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CAPS Accuracy



September 25, 2012 – Comments (7)

One of my curiosities is accuracy and in particular what's a good accuracy?

For example, if I roll a 6 sided die and I can correctly guess the number 30% of the time, that would be pretty good (if it were just random, we'd expect about 16.7%). Conversely, if I were to call underperform on a bunch of leveraged bear ETFs, it should come as no suproise if my accuracy for those picks is high. At a bear mimimum, a"good accuracy" should be one which is better than chance guessing. That will depend upon what's being selected.

I remember reading a study by Blackstar a while back (see here) that had some interesting findings (two are noteworthy for present discussion):

39% of all stocks had negative returns.

64% of all stocks underperformed the Russell 3000. 

The latter statistic indicates that (if the future is like past) that I can obtain a higher accuracy just by down thumbing stocks at random (whether or my score will improve is a different matter entirely). So it seems as though people who focus on outperform picks in CAPS may find it more difficult to get a higher accuracy than those with a good portion of underperform picks. (Score is an entirely different matter).

So I'd like to suggest that what counts as a "good" accuracy will at least depend on whether or not I make outperform or underperform picks. 

So I decided to look at my own pics out of curiosity. 

Total pics: 422.
Total with positive score: 242.
Total Accuracy: 57% (which is slightly different from what CAPS says... makes me wonder how they calculate it.)

Outperform Picks: 310
Outperform with positive score: 158
Outperform Accuracy: 51%

Underperform Picks: 112
Underperform with positive score: 84
Underperform Accuracy: 75%

If guessing at random implies that I should guess about 36%/64% of Outperform/Underperforms correctly then 51%/75% doesn't seem too bad. 

But it does indicate, even aside from leveraged ETFs, that the CAPS rating system seems to favor underperform picks (assuming the Blackstar stats continue into the future). 

7 Comments – Post Your Own

#1) On September 25, 2012 at 6:40 PM, constructive (99.97) wrote:

"39% of all stocks had negative returns. 64% of all stocks underperformed the Russell 3000."

Yes, but that is over a long time period, maybe 12 years for the average lifespan of a Russell 3000 company. Over the average year it might be 51% underperforming and 25% with negative returns.

"So it seems as though people who focus on outperform picks in CAPS may find it more difficult to get a higher accuracy than those with a good portion of underperform picks. (Score is an entirely different matter)."

I agree, but I think it's mainly because it's easier to identify bad investments than good ones, not because of the odds.

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#2) On September 25, 2012 at 6:43 PM, awallejr (34.23) wrote:

I think it favors underperform picks too.  I killed my accuracy when I opened this account back in 2008.  Since I basically make outperform picks you could see how my timing crushed my score.  Alstry had fun for awhile mocking it until I passed him heheh.  I just can't seem to get it to 50%.  It did that for one day April of last year. 

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#3) On September 26, 2012 at 1:17 PM, TSIF (99.97) wrote:

Underperform is probably "easier" to call, and agree with Megashort that they are generally easier to identify. Note that in the CAPS world we tend to "share ideas" that can help identify underperforms. The market, however, can do just about anything in the short run. "Junk" tends to rise faster in an upmarket and drops faster in a downmarket due to "risk".

Regarding your own results, do you consider your picks random?

Upthumbs are generally more lurative in points (more potential). The points and accuracy seem to help balance, (EFT's aside, which is another topic that has been beaten up).

The bottom line is CAPS is a game, and a study tool. It doesn't fit everyone's style as a game.

Regarding your accuracy not matching CAPS, note that any pick closed 0.01 to 4.99 DOES NOT count in your accuracy as a "win".  Anything negative does count against you.  One "working" on accuracy needs to be careful, especially on voitile days where the S&P average is moving fast.

Good luck.

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#4) On September 26, 2012 at 2:49 PM, somrh (86.55) wrote:

@MegaShort, I think that's a fair point regarding what year over year outperform/underperform percentages would be. It would be interesting to see what those look like on an historical basis.

And I agree about picking lousy investments.

@awallejr, well, there are plenty of ways to game the system to improve your accuracy. :) 

@TSIF, there's definitely a short-run aspect to the game. And I can definitely see how upthumbs give you more points potential. 

The 0.01-4.99 would probably explain my discrepancy. 

I don't consider my picks to be random by any stretch but at the same time, my CAPS portfolio is more of a watchlist than anything else. Occassionally I'll make picks that I don't think will be good CAPS calls.  

My overall point is that it would be interesting to see those accuracies separated. I suspect that randomly picking underforms would generate higher accuracy overall.

Regardless, I think a "good accuracy" should outperform a random selection. That might not be 50/50.

For example, awallejr may very well have a "good accuracy" even though it's lower than 50%. 

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#5) On September 26, 2012 at 4:42 PM, TSIF (99.97) wrote:

Accuracy is one way that adds some variability.  Most of the top 5 or so players have been bouncing in and out of the top mostly due to accuracy.  Some have a bullish slant and some a bearish slant. Many players get tempted to "guess the market" and occasionally get "stuck" with upthumbed ETFs. At least they are adding varability.

The accuracy "factor" adds some variability that usually spawns a great deal of debate.  Many players "farm" accuracy at as close to +5-6 as possible. The "factor" also causes players to hold picks when they would not normally.  Accuracy becomes more valuable than points.  This decreases the accuracy of the system as a whole from the standpoint of an individual stocks "sentiment"/star rating.  There is much truth to the view that most stocks will swing in your favor if held long enough.  The question becomes if the potential loss of points and the 200 pick limit capping new picks detracts from your total score potential and how that affects your rating.

So, if we look at pure accuracy we would have other variables.  Accuracy 25% and score 75% leads to other variables. Accuracy on downthumbs versus upthumbs would be yet more variables.  All in all, the ability to hold picks open forever probably negates some of the value of trying too many ways to measure it.  That a majority of the "players" have abandoned their accounts also skus possible outcomes.  One can always build a spreadsheet and sort data in various ways.  Invariably, staticians will prove that you can do "almost" anything with the numbers.


PS.  You have 29 picks at 0.01 to 4.99 that don't count in your accuracy. (They do count in your total points).  This should cover your measured delta.  Hmmm...guess one could have 4,900 points and a zero accuracy if they closed 1000 picks at 4.99.... or would they have 100% accuracy.....   ;)

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#6) On September 27, 2012 at 1:31 AM, awallejr (34.23) wrote:

I dunno with 3% more accuracy I am at over 99%.  Yet in real life if I doubled down on a postion I could turn a loser into a winner.  Caps does not account for that.

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#7) On September 27, 2012 at 10:20 AM, TSIF (99.97) wrote:

Or a loser into a bigger loser!!! ;)

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