During my time in CAPS, there has always been a lot of discussion on which metrics are most relevant to selecting the top CAPS performers. Most feel that the "ratings" are skewed by the accuracy component. While "rating" is the official measure that CAPS uses to rank players, it's not necessarily the most useful one. The only problem is that the alternatives aren't perfect or clear, either.
First off, there's score. Most agree that score might be better than "rating" since it abandons the accuracy component, but it also has its flaws. Since returns are measured based on one's initial position, this tends to skew score with time. However, the "score" shouldn't really be all that skewed until after a number of years, so it still serves as a reasonably good measure of performance. The second problem with "score" is that it tends to discount investors (e.g. someone like Wax) who will only make a limited number of high-conviction selections. Hence, Warren Buffett would have a very good (but not spectacular) rating on CAPS, but he'd be held back by a lower score.
Now we can view results by average returns, but this creates a problem as well. Once again, returns are based on initial position (just like score), so this measure can become distorted with time. Moreover, since "rating" is the official measure used to rank CAPS players, many might be sacrificing average return in order to build accuracy. While some might disagree with me, I view "average return" as a poor measure when used alone; but it is more useful when used with other metrics, such as score, accuracy, etc.
We also now have "top underform members" and "top outperform members". Both metrics are useful in seeing where one earned their points. "Top outperform" is generally a better measure than "top underform", however, because the existance of leveraged-bias funds which have volatility decay. Too many players "game" these funds in order to artificially boost their CAPS score. It's also worth noting that many players will red thumb so-called "garbage stocks" that are normally traded OTC. These are essentially free points; but it's difficult (and risky) to try to short these in real life. However, despite flaws, there is still some validity to the underperform measure; one simply has to probe beneath the surface a bit more.
Realistically speaking, in order to find the best CAPS investors, I think you'd have to quantify the results using more useful metrics (e.g. average yearly return, sharpe ratio, sortino ratio, etc.) and you'd probably have to create an entirely different system. Which reminds me --- if anyone from TMF is reading --- PLEASE, PLEASE, PLEASE create a CAPS Portfolio game to go along with the regular CAPS. Everyone would get $10 million to invest as they please and go from there. It's a great idea, methinks ;)
But I digress ... this entry is about some of the measure I have established in my head as indicators of great performance. I evaluate the CAPS portfolios and I have my own opinions on which top-rated CAPS members are there because of flukes and/or gaming the system and which ones are the real deal. Those who have made their points from actual stock positions (as opposed to ETFs and pump-and-dumps) are more likely to be great long-term investors. Also, those who have continually performed well, rather than betting the bank on one-way movement at a particularly opportune period of time (e.g. going all long on leveraged ETFs at the bottom, or going all short at the top), are more likely to be good long-term investors.
There is one measure of performance I have had in my head for awhile. It is by no means the best measure to predict the best performers here. Rather, it's been a goal of mine to achieve this measure. I call it ... and hopefully this name isn't too clumsy ... "The Double Elite Century."
The Double Elite Century
The name sounds silly, doesn't it? To tell the truth, I only named it right before writing this blog. It has been in my head for a long time, but I never gave it a name until now. In any case, you're probably wondering what the "Double Elite Century" is, right?
A CAPS player who has achieved the Double Elite Century ranks in the top 100 "Top Outperform Members", as well as the top 100 "Top Underperform Members." There are only four CAPS players who I can find that currently achieve this distinction:
Bravo Bevo (#4 in outperform, #5 in underperform)
Vanamonde (#67 in outperform, #30 in underperform)
Fransgeraedts (#34 in outperform, #64 in underperform)
Wiiz (#71 outperform, #94 underperform)
In order to achieve this feat (as of today), you need about 7,000 outperform points and 3,475 underperform points.
There are several more who are close including myself:
JakilaTheHun (#51 in outfperorm, #123 in underperform)
Bradford 86 (#148 in outperform, #49 in underperform)
LawfordCap (#114 in outperform, #81 in underperform)
Tenmiles (#235 in outperform, #39 in underperform)
Gembree (#107 in outperform, #114 in underperform)
BrandonRoot2075 (#193 in outperform, #80 in underperform)
But first off --- don't get me wrong. I'm not here to brag about myself. Truth be told, I've racked up some underperform points from red-thumbing leveraged funds and garbage stocks. Between the two, it's probably only about 1,000 points, so it does not detract from my total score by much, but it does detract from my underperform score a bit. However, it's worth noting that most of the people around me in those rankings probably benefitted as much, or even more from the leveraged funds and garbage stocks, so it's unclear to me where I would stand if they did not exist. In any case, I quit playing those funds several months ago because I wanted my score to be as realistic as possible and to come from investments that one could actually make in the real world (whether long or short).
Of our list, I view vanamonde's record as the most impressive. Vanamonde has a few garbage stock red-thumbs, but for the most part, it's about as clean as a CAPS portfolio (other than portefeuille's) that you will see.
Fransgeraedts has also created quite an impressive record on both sides of the fence. Once again, the underperform score is aided by red thumbs of short-bias funds, but otherwise, frans' portfolio is very clean.
BravoBevo is a true CAPS sage, but such a large portion of his points comes from playing the volatility on trash stocks. It shouldn't detract from his investing acument --- he still is very good at what he does. It's simply difficult to tell how good from the CAPS profile alone. That said, I believe it's completely possible that Bravo would achieve the feat or be close to achieving it even without the garbage stocks.
Of the four qualifiers for the "Double Elite Century", Wiiz's profile is most suspect. I never encountered this profile before today; thought it might have been some hidden genius profile that no one knew about. Well ... not so much. Wiiz has been inactive for 10 months and racked up about 5,000 points from leveraged biased funds. It's also worth noting that all of Wiiz's picks came between April '09 and May '09 and were almost all bullish. This profile could some day be in the top 20, without every doing anything again due to the flaws in CAPS' rating system.
Of our near-qualifiers, Bradford86 has an impressive track record. In fact, that's Glen Bradford's profile and he now runs his own hedge fund. He could have easily made the top 100 outperform members list if he were trying to. Ironically, however, his underperform score is better than his outperform because nearly 5,000 underperform points come from short-bias funds. So, even if his record is great, it probably wouldn't be prudent to consider him great on the short-side from his CAPS profile.
Tenmiles should be noted because he has one of the best track records in all of CAPS. IMO, he might be the best red thumber on CAPS since many of "top underperform members" are simply perma-bears who happened to be in the right place at the right time. He's a bit more conservative in the companies he choses to green thumb, however, so this might explain why his outperform score is not in the top 100.
Gembree's record is pretty good, as well. As with most people on this list, Gembree has racked up some points on biased-funds and garbage stocks, but gembree's record is good even if you ignore all of that.
In any case, that's the "Double Elite Century". Not sure if I'll ever qualify for it and I don't know if obtaining the status is particularly meaningful with the CAPS flaws, but it is interesting nonetheless.
Future Game Suggestions
One final note. I want to make one suggestion to CAPS on the ratings. This game will become meaningless if the returns calculation is not fixed at some point.
CAPS should start measuring returns based on a one-year time frame. Hence, if Stock A returns 50% S&P returns 20% in one year; then, both Stock A and the S&P return 20% in Year 2, you should get a score of +30 for Year 1 and a score of +0 for Year 2. Under the current system, you would get a score of +36 (Stock A will record a return of 80% and S&P will record a return of 44%) and you would be rewarded for your market-performance in Year 2. This is not that bad in a short-term timeframe, but over a period of 5-10 years, huge discrepencies will start to occur. [more]