real world, outperforming the market by 5% in a month is much more valuable than outperforming the market by 5% in a year - yet CAPS scores them the same.

Plus, as noted above, CAPS' require a 5% gain for accuracy points, so it does limit the utility of betting on the variations around the market mean.

Albaby

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Author: DutchMark Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4809 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/2/2007 9:54 AM
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Okay, I predict that every stock in the Dow will be beating the market at some point in the future.

I also predict that every stock in the Dow will be losing to the market at some point in the future.


Last time I checked some public companies do go bankrupt. Or halve in value to never ever return. Or get bought out after a price drop. (Just happened to me with PWEI, still can't believe management cheated us out of that one.) That even happens to companies in the Dow.

So I predict your predictions are wrong.

Mark


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Author: woof321 Two stars, 250 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4811 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/2/2007 11:02 AM
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I'm not going for 100% here. If both prediction sets were over 90% accurate in just a few years, I figured that be enough for people to realize how silly this system is.

I understand that companies don't last forever. Thanks to Lucent, turbotrager has one banked loser to go with 289 banked winners. Okay, so he's only 99.7% accurate in his closed predictions instead of 100%. Still enough to make the leaderboard by moving over 3000 rankings higher than a portfolio that used the same stock selection criteria but didn't bank mindlessly

Dave

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Author: AssetMangler One star, 50 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4822 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/5/2007 10:20 PM
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I understand that companies don't last forever. Thanks to Lucent, turbotrager has one banked loser to go with 289 banked winners. Okay, so he's only 99.7% accurate in his closed predictions instead of 100%. Still enough to make the leaderboard by moving over 3000 rankings higher than a portfolio that used the same stock selection criteria but didn't bank mindlessly

Mindless banking ... sounds like my financial institution.

Well, the way I figure it, with the dead weight of all my "stop loss" picks, I should be able to match turbotragers 97% accuracy - oh, in about 10,000 picks and 2-3 years from now. I can hardly for that time when it will be a true horse race. :)

Cheers,
AM

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Author: AssetMangler One star, 50 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4823 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/5/2007 10:40 PM
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Note that this is a serious discrepancy between CAPS and the real world. In the real world, outperforming the market by 5% in a month is much more valuable than outperforming the market by 5% in a year - yet CAPS scores them the same.

I've proposed in the past that CAPS measure annualized return after a certain minimum period of time (its about those darned small denominators) - say 6 months to a year. I've also suggested that picks unmade be charged as cash. These two things would, as a start, make scoring much more realistic.


Plus, as noted above, CAPS' require a 5% gain for accuracy points, so it does limit the utility of betting on the variations around the market mean.

The other thing to consider is that picking big-cap stocks that are part of the SP500 and that have a lower beta (less daily movement than the market) may be counterproductive to the return-to-the-mean thing as well. I have this vision of this herd of lumbering big-caps lamely and unspectacularly following the bovine twists and turns of the already lame and unspectacular index - and never reaching it. You don't want to load yourself down with too many "dead money" picks, as I am finding, to my further 1.34 ranking chagrin.

Wow, we've been back and forth on this stuff for a long time. What WAS the point of CAPS again?

Cheers,
AM

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Author: rbgibbons One star, 50 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4843 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/8/2007 4:10 PM
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The scoring system is clearly nuts. It has little relationship to anything that would be useful in investing in real life. In real life, I want to know who the players are with the top performing portfolios, so that I can look at their stock picks and see if they're attractive. In particular, I don't want to see 500 stock picks that the game-player is carefully cultivating until they hit the appropriate harvesting threshold.

So, I'd consider the CAPs rating as something similar to a score in a video game. They're quite indicative of how effective someone will be at killing dragons in a virtual world. But probably only marginally useful in determining how they'd do killing dragons in the real world.

Thus, the scores in CAPs have no value except for entertainment. If someone wants to spend their time gaming CAPs, it's no different from me spending time playing online poker.

The real-world value in CAPs is in identifying the 4 or 5 stocks in your own portfolio that are most indicative of your own investment strategy and then, trolling through the (reasonably sized, non-gaming) porfolios of people who like those same four or five stocks. In that way, you can actually identify people with similar investment strategies and interesting investment ideas.

Of course, the more people who game the system trying to get high scores, the less useful CAPs will be for identifying interesting stocks.

Richard



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Author: shayeg Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4846 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/8/2007 4:46 PM
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because CAPS is trying to measure the ability to pick outperforming stocks, not the ability to construct an outperforming portfolio.

Really? CAPS does NOT measure the ability to pick outperforming stocks over a period of time. Only the ability to pick stocks that outperform CURRENTLY. What is not taken into account is the person's prediction. The stock is weighted by its current performance only. If someone predicts that the stock will outperfom in 6 months time, no credit is given if it actually comes true. If someone predicts that a stock will outperform and closes the stock when it goes bad, no points are taken off for premature closing.

How does that account for "ability to pick outperfoming stocks"? Most Fools are not in the market as "day traders". I would think that some second rating should be made for members whose predictions come true at the end of the term. Whether you are "beating the market today" or not should be irrelevant to the "ability to pick outperforming stocks".

Another factor - I don't know how to measure - is the ability to outperform from today forward. For example, Foolish Company (FOOL) was predicted to outperform the market in January 2007 by the end of the year. In february, some news sent the stock soaring 50%. The rest of the year it stayed at 50%. At the end of the year it will have outperformed the market; but from March to the end of the year it did not. Of what value is the prediction from January to someone looking at CAPS in March?



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Author: woof321 Two stars, 250 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4849 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/8/2007 7:25 PM
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Well, I can assure that what I've learned in CAPS has been put to excellent use in the real world, and not just for stock picking.

Last week I went against the flow and bet that the Bears would outscore the Colts in the Superbowl. I wisely closed out my pick after the first quarter and won!

Dave

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Author: Ganndalf Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4852 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/8/2007 11:24 PM
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That's a good post, Allbaby, thank you for spelling it out so clearly.

However, what I would like to get- or at least one thing I'd like- is for caps to be a place that I could go to for some downright excellent market pummeling stock ideas. It may be too much hubris or idealism on my part, but for me, I enjoy identifying (or at least being made aware of) Super-stocks, for lack of a better word. Getting rich quickly, however, goes against Foolish wisdom, which advocates the 'get rich slow" approach. So I suppose I'm a little bit of a bad boy. I don't mind getting rich slowly just as long as it as quickly as possible.

As things are now, one has to pick through a player's selections very carefully. I'm just not that interested in stocks that are going to beat the market by 5% even if that person's accuracy is 100%. I would like to be able to identify players who have a talent for picking Mega-stocks. But I suppose that is why I'm a Rule Breaker subscriber.

Maybe I incriminate myself by making this statement, but I'm not content to just beat the market. I set out to try and obliterate the market. Some will say that is a rather prideful, unrealistic, and likely very risky thing to try and do, but I suppose I would say that all depends. A person need to know their limits, though.

All in all, I think Caps is pretty darn fun, and I'm OK with keeping it the way it is. What is the specific reason for Caps existing? That is the main point to start from. I remember reading somewhere David had listed something like 15 things Caps is good for. I need to go back and read that again.

In closing this little post that I doubt really went anywhere in any coherent fashion, I would just like to say, "Thanks David! Caps is one heck of a lot of fun! .... and it even has some practical applications to boot!" On top of that, it's free! Except that I spend and inordinate amount of time 'playing' this krazy game!

May the Fool be with you all,

Ganndalf


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Author: TMFKopp Three stars, 500 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4855 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/9/2007 3:05 AM
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For the purpose of finding players that are picking those home run stocks you can always just sort by score to come up with those that have racked up a huge score. Also, there's a new addition in the top ten tab that lets you find the players with the highest average score.

As for tying score to how correct the timing of prediction is - that's more soothsaying than it is being a good stock picker. If you buy a stock that you think is way undervalued and the market comes to that same conclusion shortly after you buy, all the better.

Though you can probably find a time frame where every stock on the Dow outperforms the S&P and underperforms the S&P, in CAPS you have to pick that right time frame. CAT may outperform the S&P by 5% from March to August, but if you pick it now and it underperforms by 11% from now to March you've still got a losing pick in August.

If someone can very consistently pick stocks that are going to outperform the S&P by 5% or more it's time to start a hedge fund. Go long the individual stocks and short the S&P and pocket that 5%.

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Author: 1poorguy Big funky green star, 20000 posts Top Recommended Fools Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4883 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/13/2007 3:59 PM
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I'm sure others have echoed this sentiment, but I was hopeful that CAPS might be a good tool to use to help with stock-picking, as opposed to telling me who's good at stock-picking. Alas, I haven't found a way to use it in that manner.

For example, suppose I am interested in stock XYZ. I do my DD. But market sentiment can be as important as the cold, hard numbers. Maybe CAPS could be used for that? Like I said, I haven't found a way to do it.

1poorguy (s*cks at CAPS)

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Author: TMFBreakerDave Big gold star, 5000 posts Old School Fool Supernova Phoenix 1
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Mission Team Member CAPS All Star Motley Fool One Everlasting Fool SN Explorer 1 Mission Team Member Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4884 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/13/2007 4:51 PM
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1poorguy,

Part of our premise is that "telling you who's good at stock-picking" will be very valuable, as it will (a) help you follow the best stockpickers (you can find almost any style to track here at CAPS), and (b) the aggregated intelligence, ticker-dominated, merit-weighted, will provide you an interesting and possibly quite useful second opinion on any stock you're considering. There is of course no magic formula that helps any of us 100% of the time pick the perfect entries and exits for any given stock. CAPS can though provide you a transparent window into what actions have been taken on any stock, and I'm happy to say as of market close today we have over 3,800 stocks rated -- and all relative to each other -- which is more than twice as many stocks tracked and rated as any other investment resource previously available on the planet. (And growing every day.) That transparent window we're providng you also brings with it, in select case, the verbal rationale of the stockpickers in the form of the "pitches" they write, and increasingly, in their blog postings as well.

I have really enjoyed following a few indices here at CAPS, each of which was started by a community members and systematically uses CAPS stock ratings to try to beat the market.

5STARsmallCAPS
http://caps.fool.com/ViewPlayer.aspx?t=01009619955465971084
Player Rating: 97.05
Score: +797.01

CAPS1StarIndex
http://caps.fool.com/ViewPlayer.aspx?t=01006289001630901883
Player Rating: 78.79
Score: +257.11

CAPS5star1star
http://caps.fool.com/ViewPlayer.aspx?t=01007999450359615993
Player Rating: 86.52
Score: +903.01

CAPS5StarIndex
http://caps.fool.com/ViewPlayer.aspx?t=01000902704641194721
Player Rating: 76.29
Score: +487.41

As you may or may not know, "Score" represents aggregated percentage points of incremental outperformance of the S&P 500 by the picks made on those scorecards. There is growing evidence even at this early stage that our Motley Fool community intelligence, highlighted here on CAPS, can provide second opinions that help you beat the market. We're still in our early stages, of course. But I think one of many uses of CAPS -- our community has identified more than a dozen discussed on this thread: http://boards.fool.com/Message.asp?mid=24734537&sort=whole -- is to pay attention to those stock ratings, which are nothing more than our aggregated collective intelligence, weighted by merit.

It's great to have you trying out our service. Foolish best wishes.

David Gardner
... whose own stockpicking continues to benefit from CAPS every day

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Author: albaby1 Big gold star, 5000 posts Top Favorite Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4885 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/13/2007 5:38 PM
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As you may or may not know, "Score" represents aggregated percentage points of incremental outperformance of the S&P 500 by the picks made on those scorecards. There is growing evidence even at this early stage that our Motley Fool community intelligence, highlighted here on CAPS, can provide second opinions that help you beat the market.

What type of evidence are you referring to, David? I'm curious whether any internal tracking of ratings vs. performance has panned out.

I'm not sure how much those four user-created indices tell you. The CAPS5Star1Star is defunct - the little "bomb" icon indicates that the poster gave up on the portfolio at least 90 days ago. There hasn't been a transaction since October, so no rebalancing. Half the picks don't meet the criteria any more.

The "small cap" index doesn't tell you anything unless you measure it against a small cap benchmark (small caps outperformed the market in general in Q4 2006, so you can't conclude that 5star small caps outperformed 1star small caps during that time frame).

The 5Star and 1Star indices have high scores and high ratings, but at this early stage you can't tell whether that's because they are really measuring anything significant or whether that's an artifact of the large numbers of picks they make - their average scores are less than a point difference from the median CAPS player, and they've both trailed and exceeded the markets at early stages in their young lives.

Moreover, all the player created indices are limited to 200 active picks, so none of them provide any accurate information about the universe of CAPS stocks in a particular rating.

Is there some internal tracking that's showing CAPS as a useful predictor of performance?

Albaby

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Author: AssetMangler One star, 50 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4886 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/13/2007 8:54 PM
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1poorguy (s*cks at CAPS)

YOU suck at CAPS?! You should see the numbers - er, fractions - I'VE put up.

My dream is to get into the integers again.

Late bloomin'
AssetMangler
:)

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Author: AssetMangler One star, 50 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4887 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/13/2007 9:31 PM
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Is there some internal tracking that's showing CAPS as a useful predictor of performance?

Albaby


The way I see it - and I don't have a lot of intellectual high ground here with my .89 or whatever rating - I don't see how we can sustantially deviate from the market in our collective (resistance is futile) performance. Stock prices are essentially the balance point of the collective negative and positive opinions (and bets) of all market participants. CAPs' statistical sample is so large, that OUR collective opinion will gravitate toward the mean - the market.

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".

I don't see how we can possibly produce an edge (over the market), unless we apply a consistent methodology of some kind. (Imagine that! putting our heads together in a coordinated way to beat the market...)

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.

It could work something like this:

CAPS Team - design research checklists...

Researchers ...
Fool A - Company web site / company profile
Fool B - Income Statement
Fool C - Cash flow statement
Fool D - Balance sheet
Fool E - Notes to financial statements
Fools F,G,H - news and anecdotal evidence
Fool I - Conference calls
Fool J - SEC filing monitoring
Fool L - New material developments
Fool M - off-balance sheet and illegal transactions :)
etc...

Food for thought...

Cheers,
AM



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Author: 1poorguy Big funky green star, 20000 posts Top Recommended Fools Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4892 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/14/2007 8:41 AM
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OUR collective opinion will gravitate toward the mean - the market....

I've thought the same thing a few times. I've noticed the highest ranking players typically have well over 100 picks. That's an index! No one can follow that many stocks. I have trouble keeping track of 10 (which is why I only own three right now*).

Perhaps that is the lesson of CAPS? It's best to buy an index?

1poorguy

*Actually, my IRA is in Vanguard Index 500, my 401K is split among Fidelity's Contra, Low Price, and Asset Manager, and then I own INTC, MCHP and PTR. These are all things I think (hope) I understand. Hopefully this will serve as an 'index plus' with some indexing plus some growth weighting to give me a little out-performance. Maybe.

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Author: AssetMangler One star, 50 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4894 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/14/2007 9:52 AM
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Hi 1poorguy,

The reason best performers have high scores is that the scores are additive. By the structure of the game, being prolific is more rewarded than being profound. There's been lots of discussion of that in this board.

Indexing is OK if you are really hands off - but, if you have time, better is picking your own portfolio of stocks, diversifying (minimum 6 stocks) across different industries, and buying dividend growth and/or solid companies in industries that grow with the economy and whose products are in wide demand, or play into a long-term theme such as the baby-boom demographic. And just HOLD them. See my blog entry on the Million Dollar Teacher, and you'll see why.

Cheers and good initial observations,
AM

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Author: TMFEldrehad Big gold star, 5000 posts CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4896 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/14/2007 10:40 AM
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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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Author: TMFEldrehad Big gold star, 5000 posts CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4897 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/14/2007 10:46 AM
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The reason best performers have high scores is that the scores are additive. By the structure of the game, being prolific is more rewarded than being profound. There's been lots of discussion of that in this board.

Indeed, this has been a topic of discussion, but I must disagree with your assertion here.

I do not agree that being prolific is more rewarded than being profound. All being prolific does is magnify one's score, in one direction or the other. If one is profound, then it pays to be prolific in CAPS. If one is not profound, however, I don't think being prolific on its own is the stuff making the leaderboard is made of.

And when it comes right down to it, don't we want as much information as possible coming into the database from those we've identified as being profound? I know that I, for one, sure do.

Regards,

Russell
a.k.a. TMFEldrehad



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Author: albaby1 Big gold star, 5000 posts Top Favorite Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4898 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/14/2007 11:35 AM
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I do not agree that being prolific is more rewarded than being profound. All being prolific does is magnify one's score, in one direction or the other. If one is profound, then it pays to be prolific in CAPS. If one is not profound, however, I don't think being prolific on its own is the stuff making the leaderboard is made of.

Perhaps - but the median rating of players with more than 100 picks is more than 83, so it's easy to see why people might think that. Players with lots of picks are ranked very highly.

Part of that is due to the over-representation of Wall Street Trackers (which generally outperform the non-Wall Street population). But even among TMF players, those who have lots and lots of picks tend to rank better (on average) than those who don't.

Interestingly, very few prolific pickers have negative Scores (less than 25% of the 394 players with more than 100 active picks); far more have Accuracy below 50% (about 40% of such players are under the 50% mark). Wonder if there's a reason - if there is, I don't know why.

Albaby

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Author: TMFEldrehad Big gold star, 5000 posts CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4899 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/14/2007 12:11 PM
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Perhaps - but the median rating of players with more than 100 picks is more than 83, so it's easy to see why people might think that. Players with lots of picks are ranked very highly.

First, I think the cause of this is somewhat self-reinforcing. If one is good at CAPS, it pays to be prolific. With that in mind, it shouldn't be a huge shock that the good players opt for big pick lists (in general), and that those with big pick lists perform well.

I know I've written about this before, but one criticism I hear often is, "There's no way anybody can follow 200 stocks!"

A good point - I know I sure can't, and my pick list sure isn't a small one.

The real question here is, in my view, is CAPS better served by people weighing in with regard to stocks they don't or can't follow closely? I sure think so.

I'll point to myself just for purposes of an example.

While I closed the pick a little while back, for a time I was thumbs-down on Whole Foods (WFMI).

Did I do a lot of due dilligence? Nope.

Did I analyze the financial statements? Nope.

Did I pour through the SEC filings? Nope.

How'd I decide to make that pick then? Well, I noticed a trailing P/E in the 50's or 60's and said to myself, "That's just way too high for a grocery store chain. Yes, indeed the organic food market had been growing quite briskly. But where were the real, hard, barriers to entry?" That, in all honesty and candor, was pretty much the extent of my analysis.

Now, did I follow Whole Foods particularly closely after making the pick?

I followed the company/stock somewhat. Noticed the disappointing earnings release and the stock tank, noticed the trailing P/E drop down in to the 30's if I recall correctly, and said to myself, "Self? This kind of trailing P/E is much more reasonable given the company has been growing nicely. I think I'll exit this call now."

No hard analysis, no real due dilligence, certainly not the level of detail I try to go into with my real money investments.

In my view the real question here is: did my call, and my exit, add real, useful, meaningful information into the CAPS database?

Well, I'll let each person judge for him or herself, but I like to think so - and if CAPS didn't reward having bigger pick lists, the system would likely have been deprived of that piece of information.

I know there's been a quality vs. quantity debate here on this board related to CAPS - and I think it's a good discussion to have with reasonable points to be made on both sides.

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.

Regards,

Russell
a.k.a. TMFEldrehad


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Author: woof321 Two stars, 250 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4900 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/14/2007 12:51 PM
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The problem is that if one is better than average at picking stocks, then the system encourages making as many picks as possible. When I first started playing, I assumed, like most I suspect, that I should only enter my "best" picks. Adding a bunch off extra picks that in aggregate would beat the market would give me a few extra points but they would dilute my accuracy, so there'd be a trade-off. I soon realized that that isn't how this game works, however.

In baseball, we look at both quantitative (H, HR, RBI) and qualitative (BA, OBP, SLG) metrics when considering hitting performance. A hitter that often swings at bad pitches might add a few hits to his total, but will lower his qualitatives - sometimes it's better to just take the walk. There's a trade-off.

Not so in CAPS, unfortunately. Points seem to work fine as a quantitative metric. Accuracy was intended to measure quality, but fails. Instead, by letting players decide when to close positions, accuracy can be "banked" and as such it is essentially a second quantitative. In September we were all marvelling at the leaders' 70% accuracies. Now they have over 75%. They'll soon have over 80%. Qualitative measures should not be increasing over time unless skill is improving. Here's turbotrager's accuracy over 5 months:

October 54%
November 61%
December 64%
January 66%
February 69%

CAPS5star1star picked stocks the same way, but didn't bank. Has a higher score, but an accuracy that does not increase over time. Mindless banking is worth over 3000 positions in ranking in this case. Since both points and accuracy are working like quantitatives, a good strategy is to always have 200 picks open and accumulate both accuracy and points over time. As more people realize this, it'll become even more common, and player and stocks ranking even less meaningful. I've tried to answer all the counter arguments to my case, even "why don't you prove it?". Seems the only counter argument left is "let's wait a few years and see what happens". Well, the good lord gave us mathematics so we wouldn't have to, and the longer you wait the harder it will be to change without overly penalizing those that "played by the (broken) rules".

One argument that still comes up a lot is this:

If someone can very consistently pick stocks that are going to outperform the S&P by 5% or more it's time to start a hedge fund. Go long the individual stocks and short the S&P and pocket that 5%.

Oh no, that's not the way. And you're not listening to what I say! The whole point of my argument is that it doesn't matter how often you beat the market if you don't also look at the sizes of the gains versus the losses. Would you invest in a hedge fund that had a 100% loss for every nineteen 5% wins? That's 95% accuracy, right? It's also called losing to the market. Better a fund that has a 100% win for every nine 5% losses. Only 10% accuracy but a much better place for your money. I know it's hard to accept, but "accuracy", as being measured here, is meaningless. Sorry.

Remember the roulette truncated martingale from high-school statistics? It works like this - go into a casino and put a $1 bet on black. If you lose, bet $2. Lose again, bet $4. If you eventually hit, you'll have won $1 (for example, if you hit on the fourth spin, you win $16, but have bet 1+2+4+8=$15, for a $1 net gain) at which point you can "re-up" by walking out to the parking lot and coming back through the door. Now repeat. Excellent accuracy, right? Occassionally you'll lose all your money, but most of the time you'll win $1. Instead if you decide not to be greedy and just walk out any time you lose a $32 bet, you'll be 98% accurate and can probably do this for years. Is your near-perfect accuracy meaningful? Of course not - you lose so much on your rare losses that it erases all your gains.

turbotrager has a 180-pt loss in SYX. As far as points go, that's wiping out over 30 of my 5-6 point winners. In accuracy, though, it's just a single bad pick - less than 0.14% in accuracy penalty. See the similarities between this and the roulette example? Size matters.

With a better qualitative metric it'd actually be possible to directly compare different strategies like buy-and-hold, actively trade, cut-and-run, etc. Instead, we're being encouraged to act like a bunch of coked-up Maxwellian demons that slam positions closed as soon as they reach the 5% barrier. Is that what CAPS should be about? Is that what TMF should be about?

Dave

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Author: 1poorguy Big funky green star, 20000 posts Top Recommended Fools Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4901 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/14/2007 1:28 PM
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...diversifying (minimum 6 stocks) across different industries...

That's the tricky bit. I don't know about you, but I'm not that familiar with 6 different industries. I know semis quite well (that's where I work), and I understand some other tech areas. Do I know groceries? I don't even like grocery shopping! Do I know pharma? Evidently not (I invested in Zila thinking their toludene blue cancer detection thing would be big...it still isn't off the ground). How about clothes? I had a discussion with a lady here at TMF that convinced me I'm clueless in that area also.

I could buy into these industries, but it would be comparable to roulette for me. Heck, my pick list shows my bias. The only weird stuff there are the home builders and maintenance-related companies because the market had cooled off so I thought they'd dip (and that was the extent of my analysis or understanding of their businesses).

1poorguy (stuck in tech because that's what he knows)

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Author: TMFEldrehad Big gold star, 5000 posts CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4902 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/14/2007 1:44 PM
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In September we were all marvelling at the leaders' 70% accuracies. Now they have over 75%. They'll soon have over 80%.

We've been around this mulberry bush a few times before, and again I agree that you make excellent points here, and your analogy regarding the Martingale is a good one.

I would add that in a pure Monte Carlo sense, banking accuracy won't help one on the score front at all, and a score of around zero, no matter how good one's accuracy is, won't propel one to success in CAPS. There is, however, no question in my mind that for the good stock picker, banking accuracy can definately help and I know that the CAPS team is looking at ways of changing/improving this measure.

Is that what CAPS should be about? Is that what TMF should be about?

Just one Fool's opinion here, but in my view TMF should be about discussing issues openly and transparently, giving all sides a fair hearing, and be not just willing, but eager to change should a better method present itself. On this front, I think the discussion on this board, from all participants, TMFers and non-TMFers alike, is a perfect example of what TMF is, indeed, all about. Not everyone will agree with the methodology chosen, no matter what methodology that winds up being, but I have every confidence that the process by which we all get there together will be a very Foolish one indeed.

Regards,

Russell
a.k.a. TMFEldrehad





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Author: albaby1 Big gold star, 5000 posts Top Favorite Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4903 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/14/2007 1:48 PM
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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.

Albaby

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Author: AssetMangler One star, 50 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4905 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/14/2007 4:34 PM
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Re Post 4900

Well Dave,

Nobody believed me about accuracy - at a least a few are listening to you.

I unfortanately saddled myself with many "stop-losses" (actually quite acceptable in the real world) before realizing the full negative impact of accuracy, so it's going to take me a while to get my accuracy up again with banking - but it WILL go up, and for the reasons you cite.

My only hope, and current strategy, for a fairly quick recovery is to completely go against the crowd. I'm 70% "short" now, and need to get that ratio higher to take best advantage of the first real down-draft in the market. Then I'll most surely leap-frog the pack - clustered around 0 +/- 200 on the score part of my ranking. It will also be a quick way to bank some more accuracy.

I'm pretty convinced that any current AUTOMATED use of CAPs pick information is useless for short-listing stocks. Our collective opinion on any stock, at best, will be no better than than that of the market.

Cheers,
AM


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Author: AssetMangler One star, 50 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4906 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/14/2007 4:46 PM
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Well, I'll let each person judge for him or herself, but I like to think so - and if CAPS didn't reward having bigger pick lists, the system would likely have been deprived of that piece of information.

Russell,

The system IS deprived of that piece of information - unless you pitched it. And then it can't be taken advantage of with automation, because it's in text form.

A while back I proposed one example of a way you could structure the rationale behind a pick so the system could track it. Being able to do that would add far more value to CAPS, because then you could track stock performance by WHY the stocks were picked, and which criteria show a pattern of success in relation to others.

Your reasoning on WMFI was sound, but who else knew?

Cheers,
AM

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Author: TMFEldrehad Big gold star, 5000 posts CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4910 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/14/2007 5:32 PM
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Your reasoning on WMFI was sound, but who else knew?

Everyone who read my pitch. :-)

You are right about rationale not being automated, and I think it's a great idea. I think it'd be helpful to somehow flag picks by type. Things like 'valuation', 'growth', 'speculative', etc., would add information and help the system be smarter.

"Yeah, XYZ is 5 stars, but almost all of the red thumbs have the 'valuation' tag attached to their picks - perhaps I should take a second look at those financials."

And of course, ultimately down the road it would be sortable and screenable, so we could query the system. "I'm looking for short list of growth stocks to do more research on in the hopes of finding one to add to the high-risk / high-reward portion of my portfolio. I wonder which among the 5-star stocks are the favorites of those citing 'growth' as their chief reason?"

It could go many, many steps further.

Maybe we'd discover that, as a group, the value investors among us are trouncing the growth-oriented investors, or vice versa.

It wouldn't suprise me one whit if this kind of added information were incorporated into CAPS at some future date - and again, I, personally, really like the idea.

But going back to the original point here, even if I hadn't written a pitch for WFMI, the system would still have known that I was thumbs-down on the stock (via the stock rating). The system would also have known, again via the stock rating, when I ended my pick. I completely agree that knowing the why adds a great deal more to the community intelligence than the pick does by it's lonesome, but I still think the pick, by itself, adds something.

I agree with many here that it's *way* too early to tell whether CAPS stock ratings have any meaningful predictive value. In the meantime, I will continue to write pitches for most of my CAPS picks and try to help the system become smarter that way - but again, on the surface I really like your idea here.

Regards,

Russell
a.k.a. TMFEldrehad

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Author: 1poorguy Big funky green star, 20000 posts Top Recommended Fools Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4915 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/15/2007 9:06 AM
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My only hope, and current strategy, for a fairly quick recovery is to completely go against the crowd. I'm 70% "short" now, and need to get that ratio higher to take best advantage of the first real down-draft in the market. Then I'll most surely leap-frog the pack - clustered around 0 +/- 200 on the score part of my ranking. It will also be a quick way to bank some more accuracy.

Wow. You're taking this game very seriously. It clearly wasn't what I thought it was when I first received the TMF email suggesting we try it. But I'm not changing my strategy at all. If I have the lowest score in recorded history, fine. I'm curious to see if my picks would have done well in the real world. I do wish this had been a more useful investing tool, however. I realize now for the reasons y'all are giving that it really isn't. Though if dawsdaws updates his picks I will want to check them out carefully!! He seems to have found several "beaten down gems" as he put it. In fact, I am checking SCSS since it is still beaten down (I just need to figure out if there's a good reason, or if dawsdaws will be vindicated in the future).

1poorguy

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Author: Ganndalf Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4917 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/15/2007 10:44 AM
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I picked up SCSS two days ago, and it has already contributed a whopping +.79 to my score. I'm not a hidden gems subscriber, but I think if you got Tom's opinion on Select Comfort you would be persuaded.

I think Caps is a useful investing tool, but you have to accept it on its own terms, and not by what YOU want it to be. It sort of seems to me that for people that are highly left brained people (linear/analytical) it could be frustrating.

I think part of what makes David a good investor is that he seems to be inclined to using both hemispheres. He is creative/intuitive (more right brained) along with being linear/analytical all at once.

That's my $.05 pop psychology analysis. But you can pay me later. ;)

-G

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Author: 1poorguy Big funky green star, 20000 posts Top Recommended Fools Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4918 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/15/2007 10:50 AM
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...if you got Tom's opinion on Select Comfort you would be persuaded.

Gotta link? That would be a good addition to my DD.

Thanks,
1poorguy

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Author: Ganndalf Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4919 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/15/2007 10:59 AM
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I am such a rascal: ;)

http://www.fool.com/shop/newsletters/04/index.htm?t=1&source=ihgsittps2000617

My great uncle Uriel the Blue always used to say that "You get what you pay for."

-G


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Author: Ganndalf Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4920 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/15/2007 11:05 AM
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Actually, it is FREE for 30 days.

You really have nothing to lose and much to gain. I have given both Stock Advisor and Hidden Gems a trial, and I think they are great.

But at Heart, I am a rule breaker and so that is where my subscription dollars go to right now.

-G

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Author: AssetMangler One star, 50 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4921 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/15/2007 5:46 PM
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I think Caps is a useful investing tool, but you have to accept it on its own terms, and not by what YOU want it to be. It sort of seems to me that for people that are highly left brained people (linear/analytical) it could be frustrating.

That's my $.05 pop psychology analysis. But you can pay me later. ;)

Your cheque is in the mail Ganndalf. OK, you got me, but you make my being a compulsive-obsessive, anal-retentive, paranoid, type-A, quant-psycho sound like a bad thing...

But I can change! ... OK everbody - group hug; (you too woof321) ... now, how do we all FEEL about Select Comfort? (don't forget to visualize the comfort part) ... :)

Cheers,
AM

Actually - it would be interesting to see this play out at the Goldman-Sachs bond desk ... (I've never seen anyone thrown through a closed office tower window before) :)




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Author: woof321 Two stars, 250 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4928 of 8074
Subject: Re: CAPS is not meant to be a mirror of performa Date: 2/16/2007 3:42 AM
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Hi Russell, hope you're doing well.

Regarding Whole Foods, I think that illustrates the problem. You mentioned that you did little research or DD, but simply noted the very high P/E and voted thumbs down. I don't see anything wrong with being rewarded for being right in this case, but what does "right" even mean under these rules?

Your last pick was underperform over 5-yrs from 8/14, when the price was 49.60. You closed it three months later at 49.46 for a 10.7 pt gain (S&P did great). Now suppose some other player thought the high P/E was justified (it was near an 18-month low, after all) so he picked 5-yr "outperform" on exactly the same date and at exactly the same price as you. By 10/16 he says "Self, this P/E is getting a bit pricey, let's bail". He closes at around $65 for a bit over 20 pts. Twice as many points, a month sooner, opposite direction, but equally correct. Does it make sense to be rewarding full accuracy credit, exactly as much credit as I'd get for finding a 10-bagger, for tiny little 5-pt gains when stocks are swinging back and forth by 20-30 points in a month?

And isn't it really silly that two players can make completely opposite 5-yr predictions and both be considered "correct" within a couple months? See how this is like my joke about picking the Bears in the Superbowl and closing out my pick after the first quarter?

Respectfully,

Dave

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