A Caps over-achiever noted: CAPS1StarIndex opened and shot up to fifth place on the same day. cool ! Mc101
It's really quite extraordinary, and as I wrote in a posting elsewhere, I think it may be both the first and last time it ever happens.Given that it occurred based on the usage of CAPS star ratings themselves, and was "right" (for one day!), I even a little bit proud. :)Foolishly,David... who's back up above 50 again... ah the slings and arrows of outrageous fortune....
It's really quite extraordinary, and as I wrote in a posting elsewhere, I think it may be both the first and last time it ever happens.I think it's great that we have these CAPS indicies that track the performance of 1 and 5 star stocks. Granted, it's way too early to tell to what extent CAPS star rankings might be predictive (as either positive or contrary indicators), but I love the disclosure.Now, I haven't the time to do this myself, but what I think might also be helpful to track over time is the success of similar portfolios of 2 and 4 star stocks. Maybe it's just me, but I think it's entirely possible, for example, that 4 star stock might generally outperform 5 star stocks.The reason? 5 star stocks indicate strong, broad, bullish sentiment - which may find its way into the share prices. I'd be curious to see if, over time, 4 star stocks might be the better choice. With a 4 star stock one is getting a stock that the commmunity regards highly, but perhaps without quite the risk of overpaying for quality that might accompany a number of 5 star stocks.I also wonder if the same might be true of 2 star stocks vs. one star stocks, only in reverse (i.e. I wonder if 2 star stocks might actually underperform their 1 star bretheren) - although I'd be a bit more interested in the 4 star vs. 5 star comparison.Regards,Russell(a.k.a. TMFEldrehad)
Russell,That's a great point, and similar to one that was going through my mind. I fear that the 5 star stocks may have 5 stars because of past performance. We may not be there yet. But we may get to that point. Afterall, that's human nature, isn't it? The stocks that have gone up will keep doing so, and the ones that have been beaten down will keep going down.Now of course, that's not Foolish, but it is real world. So, I might be as interested in 3 & 4 star stocks as I am in 5 star stocks.Just a thought.Ryan
That's a great point, and similar to one that was going through my mind. I fear that the 5 star stocks may have 5 stars because of past performance.One other thing that's come to mind regarding the CAPS 1 and 5 star indicies is that I wonder if rebalancing them is the best idea.Imagine a 5 star stock has a poor earnings report, and sentiment changes due to an overreaction and the stock gets pushed down into 4 star territory. In such a situation, the index portfolio might be 'selling' at one of the most inopportune times. It would be more meaningful to me, personally, for an index, once set-up, to never change and hold through the peaks and valleys. Rather than rebalance monthly, what I'd do is to create a brand new index monthly while leaving the previous index alone - and then aggregate the results of all of the indicies.It sure is a lot more work, but to my way of thinking would paint a better picture as to whether or not 5 star stocks outperform long term. The way it stands now, these indicies might be trading in and out of stocks quite a bit as sentiment temporarily changes. My concern is that we might get results down the road that appear long term (by looking at the long term perfomance of the index) but which are, in reality, based on a lot of short term trades (as stocks fluctuate between 4 and 5 stars and are continually 'bought' and 'sold').Again, I haven't the time to embark on such an endeavor, but I think that would be perhaps a better way of tracking the performance of 5 star stocks.Regards,Russella.k.a. TMFEldrehad
Imagine a 5 star stock has a poor earnings report, and sentiment changes due to an overreaction and the stock gets pushed down into 4 star territory.As much as I would like to think the intelligent (I hope) CAPS community would keep a 5 star stock at 5 stars after a bad earnings report, there does seem to be alot more momentum investors playing CAPS than contrarian-minded people. A good business is supposed to be less risky the lower its stock drops. This is just one example but I was disappointed to see Netflix a one star stock on 10/23 and then jump to 3 stars AFTER the excellent earnings report, which shot the stock up 20% the next day. hmmmm...one star at $22; three stars at $27. That's just not right.John
hmmmm...one star at $22; three stars at $27. That's just not right.Make no mistake, I'm not defending the 'traders' (and have been bearish on NFLX for a while now), but we do have more information after the release than we did before the release. So it's possible that one star at $22 (based on the available information at the time) and three stars at $27 (based on different information available at the time) isn't at all inappropriate.That said, I hear you and think there's likely some merit in what you are saying here... only the test of time will tell us for sure.Regards,Russella.k.a. TMEldrehad
Just remember that what drives our stock ratings are the player ratings of the people with active picks on a stock. If those people have active picks, it means they think it's worth making them -- or leaving them in -- at the present price. They are accountable for every uptick, and every downtick. And those who perform the best are then overweighted to determine our stock ratings. Thus, it is the in-the-game actions of the participants who have the most excellent and most voluminous track records that drive our forward-looking ratings.The Netflix example does not prove anything either way to me. Indeed, we can find almost any sort of example that will illustate any given point. It's really only poring over the entire database, and running hypotheses and tests, that one can really draw meaningful conclusions. Otherwise, we'll risk basing our judgements on one-off examples that will often, if experience is any guide, tend like a mirror to show us just what we expected we'd see.To close for now, the most important thing I can say for CAPS is that we're accumulating lots of great data, and it is data that is not just captured and held, but rated, ranked, scored. What insights the data will give us with the wide-angle lens cannot be totally predicted, but again, with almost 200,000 picks already, this is the world's largest stock ratings database and growing, in both volume and value.For now, I still find the basic premise of deriving ratings based on the ACTIVE picks of the HIGHEST-RATED investors who have achieved on MERIT to be the most compelling and simplest foundation for a good ratings system.One Fool's view,David
...I still find the basic premise of deriving ratings based on the ACTIVE picks of the HIGHEST-RATED investors who have achieved on MERIT to be the most compelling and simplest foundation for a good ratings system.David, I completely agree.Best,John
Hey John,I see your point about NFLX, but it makes perfect sense. CAPS is "dynamic" and changes based on new information. When NFLX reported great numbers it shook the bears out like monkeys shaken out of a tree. Once they hiked their skirts and ran screaming, as they should, red thumbs vanished and the rating went up. This seems to me that the software is dead on, but the humans behind it made a boo boo.Best,BD
CAPS is "dynamic" and changes based on new information.Of course. I see CAPS as a complex adaptive system just like financial markets. So, after reading your post and David's, I realize my comments in my original post were probably a little off base and, actually, are inconsistent with my thinking on CAPS. I guess with my NFLX example I was just upset that, potentially, money was lost for somebody who could have been more informed about the attractiveness of NFLX before that earnings report. :) I know I did my part...Best,John
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