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fransgeraedts (99.92)

Accomodating the specialist; innovating caps

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August 23, 2009 – Comments (48)

1. I see Caps (as many others, including its founding fathers do) as an experiment in collective intelligence, as a way to produce information and insight.

2. I am therefore not bothered by a lack of "realism" of certain aspects of the game, certain styles of play, certain strategies and tactics used. The question to ask is what kind of infosight is produced by them.

3. When thinking about innovating CAPS i am therefore not thinking about making it more realistic or more "fair", i am primarily concerned with way's to produce more and better infosight  -and of course with the pleasure of playing.

4. In earlier blogposts i have made suggestions about the way both "stockpickers" and "macroplayers" could be better accomodated and datamined. In this post i will concentrate on the accomodation and datamining of the "specialists."

To recapitulate.

5."Stockpickers", that is people who are very good in picking long term winners on the level of individual stocks-companies, cannot win in Caps. (They will always lose against "redthumbers" and "macroplayers") However the infosight value of their picks is very high. It is certain that we do not mine effectively for that value at the moment. Even more damaging would be to lose those players completely because they leave Caps out of frustration. That risk is real.

6.As a solution I suggested to create an extra competition-ranking.In that extra competition/ranking people should at all times have at least 10 and no more then 25 greenthumbs. Redthumbs are not allowed. You will only be ranked from the moment 10 or more of those stocks have been held for 6 months or longer. If the amount of stocks held longer then six months at any time drops under 10 you drop from the rating. The scoring should be the same as in the existing competition/ranking.

6a. Participants should be able to enter into the stockpickers competition in two way's. They could create a specific "pickers" list, or they could within their existing list designate the greenthumbs they want to enter in the "pickers" competition. All lists could then be simply entered in both competitions-rankings and their scores displayed on the same page.

6b. I think that the choice of a certain stock by the best players within the stockpickers competition should of course get a greater weight in determinating the star-rating of individual stocks.

 7. My suggestions for the macroplayers have followed the same lines. Macroplayers in effect make sectorplays, based on macro-ecomic reasoning and/or technical analysis. While they can win in Caps, the way Caps works (try red- or greenthumbing 50 stocks late at night) can be very frustrating for them. (That is getting better, by the way) More importantly we do not mine the infosight of their strategic choices at all. I suggested as a solution a competition/ranking based on etf's. At all times between 10 and 25 etf's should be held. Only "single" etf's are allowed. Both red- and greenthumbing is allowed. The scoring is the same as in the existing competition/ranking.Again it should be possible to enter into the competition with a specific "etf" list, or by designating etf's within the existing overall list. And again all lists could be entered in all competitions-rankings at once. On the basis of all etf picks in Caps a star rating of sectors should be aggregated. The choices of the best players in the etf competition of course should weigh more heavily.

A new suggestion.

8. There is a third group of players, a third style that could be better accomodated. I call them the specialists. The archetype of course is floridabuilder. But other good examples are for example ZZlangerhans, or BuyingRetail. Those participants bring a deep knowledge about a certain industry to the table and are willing to translate that knowledge into redthumbing/and or greenthumbing the stocks of companies within that industry. The infosight value of their picks is extremely high. However Caps frustrates their style the most. Floridabuilder's early succes masked that fact. His industry was leading the stockmarket down. Therefore his redthumbing of builders could be translated in a high Caps score. Usually that is not possible. And of course we dont mine the value of their choices at all. In their case the solution would be of course to measure their picks not against the S&P, but to measure them against a specific index. ZZlangerhans should be measured against a biotech index, BuyingRetail against a retail index, floridabuilder against a housing index.. Again it should be possible to enter with a specific list or by designating stocks within the overall list. Minimum of ten at all times, no limit on the amount of stocks. Red and greenthumbing allowed. The competition/rating should pitch all specialist against each other. To prohibit a proliferation of indexes to measure against, and the "gaming" that would make possible, we should build this feature out slowly. It should be possible for all Caps participants to vote on the indexes specialist could measure themselves against. That would make it possible to gauge the desire for certain specialist info. Of course specialist could plead their case in their blogs. If however after a certain amount of time not enough people would compete against that index, the possibility of doing so would end. In that way i think we would create a handfull (maybe more) of specialist area's where industry-specific info would make all the difference. (Of course the stockpicking of the best specialist should once again weigh more in the rating of individual stocks.)

fransgeraedts

48 Comments – Post Your Own

#1) On August 23, 2009 at 11:41 AM, AdirondackFund (< 20) wrote:

WOW....are you ever thinking in a 'make pretend' world.  None of what you are recommending is of the least importance when it comes to real life decisions, strategies, outcomes, or profits for Investors. 

Maybe real life is structured this way simply because 'people' are present?  Your ideas pretend as if they weren't.  

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#2) On August 23, 2009 at 12:27 PM, fransgeraedts (99.92) wrote:

Dear Adiron,

the suggestions above have as their aim to make Caps more usefull for the investment decisions of real people.

If we with the help of Caps identify people that consistently pick winners, those stockpicks could be a very usefull beginning for your own research. If we make Caps more attractive for people that are good stockpickers the chances of getting the right stocksuggestions of course increase. If we do that the value of the star rating system of Caps increases.

If we with the help of Caps identify people that have the knack to identify trends early -and their shifts-, that would be of course very usefull if you have to decide wether or not to invest in stocks, how much to invest in stocks, and in which sectors. If we could create a sector-rating system that makes that easy to grasp, that would be for me an enormous help.

If we with the help of Caps attract people that really understand certain industries and help them to translate that knowledge into identifying stocks that will lead and stocks that will lag within that industry, that would also be very usefull for my investment decisions.

If my style of writing puts you off and fails to put those ideas across for you, i deeply regret that. My blogging here on Caps is intended as a form of dialogue, a sharing of thoughts with everybody interested.

I deeply care about what happens to people  -especially now, especially now that we are economically in such deep trouble, especially now that we are in danger of losing the chance to progress.

fransgeraedts

 

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#3) On August 23, 2009 at 12:38 PM, TMFJake (70.93) wrote:

We could test both ideas with CAPS contests.  #6 would be very straight forward. 

 

And, with #8, we could approximate by having the contest structured such that someone must identify the X stocks within an industry or sector that have the highest return expectations and perhaps the X stocks with the lowest.  We measure absolute returns in this type of contest.  I'd be happy run a contest for all GICS Sectors, and, if there's interest, for selected industries as well.  

I'll provide the prizes but is there interest???

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#4) On August 23, 2009 at 1:00 PM, G8BigBoom (69.11) wrote:

Yeah, something should be done but the way it is now works to. Maybe a top spot for the best long picker as well shorters. I have said before on caps most players I follow are not even close to the top ten or even top 100 yet they have solid well grounded picks for the long term. Something you could rely on a little for the long haul. Not a buy, flip, drop and sell that isnt safe enough to bet the next couple days. Either way great point enjoyed reading it.

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#5) On August 23, 2009 at 2:02 PM, portefeuille (99.60) wrote:

As to suggestion #6, have a look at comment #10 here.

As to suggestion #10, have a look at this post.

 

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July 31, 2009

some "sector champions"

 

Metals and Mining

foolsmethrice 4,359.78

mgiv 3,358.31

translator999 2,507.12 

andreylikesmtl 2,069.64

number1cramerfan 1,511.29

 

Biotechnology

portefeuille 2,284.33 

zzlangerhans 1,978.81

usubanas 1,454.60

 

Capital Markets

bravobevo 1,733.02

 

Oil, Gas and Consumable Fuels

tmfeldrehad 2,006.45

baseballdude 1,993.32

foolsmethrice 1,856.76

venividiveci 1,565.55 

bravobevo 1,422.67

 

Commercial Banks

fransgeraedts 1,609.42

 

Thrifts and Mortgage Finance

abitare 1,470.76

 

this was not done in a systematic way. feel free to add more.

----------------------------------------

 

One problem you do not mention is that of the $100M, $1.50 and U.S. exchanges only rules. They can really deter "stockpickers". My answer to these annoyances is this list of calls.

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#6) On August 23, 2009 at 2:11 PM, portefeuille (99.60) wrote:

Yeah, something should be done but the way it is now works to. Maybe a top spot for the best long picker as well shorters.

 

There is a "top outperform members" list here.

 

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#7) On August 23, 2009 at 2:30 PM, UltraContrarian (31.15) wrote:

I think the way to improve CAPS is not through one-off competitions or segmentation of players but through improving the fundamentals of scoring and discussion.  Portefeuille and others have made good suggestions that would almost certainly improve the system performance of CAPS.  But TMF just wants to tinker, not make wholesale changes.

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#8) On August 23, 2009 at 2:41 PM, UltraContrarian (31.15) wrote:

Insurance - All Time Picks

Number1CramerFan:

Score: +1,013.17 Accuracy: 63.16%UltraContrarian:
Score: +1,059.96 Accuracy: 81.67%Seems odd that he is #1 under the insurance tag and I am #2.  Maybe it is weighted toward open picks.

 

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#9) On August 23, 2009 at 2:42 PM, UltraContrarian (31.15) wrote:

As usual, CAPS text formatting didn't work very well.

Insurance - All Time Picks

Number1CramerFan:

Score: +1,013.17 Accuracy: 63.16%

UltraContrarian:
Score: +1,059.96 Accuracy: 81.67%

Seems odd that he is #1 under the insurance tag and I am #2.  Maybe it is weighted toward open picks.

 

 

 

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#10) On August 23, 2009 at 2:54 PM, UltraContrarian (31.15) wrote:

Also check out the Specialty Retail tag.  'thehammer03' is beating '2009pix', yet thehammer has almost no picks that are specialty retail.  I understand sectors and tags don't line up exactly.  But this looks pretty strange.

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#11) On August 23, 2009 at 3:01 PM, portefeuille (99.60) wrote:

#8-10 "Top Members in Tag" is rather useless. More helpful are these.

ultracontrarian

number1cramerfan

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#12) On August 23, 2009 at 3:09 PM, RonChapmanJr (92.07) wrote:

"5."Stockpickers", that is people who are very good in picking long term winners on the level of individual stocks-companies, cannot win in Caps. (They will always lose against "redthumbers" and "macroplayers")"

This isn't even true over the long term.  Remember that CAPS has only been around a few years.  Over time individual pickers will be at the top.

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#13) On August 23, 2009 at 3:10 PM, RonChapmanJr (92.07) wrote:

"5."Stockpickers", that is people who are very good in picking long term winners on the level of individual stocks-companies, cannot win in Caps. (They will always lose against "redthumbers" and "macroplayers")"

This isn't even true over the long term.  Remember that CAPS has only been around a few years.  Over time individual pickers will be at the top.

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#14) On August 23, 2009 at 3:10 PM, UltraContrarian (31.15) wrote:

That's what I was using, and comparing with Top Members in Tag.  If Top Members in Tag is not just iffy but totally broken (as seems to be the case in specialty retail) I would think TMF would want to know.

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#15) On August 23, 2009 at 3:15 PM, Tastylunch (29.19) wrote:

fransgeraedts

AWESOME post Frans.

And I'm very glad to see I'm not alone in understanding that the average CAPS player still doesn't seem to understand  that this is a stock ratings game not a portfolio/investment game. I've seen many frustrated players quit because of the accuracy component. There are many successful styles that only require 45-55% Accuracy. Obviously you'll never get anywhere in CAPS doing that.

I am worried too that CAPS loses a lot of it's best investors because they misunderstand the purpose of CAPS (namely to use community intelligence to generate ratings for stocks as opposed to finding the bets "investor"). Whether CAPS is fair or  not the perception is that it isn' among many long players.The perception of fairness is just as important as the practice.

All of which brings up the question how should CAPS keep it's players engaged?

That being said I'm not sure what you propose will do that . Suggestion 6 seems like it would just marginalize stockpickers to another game basically. 6b obviously tries to shoehorn it back into CAPS but I think that might just make it more convoluted and may not be actively used.  If it's not striaghtforwardand simple I'm afraid it won't get used much. As long as they have to click to go elsewhere it's going to feel "different" to them I would think and thus continue to feel disenfranchised. I would think they would need a real chance at a better ranking to"feel" like aprt of the game.

Suggestion 7 is intriguing. but it might be diffrent there I'll go into below.

Suggestion 8 I think could be best mediated by creating a greater emphasis/reward on sector leaders (a charm specific to the Tag perhaps)?

A couple suggestions I've had are a bit less drastic that may help alleviate some of the problems you've mentioned.

1) have rolling yearly ranking as well as alltime. Top players like everydayinvestor can just sit on their old accomplishments and still appear to be the "best" right now when in actuality they may be net negative in points for the past year. The rolling ranking should  include all points gained 1 year ago today on new positions and old positions open within the last year. So e.g. if I picked ZINC as a long thre years ago and I closed the last year from today at +10.11 and as of today my alltime score on it was say 373.26 thenit would contribute (373.26-10.11= 363.15)363.15 points. This I would think would beenfit long players much more than shorts.

2) reduce the weighting of accuracy in scoring and perhaps give less weighting to mutiple picks made on the same stock. Say I redthumbed Citigroup 4 times successfully perhaps CAPS ought to count each succeeding call less towards my accuarcy (e.g. first pick counts as 1 second as 1/2 third as 1/4 etc etc). This would lessen the probably unfair reward of accuracy for gaming cruddy stocks while still giving the player who does so some reward.

3)perhasp give more prominent spac on the Players page towards outperfom ranking. The new top ten is very nice but i have a feeling most long players never check it.

4)The Macro player issue is an interesting one and one I hadn't thought of. It may be that a second game could work there Kind of a CAPS for market/sector calls. TMFjake used to run a poll on where CAPS players thought the market was going.

Perhaps Macro players should have their own wholl seperate CAPS game at the fool! One where only indexes nd sector ETF/ETNs were pickable. It would be interesting to see if the Fool couldbasically create it's own community intelligence about where it thinks the market could be going.

just my thoughts

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#16) On August 23, 2009 at 3:52 PM, fransgeraedts (99.92) wrote:

This is a continuation about earlier posts about innovating caps. To see the development of my thoughts on the matter see:

http://tiny.cc/1innocaps ; http://tiny.cc/innocaps2 ; http://tiny.cc/innocaps3 ; http://tiny.cc/innocaps4 ; http://tiny.cc/innocaps5 ;

 

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#17) On August 23, 2009 at 3:55 PM, UltraContrarian (31.15) wrote:

Guys, if you are an expert in an investing field, just make your picks, make your pitches, make your blogs and the community will recognize your expertise.  Everybody making biotech picks knows and respects zzlangerhans, not just because he has the most points but also because he works the hardest (by far) in research and discussion.

On the other hand I have more points than anybody in insurance, but since I haven't made any posts on it people probably assume that it isn't the result of hard work and expert knowledge, just luck (which is true). This is how it should be.

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#18) On August 23, 2009 at 4:03 PM, portefeuille (99.60) wrote:

I guess we are like Don Quijote de la Mancha and Sancho Panza in our quest for "caps" game innovations ...

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#19) On August 23, 2009 at 4:05 PM, portefeuille (99.60) wrote:

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#20) On August 23, 2009 at 4:11 PM, fransgeraedts (99.92) wrote:

I have read many (but certainly not all!!) of the other posts about making Caps a better infosight harvester. My own thinking of course has been deeply influenced by them. And of course we all play off against the brillance of the original idea and its realisation.

Dear tasty, i agree with the idea of a "rolling ranking". I think it will be necessary to introduce it rather earlier then TMF may want. I agree with you that perception is very important here and i do think that the high scores on the leaderboard already deter potential new participants.

Dear port, i agree with you that the lower limits should be rethought. I have the feeling the recent debate about that has reached a very usefull consensus. I like the sectorchampion lists and info you included very much.

Dear jake, i understand where you are coming from with the idea of testing them as contests -but i do not agree. Essential for what i am proposing is that those additions are not framed as contests but as competitions/rankings of equal weight as the existing one.

fransgeraedts

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#21) On August 23, 2009 at 4:15 PM, portefeuille (99.60) wrote:

Finding the true gurus in CAPS

A question from an Idiot about the S&P comparison

----------------------------------------
Is this metric based on the assumption that all monies not invested in equities are placed in an S&P index fund? Why make this assumption? Why not cash? Or an S&P short fund? Or grade A Colombian white? If the market is going to tank, I want to be short or I want to be out. I don't want to be long in equities that don't suck quite as much as the others. And if you devalue the scores of the market callers, how will I know who to listen to?
----------------------------------------

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#22) On August 23, 2009 at 4:21 PM, fransgeraedts (99.92) wrote:

Dear Ultra,

i agree that by word of blog (fed by word of pitch) certain (but not all) "industry-experts" will become known to a group of pitch and blogreading insiders here on caps.

However that does not mean that Caps as it now is does justice to them, attracts them, is a pleasure to play for them -and that means that there not as many of them participaing as we should wish for. 

Also .. we do not datamine them as we should.

There is a fundamental difference of picking biotech and "winning" against the S&P and beating a biotech index.

Lastly we should make their infosight easily available for all.

fransgeraedts

  

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#23) On August 23, 2009 at 4:42 PM, Tastylunch (29.19) wrote:

UltraContrarian

I agree with your attitude  and how you determine respect but I feel the vast silent majority doesn't. Most people I know need more incentive  to play and will get discouraged by their ranking etc.

Certainly ZZlangerhans, PDTbiotech and other players like them are what truly makes the game worth playing. (and I think are not being rewarded enough for their pitches which are excellent).

CAPS scoring is pretty common complaint from the old guard fool investors on the msg boards. It's enough that I think it's a potential issue. Ther's always going to be people upset by any system but the quality of the compliants are such that I believe they have considerable merit.

I like CAPS and would like to see it do well. I don't think serves anyone if CAPS ends up being a graveyard of discouraged player accounts. Many of those players may have never had a real shot at 99+ ranking but as long as they feel they do they'l probably still play. It wouldn't surprise me if over 50% of CAPS accounts haven't been accessed in half a year or more.

fransgeraedts

Just wanted to apologize for the numerous typos in my previous post. i'm a terrible typist

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#24) On August 23, 2009 at 9:16 PM, TMFJake (70.93) wrote:

Ultracontrarian:  Two comments:

1.  Regarding the Volume threshold suggestion (i.e. getting rid of price and/or market cap thresholds and replacing with a volme filter), which has been something that most people, myself included, thinks would be an improvement. We've been testing out a few concepts. 

Here's the impact of different rule changes:

Drop 1.50 share price / 100M market cap and replace with 100k ave trading volume

*599 currently unratable stocks would be ratable, 585 currently ratable stocks would be unratable.

Net change to the ratable universe = +14

5k volume threshold & 100MM market cap remains in place

* 59 currently unratable stocks would be ratable, 866 currently ratable stocks would be unratable.


Net change to the ratable universe = -807

75k minimum daily trade volume only

* 715 newly ratable stocks and 541 newly unratable stocks

net change of +174

50k minimum daily trade volume only

* 875 newly ratable stocks and 498 newly unratable stocks

Net change of +377

 A ticker is ratable if it has (100K avg trading $$ volume) OR (5K avg trading $$ volume AND 100MM market cap

* 603 newly ratable stocks and 515 newly unratable stocks

Net change: +88

I meant to post these tests to the community earlier.  I don't know about you, but I find these results to be not particularly compelling.  Only the drop to a 50K volume limit makes a meaningful change to the CAPS ratable universe...

2.  I'll have someone look into the Sector scoring. A couple things come to mind wrt your rank vs. Number1CramerFan:  We calc the sector rankings weekly, so it may not have updated yet. And/or, I'm not sure that we're showing the top 5 in rank order. I will get to the bottom of it.  Definitely something seems amiss with Specialty Retail and thehammer03.

RonChapmanJr: Very much agree with your comment #12.

TastyLunch:  I like your suggestion number 3.  I think we will put some of the alternative ranking results onto the Player Page. 

Even though the Sector/Industry contest idea didn't seem to generate much enthusiasm, I am interested in ideas to champion sector/industry experts beyond what we already do on the Tags Page or CAPS member pages.

Perhaps we should do more on the Member Search page to highlight the different types of accomplishments on CAPS.

I also don't think it's always necessary to change the rules of CAPS or create a new way to rank members to address these changes.  Would all of you be interested in more frequent profiles/interviews on the top minds in CAPS? I'd love to interview ZZlangerhans and PDTbiotech, for example, if they were willing to participate in that kind of thing. UltraLong has been doing the "Better Know A Stock," series.  What about a "Better Know A CAPS Player" blog interview series?  I'm game to try if there's interest.  And let me know who you'd like to see profiled too.

Fool On!

 

 

 

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#25) On August 23, 2009 at 9:59 PM, UltraContrarian (31.15) wrote:

+377 companies sounds good to me.  My particular interest is microcaps (somewhat like BravoBevo, who was mentioned above).  So I will take anything I can get.

I really agree with frans and Tasty when they talk about how important it is to encourage people (especially newcomers) and also use the community data as effectively as possible.

My number one issue with community is pitches don't get enough attention - probably over 95% are never even replied to.  Maybe pitches of a certain length should automatically be cross-referenced in the blogs so that they receive the eyeballs they deserve.  In the blogs, the superficial & the political always threatens to crowd out interesting investing stuff.

Porte's, and mine, and frans, etc. opinions on how to improve CAPS system performance are well known.

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#26) On August 24, 2009 at 3:01 AM, portefeuille (99.60) wrote:

I meant to post these tests to the community earlier.  I don't know about you, but I find these results to be not particularly compelling.  Only the drop to a 50K volume limit makes a meaningful change to the CAPS ratable universe...

This is not about counting the number of stocks/funds that are "ratable". It is about throwing out garbage and letting in non-garbage. So dropping 500 and adding 500 different ones can be a "huge" improvement ...

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#27) On August 24, 2009 at 11:41 AM, TMFJake (70.93) wrote:

This is not about counting the number of stocks/funds that are "ratable". It is about throwing out garbage and letting in non-garbage. So dropping 500 and adding 500 different ones can be a "huge" improvement ...

Yes, but one can't assume that trading 500 liquid stocks for 500 illiquid stocks will result in a huge improvment.  I'm still debating in my mind whether it's better to have a separate MicroCAPS site or relax the rating thresholds within CAPS.   What I like about the MicroCAPS idea is that we can completely open up the site to ALL microcaps.

Ultra, I agree that pitches don't get enough attention.  The BuzzBox hasn't been as effective as we would have liked.  We have a couple of "pitch aggregator" designs on the drawing board, which would be similar to the blog aggregation page.  Another approach, and perhaps better, would be to simply let people broadcast their pitch to a blog simultaneously.  What would you think about that?

 

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#28) On August 24, 2009 at 4:31 PM, Tastylunch (29.19) wrote:

TMFJake

If I were a newer investor I'd think I'd be much more likely to be interested in CAPS opinion of CIT, RAD, SIRI and other beat to crap big board stocks than obscure OTC stocks like I usually get added to CAPS.

A lot of newer guys play those stocks (like GM on the pinks) and really get burned not knowing that the equity is worthless. As it is now we have no way to warn people to stay out of these bk companies once they go below 1.50. Or to point out the occasional opportunity as well

Don't get me wrong I enjoy playing with the illiquid guys but honestly I would think the community is more likely to care about the next Thornburg Mortgage than they are  about the next One Nine Hundred jackpot.

I'm not crazy about a MicroCAPS idea.Aafter all that study done on CAPS showed that most skilled players outperformance came from playing smaller stocks. I would think throwing them out of community intelligence would make the community less smart. I generally think it's more useful to have it all in one place.

As for Pitches I made suggestion in the CAPS beta feedback forum that might help and CRE Watcher had an even better suggestion too.

http://boards.fool.com/Message.asp?mid=27898492http://boards.fool.com/Message.asp?mid=27900698

 http://boards.fool.com/Message.asp?mid=27900698

Basically the gist of mine is I think the new ticker page design while very much improved in most respects really deters pitch writing imho. f that's fixable I think you'll picthes start being written gain at the freqeuncy they were in 2007-2008

 my two cents, hope it's of some value to you.

Thanks for all your hard work. 

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#29) On August 24, 2009 at 4:53 PM, SolarisKing (37.19) wrote:

An option to simultaniously make a pitch a blog also would be handy.

I like the idea of putting a lot of other player stats on the players page. I don't think that would be very hard to do. I like that idea the most, maybe, and more types of charms.

And searches CROSS REFERENCING PLAYER STATS, so i could look for yes men, who have high accuracy, in mining, this year, and write pitches. Did anyone else have this idea yet? Something like the slide bars searches we have, but also with player stats for each charm, etc.

   I was one of those that suggested a skeleton charm if you haven't signed in for over a year.

 Another thing that would be cool was if the player could sort picks by sector on their scorecard.

A notepad would be cool, or something. Something so if i didn't want to publish my blog it would be stored. Drafts, maybe.

-solaris

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#30) On August 24, 2009 at 8:30 PM, BravoBevo (99.97) wrote:

There is a lot of good ideas and discussions on this post by fransgeraedts.  Kudos.  I'm glad to see that TMFJake is watching and responding to some of the many suggestions.  Special props go out to him for being around during the weekend while many of his office colleagues might have been vacationing with family, lounging on the beach or taking in a baseball game. 

After reading through the comments and looking back over the 20+ CAPS picks I made last week, I noticed that out of all of them there is probably only one stock that I even remotely care about.  Everything else are just selections of things where I recently read something interesting about and want to watch, or picks in a trading range that I re-up to game a few points and tweak the "accuracy" component of my CAPS score. 

I do not want to squelch anyone's discussion of their picks, but much of the commentary I find on individual stocks don't provide any meaningful insight that I would find useful when I'm thinking about selecting a pick. Comments like "$100 by January" or "beaten down" or "in my portfolio" are nice, but not compelling. From time to time, I've shared my reasoning for taking a particular position on a green- or red-thumb pick in a comment only to find it quickly buried deep under a pile of comments similar to those in the foregoing sentence.

What I've enjoyed over the last few months is the separate game/challenge/contest thing that solaris is running at AllStarPortfolio. There each of the participants is allowed only one green-thumb at a time, so the focus (as I understand it) is to bring one of your favorite picks and then post a pitch explaining your rationale. Although the field is more limited than the wide-open CAPS game, I like that this is suppose to be some sort of "the best of the best". The performance has been mixed, but I find the commentary information to be of a higher standard than the normal fare generally found in CAPS.

Now I sound like I'm gushing over this.  I'm not.  This wasn't intended to be a pitch for AllStarPorfolio, but it is at least a medium that TMFJake can look at for possible ideas on tweaks which might be useful to the overall CAPS community. 

* - * - * - * - * 

portefeuille:  Thank you for the analogy to Don Quixote.  It turns out that Man of La Mancha is one of my favorite musicals ever. I first saw it as a teenager at the Dallas Summer Musicals.

Actor Herschel Bernardi (he was the lead character in the tv show called Arnie during the early '70's) starts the production by walking out onstage as himself.  Bernardi talks generally about acting and the historical setting about when the story was written. Meanwhile he sits at a makeup table in the middle of the stage and works on his face (while the audience watchs).  After awhile, he turns to face the audience, and Bernardi is in the role of Miguel Cervantes, the author of the work.  As he sits back down and puts on more makeup his storytelling continues, but now it is from the perspective of the writer (not the actor). Finally, Bernardi turns to face the audience again and his completed makeup reveals that he is Don Quixote.  From that point on through the musica, he remains in character as Quixote.

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#31) On August 25, 2009 at 2:08 AM, TMFJake (70.93) wrote:

Thanks BravoBevo!  Perhaps rather than broad open ended contests we could support a series of portfolio challenges.  Each portfolio could have a different theme (e.g. Small Cap, BioTech, etc.), and we could have some restrictions as to who could participate as with AllStarPortfolio or TigerPack.  As we've these examples, we could profile and feature picks and pitches within the blogs...  I like this idea very much too.

 

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#32) On August 25, 2009 at 1:11 PM, RJA101 (64.72) wrote:

I see Caps (as many others, including its founding fathers do) as an experiment in collective intelligence, as a way to produce information and insight.

Almost 3 yrs ago I was sitting down to make my first CAPS selections, based, basically, on the idea you have here expressed.  I had questions at the time, and now, 3 yrs later, I see the same issue is being battled, between the "stock selection" and the "game" aspects of CAPS.  As you have noted, those who make the most selections (usually down) and lock in score gains win the "CAPS game."  Being more interested in "information and insight" (and making money by investing) than in winning the game, I have made few choices over the years.

Almost two centuries ago Anatoule France wrote that "If five hundred thousand people say a foolish thing, it is still a foolish thing."  Without "due dilligence"on the part of the vast majority of participants, I cannot  see how CAPS can be a "sharing of collective wisdom"--it looks more like a sharing of "collective ignorance."  With apologies to any who actually manage it, I cannot see how those who are making hundreds of selections, with rapid turnover, have the time to perform due dilligence.

I still use CAPS, as one of many screening tools.  It is, at the least, interesting.  But, for the reason stated above, it is not my primary tool. 

CAPS, the game, is popular, and I see no reason to try to "improve" it.  I just wish it matched what I interpreted as the original intent.

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#33) On August 25, 2009 at 3:04 PM, TMFJake (70.93) wrote:

RJA101, no offense taken. :)  We very much view CAPS as a platform to aggregate community intelligence.  The more active stock picking strategies are actually practiced by a relatively small number of CAPS players, but they garner an extraordinary amount of attention. 

And I continue to look at the leaderboard and firmly believe that it is dominated by extremely bright and talented Fools.  

While you wouldn't want to follow the portfolio of someone who is attempting to exploit scoring opportunities in CAPS, I believe the aggregation platform works, and works to harvest the insights of thousands of investors to surface compelling new stock ideas.

Your Anatoule France quote is very relevant to this blog thread.  Charles Mackay wrote about the "Madness of Crowds" in the 19th Century.   The goal that I hope the majority of community members share is to make CAPS engender the wisdom of crowds vs. the madness of crowds.  These type of brainstorms that we see in this blog, assuming I and others act on the best ideas, will tilt the probability towards wisdom vs. madness.

 

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#34) On August 25, 2009 at 7:39 PM, RJA101 (64.72) wrote:

TMFJake, Thanks for your comments.  It is the hope you express that keeps me involved to some degree with CAPS.

I do not question the "bright and talented" nature of the leader board.  (My score has been in the 90's :), though currently lower).

My issue might be better framed this way:  I have a life outside stocks and investing and CAPS.  If I am lucky, and nothing more pressing comes up, I might have time to identify one or two stocks per week worthy of further study--to see if I might want to predict that they will go up or down.  And that doesn't count time keeping track of current picks.

People at the top of the scoring must be averaging selection of at least one or two stocks per day, to either add or close.  Simply from a time/number factor, it does not look like "due dilligence" is possible.  And from the CAPS scoring, these are the same people whose choices have greater impact on the stock ratings.

Your thoughts...

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#35) On August 25, 2009 at 9:07 PM, portefeuille (99.60) wrote:

Simply from a time/number factor, it does not look like "due dilligence" is possible.

"One must never be satisfied doing what one can; rather, one must always do what one really cannot."

Niels Bohr

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#36) On August 26, 2009 at 12:04 AM, TMFJake (70.93) wrote:

RJA101, let me answer by commiting to pulling the average daily picks of, say, players rated 90 or above.  I think the empircal data will provide more concrete info to evaluate your "due diligence" problem. And, of course, there's portefeuille's solution! :)

I'll post the numbers tomorrow. 

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#37) On August 27, 2009 at 2:29 PM, TMFJake (70.93) wrote:

RJA101, thanks to TMFCharris, I can tell you that CAPS players rated 90 or above pick .25 picks per day on average and 7 picks per month.  We did not filter out re-opening or reversing the call on existing picks which would drive those numbers down further.  So, as it turns out, it looks like the top pickers on CAPS are indeed identifying the one or two stocks per week that you state in your post above as something within reason.

And these numbers don't suggest to me that due diligence isn't possible on this volume of stock recommendations.  It's not the same level of rigor that you might apply to a 2 pick per month stock service, put it's perhaps consistent with the short list of candidates from which one might derive 2 best ideas per month.

We all know that some people pick on a whim, and others put in a tremendous amount of due diligence.  As I think about ways to improve CAPS, I wouldn't necessarily indict the current volume of stock picking, but I would be interested in ways to capture the amount of due diligence associated with a pick, or the level of confidence that someone has in a pick and so on.

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#38) On August 27, 2009 at 3:04 PM, Tastylunch (29.19) wrote:

TMFJake

Can Charris run those numbers for players 99 and above?

I've noticed a marked difference in player behavior once they reach the 99plateau especially 99.5 +

Might be interesting to see.

I actually disagree with RJA101 anyway, I'm not sure  an individual's players due diligence is needed to increase community intelligence if you belive in the model. Aftre all most wisdom of the crowd experiments seem to involve decisions where due diligence is notpraticable (e.g. how many jellybeans are in a jar?).

I would also argue that in our markets most short term traders do not do dd either

FWIW I play CAPS as an idea/watchlist. So about 30-40% of my picks have moderate DD, 10% have heavy DD and the rest are ideas/whims.

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#39) On August 27, 2009 at 3:11 PM, TMFJake (70.93) wrote:

Tastylunch, I'll have Chris pull this data.  And I agree with your assessment of wisdom of crowds generally.  The key, IMO, is really information diversity.  The more diverse inputs, the better the outcomes.  But I do believe the more informed those diverse inputs are, the better the outcome.

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#40) On August 27, 2009 at 3:57 PM, TMFJake (70.93) wrote:

Okay, the top 1% are showing a marked increase in pick activity, .5 per day.  Double the top 10% population.

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#41) On August 27, 2009 at 5:16 PM, Tastylunch (29.19) wrote:

TMFJake

Thanks Jake, more or less what I already suspected. My guess is when you back out Players who haven't made a pick in 12 months (like a cipostripes) that you will see upwards of 1 per day as well.

many of the top players seem to use mechanical sector bets to get near the top very quickly  (e.g. low P/b high beta ouperform, underperfrom all levered ETFS,  outperform all OIl E&P etc etc).

Thats usually not enough to get you to the very top but it can get you in the top 50 if you time it right.

anyway I agree with you on diversity of inputs and DD, I've heard Surowiekci speak and I am not at al sold on wisdom of the crowds anyway. Especially for decisions on complex matters

there is some validity to Wisdom of the Crowds but it has huge important caveats and weaknesses just like EMH does as well.

The fact that CAPS give extra weighting to "experts" is what allows it to work imo. 

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#42) On August 27, 2009 at 5:17 PM, RJA101 (64.72) wrote:

TMFJake--Thanks for the info--gives some perspective.  At least moderate DD is theoretically possible with these picks.  Perhaps some of Tastylunch's honesty on pick process [we can count on Fools to be honest, can't we?:)] would add perspective.

Tastylunch--I'm comfortable with "moderate DD".  But it sounds like half your picks are what I would call a sharing of ignorance  ("ideas/whims").  How do these add to the collective intelligence?  I'm familiar with the type of crowd study you reference, and they yield interesting results.  But selecting stocks is not guessing jellybeans.  Without a moderate amount of DD from the vast majority of pickers, the difference between a 5 star stock and a 1 star stock is which one catches more people's fancy--for whatever reason.  It says nothing about the value of the stock, either short-term or long-term.  It could be an excellent stock..or the latest fad.  To paraphrase my quote from Anatoule France--500,000 people (even Fools) could be wrong about a stock without at least some DD.  But thanks for your input.  And I do use CAPS primarily as an idea/watchlist.

Afterthought on crowd behavior studies--most indicate that behavior of most individual's tends toward the activity of the crowd, even when the "crowd" is wrong or intentionally misleading, and the individual initially believes differently.  "How can there be that many jellybeans in that little jar?...but I'll up my guess because that many people can't be wrong."

 

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#43) On August 27, 2009 at 5:29 PM, TMFJake (70.93) wrote:

Tastylunch:  We only calculated averages based on active players.  So we looked at active players each month and then averaged the number of picks across this cohort-within-a-cohort.

Naturally, I agree that our approach to "weighting influence" is better than the equal weighted votes of other wisdom of crowd models.

RJA101: Wisdom of crowds turns into the madness of crowds (eventually) when the individual actors stop thinking critically for themselves.  Same holds true for the markets.  When everyone is trading on the same strategy, and particularly when everyone leverages up on the same strategy, we're poised for a disequilibrium event.  

I originally wanted to include a Level Of Confidence field along with people's picks.  Perhaps we should include a Level of Due Diligence field???

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#44) On August 28, 2009 at 8:21 AM, fransgeraedts (99.92) wrote:

1. I believe in Caps. I think that a Caps will become the preferred web-environment for (all) investors. I think that actual buying and selling will be possible within them.  I think that analists, economists, financial journalists, stockletters and advisers will tie their work to it. I think that the Caps will become global and cover all markets. I think that they will become the prime originators of trends, hypes, fads on the markets. I think that they will have millions of members. (I think that Caps could become a generic name like google or coke.)

2. I think that Caps could become much bigger then the Motley Fool. I think that if the Motley Fool realises that, both Caps and TMF would benefit from it.

3. Caps is in many ways like a MMORPG  -only better. It is a pleasure to play, it creates a community, it makes individual learning possible, it produces infosight, it can be used to make better investment decisions and make individuals and the world richer.

4. Participants will use Caps in unexpected ways. That was clear from the beginning. Intended as an extension of the buy and hold stockpicking philosophy and strategy of TMF it morphed quickly into many other directions. Caps should embrace that, welcome it, make it the core of its philosophy: we do not yet know what directions a caps will take, what strategies there will develope within it, but we are curious, we want to see, we will accomodate those strategies over time and mine the data for the benefit of the whole community.

5. That means that the baseline version of a Caps, should be as wide as possible, should be as open as possible, should have as little limits as possible, should cover as much as possible, should maximize, in other words, the possibility of the emergence of the unexpected. The TMFCaps has done this reasonably well. It could have forced us into a stockpickers mode, for example, but it did not. It is, however, certainly possible, to open up the baseline even further. For example, by dropping the lower limits that exclude certain stocks. For example, by adding stockmarkets from which stocks can be picked. For example, by going real time. This ever more widening of the baseline should be one important direction of the development of Caps.

4. A second direction of the development of Caps should of course be the gradual type of enhancement we have been witnessing. A better screening function, an easier way to "sell" positions, better visibilty of posts and easier following ..etc.

5. A third direction should be to actually promote the tie in of others. The existing "wall street" feature is a great beginning but could be much better implemented.

6. However, the most important direction of development for the next years, i believe, should be the accomodation of certain distinct strategies that have emerged within Caps. If we do that in the right way that would have an effect that is comparable to a MMORPG-extension -the addition of a new "continent" with new adventures that make a different kind of play possible and promote a new kind of skillset. It should be used to generate publicity, to attract new participants, to seduce existing participants to accept a new challenge. Of course the most important goal should always be to generate more and better infosight about the financial markets.

7. The key to adding a new "continent" to a Caps will (allways)be to add a new ranking. Nothing below that level will have a comparable effect. (I of course realise that the addition of a new ranking is a major undertaking. We should not fear this, however, but use it. Done right it will mobilize the entire existing community . It will also attract a slew of new players, because they see a better "entry point", but more importantly, because they are interested in the underlying strategy.) Only a new ranking will do because it is the idea of a competition where we pit ourselves against all comers over a (theoretically) infinite period of time that is the main attraction and the core of a Caps.(Of course we should only add rankings in a very slow rythm. Just like MMORPG adds "continents". One every two years? for example?)

8. I have suggested three new "continents", three new rankings for Caps, all three based on existing player styles. The stockpicker, the macroplayer, the specialist. (See my earlier posts, for an explanation)

9. I will in the rest of this post explain how such an addition of a ranking should be undertaken. I will use the stockpicker's universe as the example to illustrate the main points. That choice is not a coincidence. A stockpickers rating should in my opinion be added first.

10. People who are very good in picking individual "winners" in the stockmarket, stocks that outperform an index for a long time, cannot win the baseline rating in Caps. That is discouraging. The infosight value of their stockpicks is very high. We should terefore entice then to stay and attract as much of them as we can. We also do not datamine the decisions of stockpickers good enough. (See earlier posts.)

11. There is an additional reason to finally accomodate them. Because of the TMF philosophy Caps in its rethoric promises to be an ideal environment for stockpickers...but it isnt. This is a broken promise. It is high time we made good on it. (I admire the loyalty of all those players that still are active on caps with a stockpickers strategy.)

12.  The basic formula for the SP-ranking should be this. Everybody has to pick between 10 and 25 stocks. Only greenthumbing is allowed. Only stocks are allowed. The score is the same as in baseline Caps. (accuracy, points  ..points are not absolute but relative to S&P.) Stocks need to be held for at least six months. If at any time the amount of stocks held longer then six months falls below 10 the score goes to zero. 

13. Lets first outline what kind of investor-behaviour this kind of ranking will promote. To have a chance of succes i will have to think very hard about individual stocks. Something like a list of my best 25 ideas will probably work best. While i can do it in the form of sectorbets (all 25 within one sector) if i do that my risks are very great. If my bet on the sector is wrong my losses could be great and difficult to overcome without breaching the 10-at-all-times-rule. So diversification would be a wise choice. The combination of the six-months-rule and the 10-at-all-times rule would make for a slow turnover. The mean holding period of a stock will probably be much longer then six months. I believe that the SP-ranking will therefore indeed generate the best individual stock idea's in a buy and hold kind of context. The infosight value will be high and it should make the star-rating of individual stocks much more valid.

14. Very important is that this should be a real ranking, that is, a universal one. Every participant should get an SP-ranking  -even if he does not want to play in that fashion. Only when we do that the SP-ranking will become important enough, will get enough "weight", will become (almost) as important as the baseline-ranking. (There needs to be a way to designate SP-picks.Players who have not (at least)10 designated green 6monthsheld SP stocks will be ranked zero on the S&P score and ranking)The SP ranking should be prominently displayed on the MY-Caps page. And then, of course, in the usual way visible all over the community.) 

15. It should be possible to play this from within an existing page and portfolio. So out of my 200 picks i should be able to designate a maximum of 25 green picks as SP picks. It should of course also be possible to create a page just for SP-picks. (But that page will then also be rated against the baseline!!!)

16. If we add a ranking in this way i believe that several things will happen at once. The existing stockpickers will play with much more gusto. Their efforts will finally be recognized. By word of mouth that will also attract newcomers, first of all from the disgruntled TMF community, but then also from outside.

17. However maybe even more important this new ranking will act as a gauntlet for the existing player base. So you are among the best overall players...a couple of thousand points...ranking 98.. but are you also a good stockpicker? the goodstockpickers in the community have always maintained that you are not... will you take on the challenge?? (If you score 0 because you dont designate enough stocks...you are a coward..if you do participate....you could lose...grin). I think that many of the existing high ranking players would make room for 25 SP picks within their existing list. It will be difficult not to do it! That also means that we channel their collective intelligence in the direction of a specific and very high infosight value.

18. Most importantly we could use the new SP-ranking to generate publicity and attract a massive amount of new players.The Caps community hereby challenges the best stockpickers of the world to come and compete. The Caps community hereby offers everybody the chance to become one of the world leading stockpickers.(Etc.Etc.)

19.In a similar fashion, slowly over time, a handfull of rankings could and should be added.

fransgeraedts

 

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#45) On August 28, 2009 at 12:00 PM, RJA101 (64.72) wrote:

fransgeraedts

1) Your proposal for a "stockpickers" category sounds very close to what I bought into when I joined CAPS three years ago.  Apparently, from its growth, a large number of people like the way it is, which I have no problem with. It's just not my thing.  (It would be interesting to know what percentage of those thousands of players listed are "active"--even have at least one pick in the past three months.  I know I wouldn't be in that list, although I'm looking at several stocks right now).

2) I don't know if I am a "goodstockpicker", and I don't know if the highest rated participants are or not.  They (or most) might well be.  With the current system it is impossible to tell.

3) I debate whether a completely separate mechanism or a subcategory would be better. I tend toward a subcategory approach--it could attract the strengths of multiple approaches while leaving room for those of us committed to a long-term buy to hold approach.  (Note I use "buy to hold" rather than "buy and hold"--but that's another issue).  I might even move CAPS up on my priority list.

4) The bottom line for me is how a service or mechanism translates into real life.  I.e., am I making or losing money, and how does participation in CAPS effect that?  I note (by checking it now) that my average pick is 4 Stars.  But my best performing was 2 Stars.  (I don't look at Star ratings before selecting, for reasons I have presented in the past).  I don't know what that says, if anything.

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#46) On August 28, 2009 at 8:03 PM, Tastylunch (29.19) wrote:

RJA101

Well in my case I don't think my whims damage community intelligence because I've noticed that 90% of my absolute worst picks come from the whim side of things.

So I do get punished for making hasty/reckless decisions via major lost points and accuracy.

The market itself acts a corrective force on my laziness in a sense and as long as I care about my ranking I will have incentive to do DD

the biggest damage it could inflic is if I have dogpilers copy me, I'm not high enough to probbaly have a meaningful amount of those.

I do also usually write a  pitch on a sock when I've actually do some DD on it. And use the toppick designation to denote which Ones I have either done a lot of DD or actually hold.

TMFJake

oh really? I w as wrong then. Thanks for the additional info. I guess I pick more often than "average".

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#47) On August 28, 2009 at 8:11 PM, Tastylunch (29.19) wrote:

fransgeraedts

WOW I don't kow if I agree with all that, but that's a  pretty awesome vision you have.

I agree CAPS is bets game of its kind and could have explosive potential to become kind of like an honest community analyst system. If it gets influential enough it might actually make markets more efficient.

I strongly agree with your point 5. More information is better imho.

I also agree point 10 is the biggest weakness CAPS currently has.

I admit I wasn't sold on this serperaet gaem thing at first you are proposing but you've sold me on it now that i see it's folded into CAPS proper.

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#48) On August 29, 2009 at 10:50 AM, fransgeraedts (99.92) wrote:

I am gratefull for all comments. This post is getting a bit long and unwieldy. Therefore I have posted my last long comment as a new post.

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