Message Font: Serif | Sans-Serif
No. of Recommendations: 4
I posted this as a blog back in December but thought it might get more attention here:

"Part of the CAPS philosophy when it comes to gathering community intelligence to rate stocks is that 'more is better'. But more is not better if those picks don't reflect the opinion of the player rating the stock.

Most of you have observed that there is a tendency for people to leave losing picks open even when it's very unlikely to turn around. When you get enough people doing that it can result in a stock rating that may not truly reflect the community opinion.

Take the case of one of my favorite stocks - Advanced Battery Technologies (ABAT). Several of my blogs have discussed the effect of the follow-the-leader/dogpile mentality that sent the stock from 4stars to 1star. Incidentally, the stock has outperformed the market by 34% since that happened in May 2007.

Looking at the active ratings on the stock I see that there are 51 all-stars with an outperform rating and 69 with underperform. Less than half of those outperforms (22) have been active for more than a year and of those 22 just over half (13) are losing picks. However almost all of the underperforms (60) have been active for more that a year and of those 60 almost all (56) are losing picks. I think that makes a pretty strong case as to why ABAT is still only a 2star stock.

A recent post in the CAPS feedback message board suggested several ideas for enticing people to end picks that they have held onto solely because they want to avoid locking in a negative hit to their accuracy. I like where he's going with it but it probably adds too much complexity to the system and doesn't seem like the type of thing that TMF would be inclined to implement.

Here is what I would suggest. Once your selected time frame for a pick has expired (according to TMF "No Time Frame" is treated as 1yr for calculations) a new option appears that says something like "Don't Rate". Essentially it is a way of declaring, "I would like to end this pick because at this time I no longer feel it is an underperform/outperform. However I can't bear to end it in negative territory. So I'm leaving my pick open but it will no longer be factored into the CAPS rating for this stock." And if you change your mind at a later date you can just select a new time frame.

This could even be made an automatic thing (with advance notification or after a longer time period) to account for people who start a CAPS account and never come back."
Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.