IBD has been running an interesting series called "Breaking the Back of High Oil". Yesterday's segment addressed the myths and fallacious talking points that have been making the rounds. [more]
As a software engineer, I'm acutely aware of the GIGO axiom (garbage in - garbage out). Not that I believe the inputs to CAPS ranking are garbage. But the axiom is not all-or-nothing; incremental improvements to the quality of input data will incrementally improve the quality of the output. In the CAPS world, for example, more meaningful player ranking will result in more meaningful stock ratings.
I believe both score and accuracy can stand some improvement. I will address accuracy first and score in a later blog.
Let's take an example:
DownWithInfidels is one of many CAPS players who has harvested successful picks to establish a high accuracy rating. As of April 30, 2008, he has ended 404 picks and has 198 active. Of the 404 picks he has ended, only 3 have a negative score and 10 are below 5%, making them neutral. So for ended picks, his accuracy is 99.2%. However, the results are not so good for his active picks. At this point, 150 are losing and 48 are winning, for an accuracy of 24.2%. Nonetheless, the CAPS scoring system gives him a 74.2% accuracy and places him in the top 40 players, since it makes no distinction, other than the easily exploited 5% rule, between active and ended picks.
Now, I'll use my own portfolio for comparison, since I don't harvest for accuracy. On the same day, my 142 active picks consisted of 93 correct and 49 incorrect, for 65.5% accuracy. My 89 ended picks included 59 correct (5% or better), 29 incorrect and 1 neutral, for 67.0% accuracy. This results in a 66.1% accuracy from the CAPS system.
I don't mean to single out DownWithInfidels; it just happens that I've been watching his performance, and noticed this huge discrepancy between his active and closed picks. And I don't blame the players who do this; they are in the game to win, and harvesting for accuracy is allowed, even encouraged, by CAPS, albeit unintentionally.
The good news is that I think the accuracy calculation can easily be improved to reward more prudent portfolio management. I suggest the following calculation: Overall Accuracy = (Accuracy of Closed Picks * 0.5) + (Accuracy of Active Picks * 0.5), in other words, the average of your closed pick accuracy and your active pick accuracy. In the example above, that would give me almost exactly the same accuracy I have under the current system. However, DownWithInfidels' accuracy would be 61.7%, instead of 74.2%. A 60/40 ratio, favoring active picks, may be even better at encouraging people to hold onto their winners. It would also mean that players with hundreds of closed picks would have to start paying attention to accuracy again. [more]
About six weeks ago my broker closed out a short position in my account, because they couldn't locate the shares to balance it. I'm posting about it now, because I've continued to track it in CAPS, and I see that its now down 40% since my position was closed! [more]