Use access key #2 to skip to page content.

CAPS Geniuses

Recs

64

January 26, 2013 – Comments (144)

I don't blog much - I don't have a lot to say and don't ascribe much investing prowess to myself just because I happen to play this wonderful CAPS game fairly well.  I ran across a post from roofman6 over on the CAPS feedback board, and was struck that he looked at the score of the current top "Fool" (that would be me - yay) and that he was concluding that there must be something seriously wrong in his investing when compared to those scores and percentages - and that was keeping him up at night.  I thought it important to respond with another perspective - and some reassurance that he shouldn't be drawing the conclusions he apparently is.  I hope roofman6 doesn't mind me using his post to launch this blog entry.  Here is what roofman6 wrote:  

 I'm new to Motley Fool and I've been looking at the "players" records and some of them are just astonishing... accuracy of around 90% and annualized returns that would double or triple your money in a year. I'm not doubting the figures but what am I not seeing here? Why aren't investors and fund managers duplicating these player's buys and sells, or are they?

I did some calculations and the current top "Fool" looks to be doing over 300% rather consistently. Most of us struggle just to keep up with the market. Am I interpreting his record wrong? It's got me staying awake at night trying to figure out what I'm doing wrong.

Thanks,
roofman6

 Hi Roofman6,

One thing to note is that CAPS is a game - a stockpicking game - which is different than an investing game. I have played now for over six years and enjoy it immensely. While I have been buying and selling stocks for nearly 30 years, I have learned alot about the behavior of the market through my participation.

The game rewards several different types of behaviors - some of which indicate good investing prowess - and others indicate good game playing skills. You can see examples of all of the following in my CAPS portfolio and activity. For example:

1. long term small cap picks - when successful, these become really successful and can get you hundreds of points years later. For example, if GEOS goes up from 95 to 100, I get 50 CAPS points because the entry point was around 10. Those entering the pick today only get 5 points. This type of long time buy and hold translates well to real investing. I don't think you will find any CAPS player hitting even 70% of these picks - but the payoff is great.  You can see many many such picks that I bombed on - sort on my closed picks by score and look for the big red numbers:)

2. Shorting junk - most of the top CAPS players have more shorts than longs. There is an incredible amount of junk out there (look at TMFStockspam). The strategy with some of these has been to harvest these everytime they go down 5-10 points - and then pick them again. This is game behavior that can get you several hundred points on a single short idea -when, in a real portfolio, the most you can hope for is that the company goes bankrupt and you don't have to cover - in effect, a 100% gain.  In addition, in the real market world, these junk stocks are very difficult to make any money on - most of them can't be shorted.  In CAPS, you can short them and feel good about identifying junk and getting lots of points.  

3. The biggest point getter for many folks (I am one of the guilty here) is to short the reverse ETF's. These are all flawed instruments and are sure bets over the long term in CAPS. In a real portfolio, these ETF's are often difficult to short, and when you can short them, they are very dangerous.  I have made money shorting TVIX for example since it opened.  However, I came very close to disaster in August 2011 when the VIX spiked severely and I began to get margin calls.  Fortunately, I was not overallocated and was able to ride out the storm and am back to making money on it still today.  However, there were several occasions that fall when my broker warned me they were going to have to close out the short because they couldn't find shares to borrow.  I got lucky and they never closed me out - but if they had, it would have turned an eventual winning trade into a severe loss.  I put only a very small portion of my portfolio into these things.  In CAPS, there is no risk of being closed out, getting a marging call, overallocating etc. - they are sure bets that get me hundreds of points every year. See my pitch for the volatility shorts like UVXY, CVOL, TVIX, VXX. With these, I just keep closing them and reopening them - without these types of tickers, I don't think anyone would have 90% or perhaps even 80% accuracy.

I have done very well in CAPS - but I am not anything remotely resembling an extraordinary investor. I do ok - but end up with results not all that far away from the market averages - some years I beat, some years I don't.  I hope this helps you understand what is going on with some of the extraordinary accuracy scores in CAPS. For the most part, just ordinary folks playing a game very well. I hope this hasn't been disrespectful to the other top players who really are better stock pickers than I am.

bbmaven

144 Comments – Post Your Own

#1) On January 26, 2013 at 9:32 PM, portefeuille (99.66) wrote:

Well, I think I am pretty good at recognising "talented people", maybe that is my greatest talent :)

I could give a few criteria for finding decent "investors or potential investors" that participate in the "caps" game, but it might be easier to just name a few of those I consider "(potentially) decent investors".

ac360 / anchak
andreylikesmtl
checklist34
fransgeraedts
jakilathehun
megashort
portefeuille ;)
portefeuille2 :)
translator999
vanamonde
zzlangerhans

Report this comment
#2) On January 27, 2013 at 12:14 AM, roofman6 (< 20) wrote:

Thank you again bbmaven for your thoughtful response.

Thank you also portefeuille for your insight. You both were players that I put together spreadsheets on, and you might be interested to know that you've done 258% on an annualized basis, and for the stocks that you picked this year, you've done 1332% as of yesterday. These figures are based on $10k buys and include $7 transaction fees, but don't include dividends. Both you and bbmaven have had no losing years, based on the stocks bought and sold during each year.

I'm trying to figure how to sort these spreadsheets into something that will give me some tradeable insight.

Thank you both,

roofman6

Report this comment
#3) On January 27, 2013 at 1:19 AM, awallejr (79.49) wrote:

Except Porte you are naming some people who caught the right "timing" which is a hard thing to do. And they haven't made meaningful picks in years.  Seriously, Andreylikesmtl?  Now checklist34 I tip my hat off to because he really did throw real money after his picks, having the guts to tread where the fearful wouldn't.

 

Report this comment
#4) On January 27, 2013 at 5:30 AM, portefeuille (99.66) wrote:

also see comment #5 and #21 here ->

http://caps.fool.com/Blogs/this-i-really-dont-get/437335.

As zzlangerhans writes in his comment the discussion was old even then ... 

Report this comment
#5) On January 27, 2013 at 5:36 AM, portefeuille (99.66) wrote:

I am up around 111% with my "fund" since the December 2011 low, by the way, see here ->

https://twitter.com/portefeuillefun/status/295204195412344832.

And that performance has been greatly helped by the recent rally in biopharma stocks ...

Report this comment
#6) On January 27, 2013 at 5:40 AM, portefeuille (99.66) wrote:

#3 I had to pick one of the 3 Russians (A, R and Z). I have a feeling that they are one of the most intelligent groups ever to appear here. Moscow State University elite :)

Report this comment
#7) On January 27, 2013 at 2:42 PM, awallejr (79.49) wrote:

Is R Russiangambit?  I haven't seen him post in awhile.  He still needs to respond to this (comment #4 and #19).

http://caps.fool.com/Blogs/18-reasons-well-pull-back/201013

Report this comment
#8) On January 27, 2013 at 5:51 PM, portefeuille (99.66) wrote:

#7 yes.

Report this comment
#9) On January 27, 2013 at 10:27 PM, MKArch (99.70) wrote:

roofman,

 I wrote a blog recently about my master plan to improve CAPS by adding different categories of investment types like dividends stocks, growth stocks, international, health care etc.. and finding/ rewarding players who excel in these different categories. I also suggested encouraging the best to write about their ideas even paying them to do so ala S.A.

The point I was trying to make is that the value in CAPS is following other players with valuable knowledge. Although I've tried not to get too carried away gaming CAPS I've dabbled with the reverse ETF's to juice my score and mend some accuracy mistakes. I agree with bbmaven whole heartedly that if you really want to get real world value out of CAPS look past the gaming and focus on people who write informative blogs and pitches for stocks you can actually invest in the real world.

I don't know what you investment experience is but I have no formal financial training other than Some outstanding tutoring from the good folks at TMF hidden Gems. One aspect I love about CAPS is it's a true record of my successes and failures and a way to honestly gauge myself. My advice is to use CAPS as much to learn about yourself as to learn about others.

Report this comment
#10) On January 28, 2013 at 1:36 AM, roofman6 (< 20) wrote:

MKArch, et al

Your ideas and advice sound solid and I do intend to study all I can here. I’m too new to MF to have an informed opinion on changing any part of the system though.

I’ll tell you what pulled me in and still has a pretty good grip on my imagination… the actual player buys and sells with dates in somewhat of a retrievable form. I’ve spent considerable time studying them and some truly awesome yields have been achieved here. Bbmaven explained how it’s a game, and not meant to be an investment model, and he cautioned me about how “shorts” game the game. Yet even after I pulled all the short positions out of my spreadsheets, there have been some remarkable records here, over meaningful time spans.

I don’t know how I’ll proceed, but I’d like to start shadow investing with one or two players. I’ve currently got 7 individuals in mind. I would never hold as many positions as they do however.  I’m thinking of maybe putting every 10th "long" buy in a paper portfolio on Google Finance and seeing how it does for a few months before I commit any money to the scheme.  

I’m sure I’m not the first person that has tried something like this, and would love to hear how the others have done.

I thank you all for your input and your kind advice,

Roofman6

Report this comment
#11) On January 28, 2013 at 8:49 AM, MKArch (99.70) wrote:

roofman,

 If you are just going to mimic their rec's I'd keep it to a paper portfolio. For a real world portfolio I'd suggest looking for people who write intelligent arguments for a rec. Try to understand the argument and verify it with the companies filings. My best advice is don't just take fish from the better players in CAPS let them teach you how they fish. Use CAPS to learn how to be a better investor not how to beat the system.

Report this comment
#12) On January 28, 2013 at 9:30 AM, bbmaven (100.00) wrote:

Sound advice MKArch - I agree.  There are some long picks I make in CAPS that I would be very reluctant to put my own money in - sometimes they are there just because I am intrigued and want to force myself to keep track of what is happening.  DDD was one of those.

Report this comment
#13) On January 28, 2013 at 11:45 AM, reddingrunner (95.44) wrote:

Great insights and nice to see such humility.

I've managed to achieve relative success in caps without "cheating"; my only short is a LT bond fund.  I do tend to keep some stocks that I'd otherwise sell to see if they'll climb above one of the scoring threshholds, but I do enjoy following those players who try to keep their CAPS picks a little more true to life and still manage to score in the top 5%.

Caveat: in the past my CAPS score has tended to plummet in bear markets. 

Report this comment
#14) On January 28, 2013 at 12:25 PM, roofman6 (< 20) wrote:

Porte,

After I pulled the shorts from your portfolios, you still did awesome. Porte has an overall annualized percentage gain of 258% with an average hold of 257 days if my figures are right. Porte#2 did 224% with an average hold of 160 days. My figures are using the second buy date, not the one that is lined through. I'm not clear whether that is the actual buy date or not (for those stocks that have the two buy dates listed). They include $7 transaction fees on $10k buys.  

Just thought you ought to know,

roofman6

Report this comment
#15) On January 28, 2013 at 12:46 PM, dragonLZ (99.35) wrote:

There is a lot of high-rated crapy CAPS portfolios out there (including mine).

Take this one for example goldminingXpert: The guy has a 91% accuracy, yet his average score per pick is -0.41.

And take a look at his chart, he goes from negative 2,000 points to + 3,000 points in a month, just to go from 3,000 down to negative 2,000 points in a month.

Is this something you would like in a real life portfolio?

Now, if you look at his portfolio when he's at +5,000 points and you see his accuracy of 91%, you would think the guy must be some kind of genius and the best freaking investor out there.

But, if you take a look at his average pick score (even when he's at 5,000 points), you'll see he's just another one of those CAPS players closing his picks as soon as they get over positive 5 points (he's got thousands of those), which tends to be kinda easy with the market swings we've had as of late. (He also has a bunch of red thumbs on junk stocks you and I never heard of, and can't short in real life - there he's no different than many other high-rated CAPS players).

Unfortunately, due to nature of his portfolio, goldminingExpert will be again 99.9 CAPS rated player (was top Fool for a while) as soon as market takes a 20% dive, and some people will really think his portfolio should be duplicated in real life.

Long story short, in my opinion, if you want to find out who's a decent investor (vs. a good CAPS game manipulator), look at average pick score (the higher the better - I'd say plus 10 is a minimum).  

p.s.

Porte, Jakila, checklist34,... are the real deal, if you ask me.

Report this comment
#16) On January 28, 2013 at 1:20 PM, Mega (99.96) wrote:

(He also has a bunch of red thumbs on junk stocks you and I never heard of, and can't short in real life - there he's no different than many other high-rated CAPS players).

If you actually tried to short them (with a good brokerage), you might be surprised.

Probably 95% of CAPS rateable penny stocks and ETFs are shortable through Interactive Brokers. Plus many that aren't rateable.

Report this comment
#17) On January 28, 2013 at 5:56 PM, LocalLegend (97.88) wrote:

Hey roofman,

Thanks for taking the time to analyze Porte's portfolio and provide the returns. I've always been curious what the top players annualized returns are like. I was wondering if you would mind sending me an e-mail with your spreadsheet(s)? That would be greatly appreciated. My e-mail is: freemarketphilanthropist@gmail.com   

Special thanks to bbmaven for the post and comments from all you guys!

Report this comment
#18) On January 28, 2013 at 6:42 PM, roofman6 (< 20) wrote:

Woops,

I just realized that I have been using the wrong start dates on many of the stock picks. Where there is a crossed out date, I have been using the second date instead... and this has skewed my annualized percentage rates much higher than they should be. I apologize for having posted these figures without checking a bit further. They sounded much too good to be true, and apparently they are. Will go back on some of them and correct the mistakes.

roofman6

(freemarket, I don't know what the what the protocol is here, but unless I get some objections from Porte, I'll send a corrected spreadsheet once I have corrected it)

Report this comment
#19) On January 28, 2013 at 7:02 PM, Mega (99.96) wrote:

LocalLegend

The rough calculation is not difficult.

Annualized outperformance = Average pick score x (total picks since inception / average number of open picks since inception) / years since inception

I think that equation is correct.  Then in the case of green thumbs, you can add annualized market performance to get annualized total performance.

"Average number of open picks since inception" is the only tricky number. For you maybe 135 (since your 200 picks were not filled most of last year). For me more like 175.

Report this comment
#20) On January 28, 2013 at 8:57 PM, LocalLegend (97.88) wrote:

Awesome, thanks MegaShort!

Roofman I agree, if it's alright with Porte, I'd like to see the corrected spreadsheet.  

Report this comment
#21) On January 28, 2013 at 11:19 PM, RVAspeculator (29.20) wrote:

I did not realize how many ultra ETF's existed these days until I looked at your open picks.  Years ago I created an account to only short those and got it up to #18 overall but I haven't been out here in forever and it has fallen to #130 (no picks in 2 years).   With all these new ultra ETF's the potential for CONSTANT and CONSISTANT score generation is very high...  There is really no reason to play anything else if you are just trying to get a high CAPS score.

Report this comment
#22) On January 29, 2013 at 12:24 AM, portefeuille (99.66) wrote:

#17-19. You should be careful with annualising performance that was attained over relatively short periods of time. 2% in a trading day leads to around ((1+0.02)^252 - 1)*100% ≈ 14597% annualised return, for example. Analysis by "just looking at it" is probably the way to go. If you scan through all the "outperform" calls a player has made you should get an idea of how someone "following that player loosely" would have done (something like "would have had twice the benchmark's performance in rally years and slightly underperformed in crash years" ...).

The "great hedge fund guys" like Soros, Ackman, Loeb have managed to achieve around 30% CAGR over longer time periods. Far more than that apparently is just not doable, at least with a large, not terribly leveraged portfolio ...

Even a quant superstar like Simons has not been able to achieve far more than 50% CAGR over longer periods of time.

Report this comment
#23) On January 29, 2013 at 2:02 AM, roofman6 (< 20) wrote:

Freemarket and LocalLegend,

I corrected the spreadsheets but after thinking about it, I’m just not comfortable sending Porte’s performance spreadsheets out to others. I will send them to him if he wants and he is of course free to do anything he cares with them. If you are interested in compiling them for yourselves, I copied and pasted the information into OpenOffice Calc, a free open source program.

roofman

Report this comment
#24) On January 29, 2013 at 2:10 AM, roofman6 (< 20) wrote:

Porte,

I was amiss in stating your annualized gains on a forum, and I apologize. The figures weren’t correct however. The annualized gains did come in considerably lower after correcting for the right start dates.

A couple of readers would like to have these spreadsheets, and after thinking about it… I’m not comfortable in sending them out to others. I know those selections represent a lot of work on your part, and even though they are public, they are not mine to distribute. I would however send the spreadsheets to you if you want, and you are free to do with them as you will.

I agree that short term percentages can skew the totals pretty severely. I didn’t figure annualized percentage rates using your formula though. In your example of 2% in a day, I calculated that as 2% x 365 days/1 day or 730% annualized. Your formula compounds the interest. 

If you want to contact me, let me know how to reach you.

roofman

Report this comment
#25) On January 29, 2013 at 2:42 AM, portefeuille (99.66) wrote:

#24 What you want to calculate is CAGR, see above. The CAGR for a portfolio is of course far more interesting than that of a single stock price. You can use all "caps" game data.

Report this comment
#26) On January 29, 2013 at 8:48 AM, LocalLegend (97.88) wrote:

bbmaven et al,

As you stated, shorting the reverse ETF's is a strategy that the majority of top ranked Caps players utilize.

Is there a reason you (or any other players) prefer to short the reverse ETF's rather than going long on leveraged Bull ETF's? Is this a strategy that you implement with real money as well? Assuming you can make these picks with 90% accuracy while generating incredible returns, then why wouldn't you implement the same strategy with real money? (Or even with +70% accuracy) If so, could you please elaborate?

Thanks 

Report this comment
#27) On January 29, 2013 at 9:11 AM, portefeuille (99.66) wrote:

#26 some somewhat related "caps" game blog posts.

January 18, 2009, 2/3/4.../n X Leveraged Strategy : Weapons of Wealth Destruction or Creation - Attempt at DIY Primer

April 07, 2009, Any sense holding on to FAZ at $28??

March 29, 2009, Why you should be cautious about shorting ETFs

June 15, 2010, It is time... for the grand experiment. Help is requested and welcome

May 30, 2011, Understanding ETF decay part 2: leverage reset decay

Report this comment
#28) On January 29, 2013 at 9:18 AM, portefeuille (99.66) wrote:

February 05, 2010, Volatility Decay of Leveraged ETFs - A Third Study

The Long Term Behaviour of Leveraged ETFs

 

Also see comment #2 here.

Report this comment
#29) On January 29, 2013 at 10:32 AM, bbmaven (100.00) wrote:

Hi LocalLegend,

 I responded to your question about whether I play the reverse ETF's with real money on the VIIX Board http://caps.fool.com/Pitch/VIIX/6625219/the-volatility-etfs-or-etns-tv.aspx

The short answer is that yes, I do.  However, it can only be a small part of a rational portfolio because of the risks - leveraged short ETF's can all have punishing short term spikes that create havoc with margin and buying power.

The reason to short the reverse ETF's rather than go long the bull etf's is two-fold. The bull etf's have some flaws, but generally track the index they are designed for fairly well as long as they aren't leveraged.  However, the reverse ETF's are severely flawed and often lose value even when the index they are seeking to inversely track is acting favorable.  This is relevant to both real money and CAPS.  The second reason I play the bear etf's rather than the bull etf's in CAPS is greed.  If the market is going up, the rise in the S&P tracking value acts in my favor rather than as a drag on the score.  For example, if small caps are on the way up, TNA goes up, but my score on TNA is only the difference in the two.  If I short TZA, I get the positive score for TZA and also get the performance of the S&P added to that score.

 bbmaven

Report this comment
#30) On January 29, 2013 at 10:51 AM, DrGoldin (99.71) wrote:

Very interesting conversation.  I confess I never thought of trying to guess what kind of an investor someone is just by looking at his or her CAPS calls.  The percentage of my CAPS calls that correspond to my real investments might be something like 5%.  And remember that allocations in CAPS are all essentially identical, whereas in real life I risk a lot less money on speculative plays than on investments that I consider slower but safer (because I want to sleep at night).  Inevitably the result is going to be that real returns will be much lower than CAPS returns.  I've been playing CAPS for about six months, and my score is north of 1100.  In the real market, I'm only about +23% for the same period (and I'm pretty happy with that).

I think of CAPS as two things: (1) a fun game, and (2) a useful learning tool.  I'm not ashamed to say that I've gotten some interesting investment ideas by following stocks on CAPS.

Report this comment
#31) On January 29, 2013 at 10:57 AM, MKArch (99.70) wrote:

roofman,

The harvesting method that most of the top players use requires you to constantly be cycling through recs which would have significant costs (trade commissions and short term capital gains tax) in a real world portfolio. I doesn't sound like you are accounting for these costs in your analysis. Also by spreading their bets out over hundreds of recs at a time and thousands total you can afford a bomb here and there. If understood your strategy correctly it sounds like you might be planning to use a more limited number of their recs in your portfolio which is going to expose you to much more risk if you happen to pick up one of their occaisonal bombs.

Report this comment
#32) On January 29, 2013 at 11:46 AM, roofman6 (< 20) wrote:

MKArch,

After thinking about it, I added 3 days turnaround to the holding period in my calculations and that reduced the annualized gains a bit. I did use $7 commissions (Scottrade). Taxes I ignored completely. And yes, if I do decide to trade by shadowing a top player, it would have to be using some fraction of his trades to keep the commission costs down. As to the risk of a bomb, over time, I expect the great trades will offset the bombs. Right now I've uploaded the 2013 buys of the players I'm thinking about to Yahoo Finance portfolios and will update these paper portfolios weekly. I don't know if this will help in my decision any, as I already have years of their records, but I need some time to think this over before pulling the string.

I also need to play with the figures and try to figure out if stop limits should be used. There is a useful function in OpenOffice Calc called GETHISTORY. It goes in and gets the daily open, high, low, closing and adjusted closing prices for a stock over a specified time period. I'm just starting to play around with it and seeing if I could use it to help in the decision to use stops or not. 

roofman

Report this comment
#33) On January 29, 2013 at 12:18 PM, MKArch (99.70) wrote:

The taxes are an important part of real wold analysis roofman. Not only is the short term tax rate higher but assuming you are going to be recycling money from closed out positions into new one's you have to account for the taxes in what you have to allocate to the next stock. Smarter minds than mine could explain the logistics of buy and hold vs. constant trading but I know in general the taxes from constantly trading is a lot less efficient than the taxes from buy and hold. In other words you keep a lot more of a 100% paper gain from one stock than you do from an accumulated 100% paper gain from ten trades without even considering the lower tax rate if you hold the one gain more than a year.

Report this comment
#34) On January 29, 2013 at 1:20 PM, Mega (99.96) wrote:

DrGoldin

"Inevitably the result is going to be that real returns will be much lower than CAPS returns.  I've been playing CAPS for about six months, and my score is north of 1100.  In the real market, I'm only about +23% for the same period (and I'm pretty happy with that)."

I don't think that's inevitable.  By my calculation your real world performance is better than CAPS. 1178 points / approximately 130 average open picks + 8% market return = 17%. This is not annualized.

Report this comment
#35) On January 29, 2013 at 1:23 PM, Mega (99.96) wrote:

MKArch

There is no tax difference between a single short term gain of 100% and 10 short term gains totalling 100%. The difference is when a position turns into a long term gain, or even better a long term unrealized gain.

Report this comment
#36) On January 29, 2013 at 2:15 PM, roofman6 (< 20) wrote:

MKArch,

You make a good point. To get a more realistic evaluation, I should ascribe a smaller value to all gains that were held for less than a year and see how that affects the scheme.

I misspoke when I said I uploaded the 2013 buys and sells into Yahoo Finance... it was Google Finance. They allow you to upload .csv files, and they keep track of dividends and splits. I'm also using them to filter out the trades that I won't be able to make... the .dl stocks and the ones denominated in other than dollars. I manually kick out the expensive stocks lik BRK-A, as I could never afford them. 

roofman

Report this comment
#37) On January 29, 2013 at 4:04 PM, DrGoldin (99.71) wrote:

@MegaShort: Wow, thanks for the calculation.  I lost a ton of CAPS points right after the election because I was shorting a lot of leveraged ETF's that spiked (something I wasn't doing in real life).

Report this comment
#38) On January 30, 2013 at 11:49 AM, MKArch (99.70) wrote:

Thanks Megashort, luckily I hedged my bet deferring to someone smarter than me about the tax consequences of constant trading and you obliged. I guess I'll just leave it that roofman should factor in taxes.

Report this comment
#39) On January 30, 2013 at 1:17 PM, Schmacko (55.67) wrote:

MKArch is right though, you do keep more money from 1 trade at 100% vs. 10 trades equaling the same.  It's commisions eating into your bottomline though not taxes.

 

Report this comment
#40) On January 31, 2013 at 10:30 AM, WildTing (85.69) wrote:

Thanks for the humility and the great insights... Great to hear from the guy who always appears in the upper right hand side of my page!

 This begs the question for me... is there a way TMF can change the game to make it more relevant to real investing? In real life, why do we care about accuracy, we only care about returns? Also maybe add a "standard deviation" compenent to it? Ideally you have great returns at low volatility. 

Report this comment
#41) On January 31, 2013 at 10:44 AM, TMFBlacknGold (98.86) wrote:

@WildTing

"In real life, why do we care about accuracy, we only care about returns?"

I'm just a CAPS addict turned writer, so I have no say in the game just because they threw three letters in front of my user name. Nonetheless, accuracy is important in holding people accountable for their picks. Someone could be pretty wreckless for novice investors, or even seasoned investors if persuasive enough, in suggesting hundreds of stocks that flop. Ever watch American Greed?

Thus, CAPS tracks accuracy.

--Maxxwell 

Report this comment
#42) On January 31, 2013 at 2:09 PM, OceanJackson (63.70) wrote:

For those of us who spend lesser or more moderate time with CAPS, this has been the most revealing information yet.  I've been a follower of The Fool since 2000 or so, remember when CAPS was announced, since then I've taken only a passing interest in it.

The reason is quite simply, that the game and the gamesmanship of it, and thus - the scores, do not reflect in any meaningful way, beating the S&P 500 in the real world.

It is a fundamental flaw of the game, admittedly one that Fool creators couldn't have foreseen easily, to essentially make it necessary to Short leveraged ETF's to win.

It makes it such that there is little meaningful correlation between a good CAPS player and a good investor.  And really that should be the spirit of the game.

Just my opinion.  But to see the top CAPS players essentially give a "tell-all" here, just seems to confirm my sentiments.  

Anyone agree or disagree with me?   

 

 

Report this comment
#43) On January 31, 2013 at 3:27 PM, bbmaven (100.00) wrote:

Yes - I disagree with you.  Your assumption that you understand the purpose and objective of CAPS and that it has a fundamental flaw because it doesn't meet your expectations may be flawed itself.  You may be taking the conclusion too far that, because there are ways to play the game well that an ordinary investor would not replicate in his/her portfolio, that the purpose of the game has been defeated and that there is no correlation at all between a good CAPS player and a good investor. 

 My purpose in starting this conversation was primarily to discourage folks from reading too much into the scores and following the picks of the highly ranked players in their portfolios.  I am not sure the opposite reaction is any more valid.

One last thought - I think that CAPS has provided an invaluable service to ordinary investors playing this game in the advancement of understanding of reverse etf's and the dangers of their use as hedging/investing vehicles.  I think it is time to end this thread and start another blog on that subject.  Maybe tonight if I get time.

Report this comment
#44) On January 31, 2013 at 3:54 PM, WildTing (85.69) wrote:

@Maxxwell -

 So if I pick 10 stocks, and 9 go down but 1 goes up, and my average overall return is 20% (the one goes up 10X, the other 9 go down whatever the algebra needs it to be), how is that worse than picking 10 stocks that go up 5% each? Accuracy wise, the first scenario is 10%, the second scenario is 100%, but in real life I take the first scenario every time. 

To play devil's advocate to my own question... is this CAPS's way of taking std deviation into account?

Report this comment
#45) On January 31, 2013 at 3:57 PM, WildTing (85.69) wrote:

@Ocean:

 I agree with you that I think this game has a flaw to it, to @bbmaven's point, if you assume that the purpose of the game is to see how good of an investor you are, and to help you become a better one. But what is the purpose of this game if it's not to help people invest better? I'd love to see TMF revamp this game to make it more real life portfolio manger realistic. Heck, you might even be able to compare the TMF community to mutual funds!

Report this comment
#46) On January 31, 2013 at 4:39 PM, OceanJackson (63.70) wrote:

@Bbmaven:

Hey I fully respect your skill in CAPS and I should also have said an explicit Thank You for your blog-post.  It was very generous, and it is helpful to me and I'm sure most other Fool's interested in CAPS.

I agree with you in that by me stating what I think CAPS should be, doesn't mean CAPS is flawed.  That's a bit arrogant, thinking more clearly.

But in my defense I didn't say there was zero correlation between good CAPS players and good Investors.  I said there wasn't a meaningful correlation.  I'm sure there is some degree of correlation, but hopefully we can agree that 'no meaningful' doesn't mean 'none'.  And again, maybe I'm even wrong about the correlation, regardless.  

I'll just leave it at I think CAPS is a valuable game and offering from the Fool, I certainly haven't gotten the full value out of it that I could have, and I do think it can be improved to provide even more value.  

Players such as yourself and blogs like this are good fodder for potential improvements. 

Report this comment
#47) On January 31, 2013 at 4:43 PM, Mega (99.96) wrote:

I think there's a fairly high degree of correlation between green thumbs and real world performance potential, and a lower but still significant correlation for red thumbs. If there was a small point penalty for red thumbs, corresponding to the increased cost of shorting, that might improve CAPS real world applicability.

Report this comment
#48) On January 31, 2013 at 4:56 PM, Mega (99.96) wrote:

Depending on how you measure it, my 2012 real world performance may be better than my CAPS performance.

CAPS performance = 40% outperformance on red thumbs - 16% market gain = 24%

Real world performance = 33%

Of course my CAPS profile, being all red thumbs, bears a limited resemblance to my real world long/short portfolio. I haven't broken out long versus short performance - I'll figure that out when I do my taxes.

Report this comment
#49) On January 31, 2013 at 5:00 PM, bbmaven (100.00) wrote:

WildTing - this reminds me of the debate about whether Major League Baseball is a sport or a business.  It is a silly debate that folks on both sides weigh in on with great gravity and thinking they have possession of the truth while those on the other side are naive.  The reality is that it is both - and which carries more weight depends on your perspective.

 Let's take the baseball perspective.  1)  Is it a business to the owners? Yes.  Is it a sport to the owners? To most of them it is - but they need to operate using sound business principles to be successful.  2) Is it a business to the players? Yes - but how important that is to them varies.  They earn their living doing it, but I would hazard a guess that the successful ones do not regard it primarily as a business, though they have to keep business principles in mind as they navigate their way through relationships and contracts.  3) Is it a business to fans???  NO!NO! NO!

So, how does this apply to CAPS?  I think Motley Fool's purpose in establishing the game is well documented.  If I characterize it here, I am vulnerable to oversimplifying it but it is safe to say it was multifaceted.  The purposes were many - among them - a) to establish a databases to measure the wisdom of the masses, b) to establish a mechanism to track and hold stockpickers accountable, whether they be well known touts like Cramer or investment advisers such as Roth or GS, c) to establish a mechanism where individuals can identify and track stocks by entering picks, recording their thinking at the time, and learning from their successes and mistakes, d) to track over a long period of time how the wisdom of the masses measures up against a market average; e) to establish a mechanism to measure the accuracy and magnitude of stock picking ability and f) perhaps a mechanism to expose folks to the Motley Fool and increase the visibility of the business within the investing world.

We, the players of CAPS, tend to focus on the last of these exclusively and rant and rail on the flaws of the established measurement mechanism.  The commonly identified flaws - all picks are equally weighted, the scores don't correlate with investing ability, accuracy shouldn't be as important as magnitude (which by the way it isn't - magnitude has twice the weight of accuracy in the algorithm) - I am sure ai have missed other commonly identified flaws - are only flaws from the perspective of one set of folks about the purpose of the game.

These things are all worthy of discussion - but I have little patience with folks who are arrogantly dismissive of it because it doesn't meet their narrow expectations of what they think it should be - rather than what it is. 

I believe CAPS has been a brilliant success so far.  The flaws we players point out are flaws only from the purpose and perspective we bring to the party.  

Report this comment
#50) On January 31, 2013 at 5:14 PM, Mega (99.96) wrote:

#49 I agree.

But I would point out that TMF has been a bit negligent in advancing the other purposes of CAPS (in particular item (d) which showed great promise the few times it was analyzed), leaving the CAPS community to fend for ourselves in terms of defining a purpose.

Report this comment
#51) On February 01, 2013 at 10:31 AM, DrGoldin (99.71) wrote:

I realize that this comes rather late in the thread, but I've been thinking about this comment by bbmaven right at the start, and it's dawning on me that there are two questionable consequences for the integrity of CAPS:

"1. long term small cap picks - when successful, these become really successful and can get you hundreds of points years later. For example, if GEOS goes up from 95 to 100, I get 50 CAPS points because the entry point was around 10. Those entering the pick today only get 5 points. This type of long time buy and hold translates well to real investing."

So, first of all, I'm not so sure I agree that this translates so well to real investing because it can perversely reward players for picking stocks that strongly outperformed the market at one time, but are no longer good picks now.  Let's take bbmaven's own example of GEOS, and use round numbers.  He got in at 10 and it's currently at 90 (roughly).  That translates into a gain of 900% over the four years since he called it; the broader market has gained 60% in the same period, so that has translated into a score of 840 (in reality, it's currently 764.80).  Now, suppose GEOS goes from 90 to 95 this year, as he suggests in his example, but the broader market goes up 10%.  (Not terribly unrealistic.)  He's going to go from a 900% gain to a 950% gain, and the broader market is going to go from +60% to about +76% (if you do the math).  So his score for GEOS would INCREASE, even though, over the course of 2013, his pick would actually have solidly underperformed the market.  I kinda think that has to be fixed.

Second, it makes me start to doubt the significance of the star-rating system.  If a stock has a trajectory like our fictional GEOS, rising sharply at first but then tapering off, it's going to get a much higher star ranking than it deserves for as long as the earliest callers keep their calls open.  And that would make the ratings backward-looking rather than forward-looking.

In other words, in CAPS, bbmaven has every incentive to keep his GEOS pick open as long as it keeps going up, even if it starts to underperform the market.  Meanwhile, GEOS will be benefiting from the fact that an all-star player has a positive call on it.  This leads to the twin questionable consequences that (1) bbmaven would keep getting points for a stock that's no longer outperforming the market; and (2) the game itself would overrate a stock that is no longer outperforming the market.

Needless to say, this is by no means a criticism of bbmaven.

Report this comment
#52) On February 01, 2013 at 11:51 AM, WildTing (85.69) wrote:

@bbmaven: I love how you brought it into the realm of baseball, another one of my passions (and it looks like yours!). Reading up on what you believe the purpose of CAPS is, I think you're spot on. Many of the tweaks we're suggesting would improve upon the purposes that are described, especially "e) to establish a mechanism to measure the accuracy and magnitude of stock picking ability." 

I'm with @megashort and @oceanjackson...They bring up good points. 

 

Report this comment
#53) On February 01, 2013 at 1:04 PM, bbmaven (100.00) wrote:

Good point DrGoldin,

I believe the star rating system includes some factor that discounts old picks, or more heavily weights more recent picks, but I can't seem to find it.  The actual MF algorithm is proprietary, but there is something somewhere that addrresses the star ranking system.

It may be that I have normalized in my mind what I believe is useful information in CAPS and what I consider not useful.  I have never found a 5 star ranking to be particularly persuasive - so mostly don't pay attention to it.  Thus, I am not likely to be critical of CAPS because of that.  So - in effect, I am saying that my bias is to use what I like and disregard what I don't think is useful and not hold CAPS accountable for those features.  That is certainly a perspective that has no monopoly on the truth:) - so that warrants further discussiont hat will help us all understand the limitations of our own perspective.

Report this comment
#54) On February 01, 2013 at 1:07 PM, bbmaven (100.00) wrote:

WildTing - thanks for participating in this discussion.  You pressed one of my buttons and I hope I didn't respond too strongly:)  I have really enjoyed the entire conversation - as port mentioned very early in this thread, the conversation has been going on for several years.  I think his wording was that many were already tired of this discussion in 2010 - but there are always nuances that merit further pondering.

Report this comment
#55) On February 01, 2013 at 1:11 PM, jiaonizuo (< 20) wrote:

good,good,very good

Report this comment
#56) On February 01, 2013 at 5:07 PM, roofman6 (< 20) wrote:

Have any of you ever wondered how many people call their broker every time bbmaven or porte make a trade? I’ve been giving it some thought, and I think there are a lot of calls being made. When you look at it… it’s a win/win/win situation. MF wins, bbmaven and porte win, and the lurking investors win.

First MF produces an online contest, then publishes the trades instantly for it’s members. It keeps track of how the players are doing and ranks them accordingly. It keeps track of their picks, and ranks the stocks accordingly, essentially crowd-sourcing the evaluation of individual stocks. It encourages members to pitch the stocks, and often these pitches are picked up by Yahoo and Google Finance. This all gives MF credibility, exposure, and more paying members. Mama Gardner didn’t raise no fools.

Next, bbmaven or porte win because people buying behind them run their pick prices up, increasing their points and status. And last but not least, the lurking investors win because they are now investing with a top ranked player having a record to prove it.

I think MF set it up with this purpose in mind. Why else would it be so easy to discover the top players and their records, and why else would it be so easy to make favorites of them and be notified of latest moves?

I’m not complaining. I’m just grateful that there is such an online community, and that there such a contest, however unusual its rules may be.  To the top players, I say thank you. Keep it up and one of these days, unbeknownst to you, I’ll join that hidden group shadowing your every move. (your long buys at least)

roofman

Report this comment
#57) On February 01, 2013 at 6:01 PM, bbmaven (100.00) wrote:

I appreciate your kind words roofman6 - but I don't think there is anything of the sort going on.  There may be some truth as far as folks following the top players in the CAPS game - but if they are calling their broker to shadow my picks with their hard-earned money, I am truly frightened for them - and this not false modesty or any other type of self-effacing statement.

The recommendations of any of the MF newsletters have more validity than my picks - in fact - many of my picks are MF newsletter picks that I am NOT ready to invest in yet because I haven't had the time to feel comfortable with them.  I follow them through CAPS as I study them more.  You do NOT want to buy my CAPS picks - my portfolio has about 50 individual stocks and some mutual funds, options and shorts.  My CAPS profile has somewhere over 2,400 selections in it - few of them are "high conviction."

I wish you luck roofman on your journey to becoming a successful investor.  CAPS can be an aid on that journey, but a couple of bucks invested in one of the MF newsletters - Hidden Gems, Stock Advisor, Rulebreakers - would be of much greater help I think.

 bbmaven

Report this comment
#58) On February 01, 2013 at 9:07 PM, DrGoldin (99.71) wrote:

@ bbmaven: I certainly take the CAPS star rankings with a grain of salt too, but some people take them seriously, and the screening feature only encourages it.  Lots of times I see someone on MF touting a stock on the grounds that it's one of only X number of stocks satisfying a certain set of criteria, one of which is that it must have, say, a 4 or 5-star CAPS rating.  So I would be relieved to know that the algorithm discounts older calls.

Report this comment
#59) On February 01, 2013 at 10:35 PM, MKArch (99.70) wrote:

DrGoldin,

You bring up a good point about past success stories outliving their usefulness in CAPS. Personally I've tried to strike a bit of a balance between maximising my CAPS ranking and not getting too carried away with gaming CAPS. I purposefully decided to try to focus more on points per rec but lately I know I've left a lot of winners ride longer than I would in a real portfolio because I'm so far ahead of my entry point that almost any real gain translates to CAPS points even if it trails the current S&P. I'm not a saint but at the same time I'd like my CAPS portfolio to be somewhat realistic. So there is a little bit of a dilemma about the validity of letting a stock that I'd probably have moved on from or at least trimmed way back in real life ride in CAPS.

Report this comment
#60) On February 01, 2013 at 11:08 PM, roofman6 (< 20) wrote:

Ok bbraven, here’s the thing.

I’ve looked at and examined a lot of online portfolios, David’s and Tom’s and dozens of others and I don’t think you top CAPS players truly understand just how good you are. When I first started putting your records into spreadsheets, I was blown away. I know I had the wrong start dates for some of your investments at first, but even after correcting that, you people did fantastic. To be as realistic as possible, I then deleted your short positions, and added a 3 day turnaround time to your holding durations, and filtered your buys thru Google portfolios to determine which stocks were viable trades for me, and you still beat anything that I’ve yet seen.

I can study the fundamentals like you recommend… but my decisions will be judged in the market against the decisions of full time professionals… analysts who specialize in tiny segments of the market… analysts who consult with each other and bring decades of experience to their calls. What chance do I have picking stocks against these people? My savings will likely become the fodder that they feed on.

So here’s my quandary. I can trust my amature stock analyzing judgement in a game that professionals rule… or I can trust my lying eyes. I can make spreadsheets and sort out the past records of investors who are still in the game and who publish their trades. I can find out which ones are winning and follow them. I won’t ever learn how they do it. They may be professionals. They may have industry insight. They may have discovered some screening secret. They may follow “Bolinger curves” (whatever that is), or they may just be damned smart. It won’t matter to me how they do it, it will only matter that they have long successful records and that they make their current trades public.

You CAPS people are doing that. Like you said about baseball, it’s just a game, and maybe that’s why you do it so well.

Don’t stop now,

roofman

Report this comment
#61) On February 02, 2013 at 12:17 PM, DrGoldin (99.71) wrote:

@roofman: Just a couple of comments.

1. There are many CAPS players who DO make damned good picks and they're worth following.  There are also a few players who obviously have domain expertise and make tremendously successful picks within certain sectors.  No one should ever be ashamed to get ideas from other people, whether in the investing world in any other walk of life.  I could never plunk down real money without doing my own homework, but to me the real value is to get ideas about stocks that I'd otherwise never even consider.  It's probably the main reason why I enjoy this game (and I'm still learning).

2. Don't try to beat the market.  That should never be your goal (unless you're a hedge fund manager who has to justify his outlandish fees).  The market isn't consistent.  Suppose the market declines by 5% in one year.  Don't you think you'd still be disappointed if you happened to beat the market by losing 4%?  Or suppose the market goes up by 20% in one year.  Don't you think you'd still be satisfied if you happened to lose to the market by making 19%?  Just try to PROFIT from the market.  Leave the ulcers to the guys who stand to lose their jobs if they don't beat the market.  I was angry at myself earlier this month when Carl Icahn made a quarter of a billion dollars overnight on Netflix.  Why?  Because I had looked at Netflix and had made a firm decision not to put any money in it.  That irritated me for a day.  But then I let it go.

Report this comment
#62) On February 03, 2013 at 5:20 AM, portefeuille (99.66) wrote:

#56 I do not mind people following my recommendations, if it is the right people and they are doing it the right way. My ideal follower is a bored old fund manager that is looking for new investment ideas. He might as well mirror my fund trades (see here and here), maybe even doing it with far higher volume. I am fairly confident that he would "do alright eventually" (i.e. achieve a decent return over a period of a few years) that way. I hope he would not have to wait for all that long, but the performance of a "fully invested" diversified long only biopharma equity portfolio will most likely have longer weak periods. The less you can invest (and especially the less you can "afford to lose") the more you should refrain from taking my recommendations as more than "inspiration" ;)

Report this comment
#63) On February 03, 2013 at 5:23 AM, portefeuille (99.66) wrote:

#62 "longer term results" could look like this.



enlarge

 

They could also look entirely different ;)

Report this comment
#64) On February 03, 2013 at 10:53 AM, roofman6 (< 20) wrote:

Well, you are all very kind with your advice and I appreciate it. Here’s how portion of this thread got started… when I first saw this contest and started running spreadsheets on you top players, I kept thinking to myself “I wonder if these people know just how good they are?” I think I know the answer now, and it’s OK.

Bbmaven mentioned baseball. There is another game that perhaps is more appropriate… Monoply. There are a lot of folks that make better Monoply players than they would real estate tycoons. If they were building hotels, they would be a lot more conservative and probably, a lot less successful. I fall into that category.

I’m reminded of a poem by William Purkey that was made into a song.

“You've gotta dance like there's nobody watching,

Love like you'll never be hurt,

Sing like there's nobody listening,

And live like it's heaven on earth.”

There may be a lesson here for all of us. I’ll just say thank you again for your advice and concern, and leave it at that. I hope I’m not queering anything by letting you know I’m watching you dance.

Roofman6

Report this comment
#65) On February 03, 2013 at 4:44 PM, getrichdietrying (82.93) wrote:

I think if you can invest with the same zeal as much time and effort that is put in to this fool game. By being accurate in your picks, having a high average pick score, diversification, long term double to tripple digits picks, keeping a eye on these top fools whom you can hereafter refer to as team of watchers for an oppurtunity. You will game the "game" in real life. 

I am so diversified now that I don't panic when my stock pulls me down I just wait for the tide to pull me up and to the shore.  My real life picks are even more carefully chosen than the ones in fool. I have to make sure it's good short term, mid term and overall health long term.  

All that said I still got RIMMED by RIMM.  We are human, at least most of us are.

 

Report this comment
#66) On February 03, 2013 at 11:06 PM, roofman6 (< 20) wrote:

porte,

That list is no surprise to me, and let me say, it looks even better when you put the dates into it. I hope you had money in the game.

Thanks,

roofman6

Report this comment
#67) On February 04, 2013 at 10:03 AM, WildTing (85.69) wrote:

Hey all, took a weekend off and glad to see the discussion still going! I think this site proves that the mutual fund managers have nothing over us. Yes we can do our research and stuff, but there's so much noise in all the numbers, whims of investors, human deficiencies, etc. that soild fundamentals and long term horizons are really what drives stuff. And there's enough info out there for normal people like us to do this if we put our heads into it. Basically, you're better off investing like the players here instead of buying a managed mutual fund. By the way, I think bbmaven it's time for another blog post... I think the world is waiting :)

 

 

Report this comment
#68) On February 04, 2013 at 9:31 PM, TheTrendSetter (99.00) wrote:

Maybe I am a little late getting into this post but I have two points to make. 

1.  I think the weaknesses in the CAPS game can be modeled in my recent performance.  I started casually using this to follow some stocks two years ago.  Only recently though have I started to care and actively pick stocks.  My score has BOUNCED all over the place.  I went from >20 (5.6 roughly) a month ago to 75.45 (also roughly) as of only yesterday.  Today I am ranked 56.97...I have been in the Top 20 hottest and coldest 1-day players on CAPS for most of the last month just because my score changed so much.  I was able to go from a terribly ranked player to a moderate one (and score improving) in only a month just on playing the tricks of the game (mostly shorting those bear ETFs).  Doesnt mean I suddenly became a great day trader although I really wish it did.

 2.  I think a lot of the score issues  (pointed out above by starting a pick at 10 and it being 90 today, and even though it may underperform, it still helps the score) could be solved by resetting the performance annually.  We already track everything on an annual basis anyway, so why wouldn't we measure a stocks performance on an annual basis as well.  This would mean that the score resets 01/01 every year and is tied to what the market does that year.  This might help the problem described above since each pick would have to outperform the market in a given year.

 Just some thoughts, very interesting reading thoughout this blog so thanks everyone for pitching in.  

Report this comment
#69) On February 05, 2013 at 12:06 AM, CCharing (89.97) wrote:

roofman,

Because one can make caps players on a whim I want you to consider this example by Buffett:

 I would like you to imagine a national coin-flipping contest. Let's assume we get 225 million Americans up tomorrow morning and we ask them all to wager a dollar. They go out in the morning at sunrise, and they all call the flip of a coin. If they call correctly, they win a dollar from those who called wrong. Each day the losers drop out, and on the subsequent day the stakes build as all previous winnings are put on the line. After ten flips on ten mornings, there will be approximately 220,000 people in the United States who have correctly called ten flips in a row. They each will have won a little over $1,000.

Now this group will probably start getting a little puffed up about this, human nature being what it is. They may try to be modest, but at cocktail parties they will occasionally admit to attractive members of the opposite sex what their technique is, and what marvelous insights they bring to the field of flipping.

 

When there are enough players and no cost to replay the "caps game" then you will look at some of these nigh flawless records and infer the wrong thing - that their results indicate that they have some precognition...

That said, most of the respondents (such as porte and bbmaven) are indeed "skillful," and I don't detract anything from their scores.  But becareful jumping to conclusions.   You could just as easily make 100 caps players, 50 going ultralong, 50 going ultra short.  Then only continuing to play the "successful" profiles until you have a near perfect accuracy player...  The'n someone will look at that profile and conclude what you are concluding.

Report this comment
#70) On February 05, 2013 at 10:20 AM, roofman6 (< 20) wrote:

ccharing,

Excellent comment. Both ideas being expressed in this thread have merit, yours about the perfect coin tossers, and the flaws in the game having to do with shorting reverse etf's. I can sort out all the shorts and study the results, but I can't account for perfect coin tossing.

At some point however, averages mean something. They average out. I've now got records on some top players going back as far as 06, thru the big dip, year by year, and I can even total them by quarter if I think it's necessary. When I compare these records to my own, the difference is meaningful.There's no guarantee of course, but I like my chances of picking players better than my chancers of picking stocks.

roofman6

Report this comment
#71) On February 05, 2013 at 12:57 PM, roofman6 (< 20) wrote:

ccharing,

That great quote from Buffet deserves a better answer. He was of course talking about “luck” in his self effacing way. No one here believes that luck has anything to do with his investing success however.

If a coin is flipped and comes up heads five times in a row, there are people who will say it’s on a roll and bet heads on the next toss. Vegas was built by these people. There are others, more mathmetically minded, who know that the odds of a coin being tossed heads six times in a row are pretty small, so they will bet tails. Vegas also welcomes these people. The truth is that the next toss has a 50% chance of coming up heads, and if the payout is less than double the bet, it shouldn’t be made.

Perhaps a more pertinent example to the market is horse racing. The people who make a living following the ponies know, from past records, what the chances are on every horse is in every race. When the payout on a horse exceeds those odds, they bet.

I’m merely studying the ponies.

roofman6

Report this comment
#72) On February 05, 2013 at 2:42 PM, MKArch (99.70) wrote:

Roofman,

It sounds like you've put some thought into this. I'd like to see you create a CAPS version of your condensed Top CAPS players portfolio just to see how well it does. My gut feeling is that you need to spread out over a large number of bets to match their success rate but it would be interesting to see if you have success scaling their bets down.

 Since Caps doesn't capture trading commissions or calculate yearly portfolio returns I'd suggest using the Blog for your portfolio to report the real world returns you are achieving. If you do create a CAPS portfolio and announce it here I'll add it to my favorites to follow along.

Report this comment
#73) On February 05, 2013 at 3:44 PM, bbguru300 (99.39) wrote:

Good idea Arch.  If you do that Roofman, I will also follow it and learn from it.  I would feel much better about that than having a negative influence on your portfolio balance:)

Report this comment
#74) On February 06, 2013 at 1:23 AM, roofman6 (< 20) wrote:

MKArch and bbguru,

Good suggestion, however I can't put actual stocks in an online portfolio without revealing the player. I have already put many top players activity for the last four months into paper Google portfolios however. Without naming names, I can show you what the results are.


First, I selected the players whose recent success I wanted to track by assembling spreadsheets on many top players. From these spreadsheets I figured their annualized rates of return using the days held plus 3 turnaround days. (These figures include $7 trading fees but not dividends. The portfolios ignore all short positions, and only stocks that Google Finance recognizes are entered. The overall rates don’t equal the averages of the annual figures because players held wildly differing numbers of stocks each year).


Player    Annulized rates of return %
    Overall2013    2012     2011    2010    2009    2008     2006
A    121    224    80    130    99    227    104    129
B    102    92    49    88    63    205    105    47
C    146    37    48    32    48    132    337
D    131    151    99    45    72    225
E    76        160    77    133    132    41    28
F    81    96    84    47    72    141    20
G    102    35    132    92    132    195    39    -26

After finding these truly remarkable records, I put only buys since 10/1/12 (and any sells of those stocks) into paper Google portfolios to see recent performances. (These figures include $7 transaction fees and they include dividends). If I do a blog, I'll update these figures weekly.


Player    % Gain
A    4.15%
B    7.49%
C    32.94%
D    6.57%
E    19.41%
F    5.51%
G    14.44%


Now these are not annualized rates, but if you figure the stocks have been held roughly two months, their annualized rates would be 6 times these figures. Awesome returns that could be just dumb luck, unless you also look at the past records. 


I realize that the market has gone up during most of this time period, but I’ll say this again, I wonder if you top players realize just how good you are.

Roofman6

Report this comment
#75) On February 06, 2013 at 10:01 AM, portefeuille (99.66) wrote:

their annualized rates would be 6 times these figures

No. Annualisation is not really all that difficult.

a (t) = a(0) * (1+r)^t -> r = [a(t) / a(0)]^(1/t) - 1

20% in 2 months -> r = [a (1/6) / a (0)]^6 - 1 = 1.2^6 - 1 ≈ 1.986 -> CAGR ≈ 198.6%, not 120%. 

There is really no need to not name the players. The numbers are all in the "public domain".

Report this comment
#76) On February 06, 2013 at 10:18 AM, portefeuille (99.66) wrote:

#75 I think you should simply plot something like

sgn (CAGR) * log (abs(CAGR)) vs. log (T), with

T = min (time call was ended, now) - time call was started, in days.

Different colours for different years the calls were started would be nice ;)

Report this comment
#77) On February 06, 2013 at 10:19 AM, portefeuille (99.66) wrote:

#75,76 Just start with portefeuille or portefeuille2 if you really worry about naming names. I certainly do not mind.

Report this comment
#78) On February 06, 2013 at 10:21 AM, portefeuille (99.66) wrote:

#77 ... unless they did not make the cut ;)

Report this comment
#79) On February 06, 2013 at 10:51 AM, roofman6 (< 20) wrote:

porte,

You are referring to compound annual growth rates. I was not. I simply took % gain x 365 / days held +3. (20% x 365/63 = 116%)

Some clarification is in order however. When I post the annualized growth rate for player A's stocks of 104% in 2008, that means how the stocks that he or she purchased in 2008 did. It is based on $10k worth of each stock minus the $7 purchase cost and if the stock was ever sold, minus the $7 selling fee. The 104% does not represent how an equally weighted portfolio of player A did in 2008. That portfolio would contain stocks purchased prior to 2008 and held or disposed of during the year.

The "overall" figure of 121% is an average of all qualifying stocks that player A purchased during the contest and represents how the average stock did on an annualized basis while owned by player A. This figure is truly amazing. 

As to identifying individual players, it may be ok with you, but it may not be with some of the others. If you would like to post your email address, I'll send you your spreadsheets and you can decide what to do with them.

Thanks,

roofman6

Report this comment
#80) On February 06, 2013 at 11:30 AM, portefeuille (99.66) wrote:

sgn (CAGR) * log (abs(CAGR)) vs. log (T)

for abs(CAGR) > 1 and leave out the rest, or just do two plots (winners, losers) of log (abs(CAGR), you will find a pretty way ...

 

#79 I am still convinced that the best way to evaluate a player's calls is to just skip through the list of their calls. You get a feeling of how someone "following their recommendations in a reasonable way" would have done fairly quickly (should take about a minute per 1000 calls ;)).

Report this comment
#81) On February 06, 2013 at 4:09 PM, WildTing (85.69) wrote:

One thing I love about this thread is the intelligence of the people and how people bring data (and not just say stuff like "they need to run the ball more to get more momentum")... but getting to compound growth rate formulas and log functions is a bit much :)

 

Report this comment
#82) On February 07, 2013 at 8:18 AM, portefeuille (99.66) wrote:

#76,80 results for my player portefeuille2.



enlarge

 

data spreadsheet.

Report this comment
#83) On February 07, 2013 at 8:23 AM, portefeuille (99.66) wrote:

#82

x: time (y)
y: annualised return (%).

Report this comment
#84) On February 07, 2013 at 8:28 AM, portefeuille (99.66) wrote:

#82 Shown are the 629 calls with stock return > 0 that p2 has made.

Report this comment
#85) On February 07, 2013 at 8:43 AM, portefeuille (99.66) wrote:

calls on same line have about the same "quality" ("equally difficult to achieve performance").



enlarge

Report this comment
#86) On February 07, 2013 at 10:51 AM, roofman6 (< 20) wrote:

porte,

 At the risk of showing my ignorance, what am I looking at here? On the spreadsheet, what are the headings?

Would you like me to post a porte2 spreadsheet showing performance and annualized returns with $7 transaction fees using days held +3? I don't know how to post files, so perhaps you could tell me how to do that also.

Thanks,

roofman6

Report this comment
#87) On February 07, 2013 at 11:05 AM, portefeuille (99.66) wrote:

#86

A = ticker
B = start date
C = min (end date, now)
F = price on date C
G = price on date D

If you have data comparing players you can just post them.

A new post on statistics is here.

statistics.

Report this comment
#88) On February 07, 2013 at 11:13 AM, portefeuille (99.66) wrote:

F = price on date C
G = price on date D

F = price on date B
G = price on date C

Report this comment
#89) On February 07, 2013 at 11:22 AM, roofman6 (< 20) wrote:

porte,

Thanks.

I still don't know how you posted a file though. I don't see a button here for that. Can you explain?

roofman

Report this comment
#90) On February 07, 2013 at 11:31 AM, portefeuille (99.66) wrote:

#89 http://drive.google.com/

Report this comment
#91) On February 07, 2013 at 12:02 PM, roofman6 (< 20) wrote:

porte,

I installed Google Drive and put your file into it in both Open Office and MS Excel formats. Now what do I do to post it here?

roofman

Report this comment
#92) On February 07, 2013 at 1:07 PM, portefeuille (99.66) wrote:

#91 post a link to the file.

Report this comment
#93) On February 07, 2013 at 1:16 PM, roofman6 (< 20) wrote:

porte,

Will see if this posts.

https://docs.google.com/file/d/0B6KYwuL7OKmAZ3pwNnNtZjZyNVk/edit

https://docs.google.com/file/d/0B6KYwuL7OKmAQTl4NnBILThmVWc/edit

Thanks,

roofman6

Report this comment
#94) On February 07, 2013 at 1:38 PM, roofman6 (< 20) wrote:

porte,

It looks like they can be accessed. 

The "Weighted annualized gain/loss" column weighted the actual investment against the average investment. It tended to minimize successful short positions and maximize those you would have had to cover. 

I'm posting here the table most useful to me. It has no short positions and only includes symbols that Google Finance recognizes. These are the stocks that I could buy through Scottrade without any hassle. MS Excel format.

https://docs.google.com/file/d/0B6KYwuL7OKmASVFPRWtUVUxYX1k/edit

Thanks again,

roofman6

Report this comment
#95) On February 07, 2013 at 4:48 PM, roofman6 (< 20) wrote:

Porte,

The weighted average gives equal weight to each of the percentages listed so it gives a true picture of what a dollar invested in your portfolio has done. That average for “porte” is 142.65% annualized. The average holding period has been 322 days. If an original dollar’s investment was compounded during the 4 terms that have occurred since, it would now be worth (1.4265^4) $4.14. A truly miraculous record. I do hope you had some money on the ponies.

I’ve updated a Google paper portfolio of porte's buys since 10/1/12 and can post a screen shot of it if you like. I've also noticed that you have several more players. Do you disclose the various strategies that they employ?

Thanks,

roofman6

Report this comment
#96) On February 07, 2013 at 4:56 PM, roofman6 (< 20) wrote:

Woops,

I believe I made another math mistake. I think the 142.56% annualized gain when compounded for 4 years would be (2.4256^4) $34.62. 

Huge difference,

roofman

Report this comment
#97) On February 08, 2013 at 12:45 AM, portefeuille (99.66) wrote:

#95 My main players are portefeuille and portefeuille2.

A list including all 12 portefeuilles should be here. By now the strategies of p and p2 are "about the same".

some more stats of p2.

When I copied the data

629 outperform calls showed positive return (av. return ≈ 70.3%),
209 outperform calls showed negative return (av. return ≈ -38.4%).

 

-> average return for outperform calls ≈ 43.2%.

 

 

return of positive return outperform calls (%).



enlarge

 

(-1) * return of negative return outperform calls (%).



enlarge

 

I think stats like these would be very easy to implement and an option to compare those of different players (overlay with different colours, for example) would be nice ...

Report this comment
#98) On February 08, 2013 at 12:51 AM, portefeuille (99.66) wrote:

#97 The "points on vertical lines" are calls made on the same day (obviously ;)) and it is quite "informative" to see the returns of those "cohorts". They have differing "holding periods" of course ...

#95,96 So is my player p2 (or p) doing alright compared to others you have checked? Does the data corroborate the guess made in comment #1 above? I think for now I will quit data mining as I am currently quite satisfied with the looks of it ;)

Report this comment
#99) On February 08, 2013 at 1:00 AM, portefeuille (99.66) wrote:

#93-96 also see this post.

Interested in CAPS Data or Development?

If you have automated your data analysis to a sufficient degree you should really post some statistics, preferably in a new blog post with some pretty figures ...

Report this comment
#100) On February 08, 2013 at 9:40 AM, roofman6 (< 20) wrote:

porte,

Yes, p and p2 are at the top of my list for investable players to follow. Thank you very much. Several of the others that you mentioned are up there also, but some of them seem to be asleep, or have dropped out, I can't tell which. Will keep checking on them though. 

I have not automated my spreadsheet thing at all, and it takes me roughly an hour to do one. The data does not come in clean and takes a lot of manipulation and manual editing. Someone who knows spreadsheets and macros could do what I do in a few minutes however. 

The data that I have does not include splits or dividends, and I imagine that some of the wildly positive or negative numbers are the results of splits. I may one day look into that. 

I won't be posting other player's data as I just don't feel comfortable with it. I too think I'll quit data mining and concentrate on investing. I truly thank you for your investing ability and for making your calls public in this forum.

roofman6

Report this comment
#101) On February 08, 2013 at 5:14 PM, MKArch (99.70) wrote:

roofman,

Your efforts to determine real world rates of return for the top players interested me but I didn't really pay attention to your calculation until just now. Math isn't my strong suit and that's the main reason I just assumed you calculated correctly but looking over the calculation you are using I think you are making a fundamental error.

You are taking the actual % gain over the actual time held for each stock selected and projecting it out to what it would have been *IF* the level of appreciation (or decline) continued for an entire year. In the real world the 20% gain over 63 days you used in your example is what it is and the players yearly return on the money from closing out that position would be based on what he/she did with it for the rest of the year.

My mathematically challenged mind can't come up with a way to translate CAPS to real world because I don't see how you connect the positions together. However I don't doubt that if portefeuille is providing you with a way to do this that he/she is accurate. I'm not sure what portefeuille is offering you but my guess is that it's something other than real world returns, however I could be wrong.

 As port points out players recs are in the public domain and the best players find ideas from each other all the time so I don't see an issue with you creating a condensed version of top player rec's in a CAPS portfolio particularly if you acknowledge this. Then I'd use the Blog for that portfolio to update real world trades where we can follow the money from position to position and see how your top CAPS player strategy plays out in the real world.

Report this comment
#102) On February 09, 2013 at 9:32 AM, roofman6 (< 20) wrote:

MKArch,

The annualized figures of the top players is so unbelievably high that you seem to be right, however I'm pretty sure that my annualizing calculations are correct. Forgetting the three day turnaround time and broker fees, if a stock made 20% in 63 days, it has an annualized return rate of 20% x 365/63 or 116% on an annualized basis.

I'll take a real world example: I bought AAP on Feb 16 2012 for $70.37 and this is Feb 9 2013, so I have held it 358 days. The current price is $78.90. Yahoo finance, where I keep my portfolio, lists the annualized gain at 12.36%. By my calculations the annualized gain would be [(78.90 - 70.37)/70.37] x 365/358 or 12.36%. It checks out with Yahoo finance's calculations.

I'll try another stock. I bought ANTH on Jan 29th of this year for $.656 and have held it for 11 days and it's price now is $.6888.Yahoo lists the annualized gain at 154%. By my figures, [(.6888-.656)/.656] x 365/11 = 166% which is close. Yahoo keeps track of my transaction fees, and this is probably the difference on such a short term. 

I believe I'm right, but appreciate any corrections if I'm not. 

Thanks,

roofman6

Report this comment
#103) On February 09, 2013 at 10:34 AM, roofman6 (< 20) wrote:

MKArch,

I forgot to answer the second part of your post. I may do what you suggest and create a top player rec's portfolio after I figure out who all I'm going to follow, etc. I haven't decided yet. 

You are right about my projecting the gains as if the stock were held for a full year, but that's the recognized way of evaluating an investment. It could be done on a daily basis, which would merely be dividing the percentage gain by the number of days held. This would be equally useful, but we are used to annual percentage figures and they mean more to us. 

roofman6

Report this comment
#104) On February 09, 2013 at 10:35 AM, MKArch (99.70) wrote:

roofman,

 Your calculation is right but I'm not sure if you are calculating for what you intended. In your example extrapolating the 20% return over 63 days held to a full 365 days tells you what would have happened if the rate of return you achieved over 63 days could have been maintained over 365 days. In the real world assuming you started your position on the first day of the year you earned a 20% return on your money and your yearly return will depend on what you do with the money from the closed out position over the rest of the year.

If you invest in 10 different stocks at the same time and make 10% return on each one you get a 10% total return. If you invest in 10 stocks sequentially rolling the proceeds over into the next stock and earn a 10% return on each individual trade your total return is ~160%. I don't know how you can translate CAPS returns to real world returns because you don't know what positions are simultaneous and what positions are sequential.

I still think it would be interesting to see you create a portfolio culled from the top players and correlate it to a real world portfolio to see how your strategy would work in the real world. I just don't think your calculation is calculating real world returns.

Report this comment
#105) On February 09, 2013 at 10:38 AM, MKArch (99.70) wrote:

roofman,

I'm not sure who recognizes it but if your intent is to see what kind of real world returns you could get using top players picks your calculation is not accurately capturing this IMO.

Report this comment
#106) On February 09, 2013 at 2:51 PM, roofman6 (< 20) wrote:

MKArch,

Yes, my intention is trying to determine whether I could invest with some top players and make some money. I know that past performance is no guarantee… etc, but then nothing in life is guaranteed. The past performance of something or someone is how we make a lot of decisions. It’s often the best information we have.

My judgement in stock investing has proven that I could use some help so I’m merely trying to pick the best real world investment players to follow. MF doesn’t use a time element in it’s calculations. A 50% gain over the S&P in a year to them is the same as a 50% gain over the S&P in 5 years. Therefore, for my purposes, their system for rating player performance is only a rough guide. I’ve had to put together spreadsheets, using the actual days that stocks are held, to judge a players actual performance. I did it wrong at first, I used the wrong start dates in some cases, but I’ve corrected that and am still quite satisfied with my findings.

If I did half as well as these players I would be extremely happy. There are some truly awesome investors in this game. But, after giving it some thought, I won’t be putting together an online portfolio using their picks. I’m not exactly sure why, but it just doesn’t feel right.

I’d like to contribute, and perhaps I’ll do a blog reporting on my progress and the progress of the paper Google portfolios that I’m putting together, without using names. I’ll make that call after I sort all of this out.

Thanks,

roofman6

Report this comment
#107) On February 09, 2013 at 3:08 PM, roofman6 (< 20) wrote:

MKArch,

Your point and question about whether stocks are held simultaneously or sequentially I think can be answered also. If the gains or losses are sequential, the results would be compounded. I got into that a little with porte. I figured how well his average stock did and how long it was kept, so his results could be either roughly annualized or compounded.

roofman6

Report this comment
#108) On February 09, 2013 at 3:57 PM, portefeuille (99.66) wrote:

I did a little "portfolio simulation" for someone following p2 with a cash starting value of $250k.

buying/selling is done when outperform calls are started/ended. All remaining open calls are ended on February 7, 2013.

What remains to be chosen is the csah deployed for the buys. I have used buy sizes that reasonably satisfy the following conditions.

Buy size changes without "huge jumps" (see buy sizes (positive cost) in first figure).
Cash position remains "pretty close to zero" for most of the time (see second figure).



enlarge

 



enlarge

 

Feels free to play with the buy sizes a little. The performance is reasonably stable at around 330%.

Using historic quote data one could of course also plot the portfolio size. I am far to lazy to do that though ...

Report this comment
#109) On February 09, 2013 at 3:59 PM, portefeuille (99.66) wrote:

#108 Thus, as checklist34 would put it a follower of portefeuille2 would be around 4.3 times his money by now. yeay ;)

Report this comment
#110) On February 09, 2013 at 4:20 PM, portefeuille (99.66) wrote:

330%

That is around 45% annualised return for the March 6, 2009 - February 7, 2013 period (≈3.926y).

1.45^3.926 ≈ 4.3.

Report this comment
#111) On February 09, 2013 at 5:25 PM, MKArch (99.70) wrote:

port,

Thanks for taking the time calculate the simulated portfolio. Maybe I'm missing something but shouldn't your annualized return be 35.5% to get to a 330% total return after 3.926 years? 3.3 to the 3.926 root= 1.355. It looks to me like you added back your principal to get to 4.3X instead of 3.3X. It's still a mighty impressive record if I'm right. Either 33% or 45% annualized also sounds a lot more realistic as well.

Report this comment
#112) On February 09, 2013 at 10:23 PM, roofman6 (< 20) wrote:

MKArch and Porte,

OK, so where am I wrong with my calculations? Why does my average annualized rate differ so widely from either 33% or 45%? I’m really puzzled here.

There is one explanation that comes to mind… that porte2’s losses came early, reducing that $250k principle to something much smaller. A required assumption when using averages to compound gains is that the losses and gains are equally spaced.

I did a quarterly summary of p2, using the long calls only (I assume that’s what porte meant when he said that he said that “buying is started when outperform calls are made). My ending date is around Feb 7. I don’t recall exactly when I pulled the data.

Unfortunately, I found that early gains were quite substantial. I remain very puzzled. Can either of you help me understand this?

I also don't understand the graphs above. I understand buys and sells and gains and losses, but I'm in over my head here.

Thanks,

roofman6

Report this comment
#113) On February 09, 2013 at 11:27 PM, portefeuille (99.66) wrote:

#112 The first/second figure shows column G/H from the "portfolio simulation I posted. Column E is column H from from the data spreadsheet I posted incomment #82 above.

#111 The performance of ≈ 330% is calculated in field H1680 of the simulation spreadsheet.

performance (%) ≈ (Cf / Ci - 1) * 100 = ((Cf - Ci) / Ci) * 100 ≈ 330, i.e. you are up around 330%, where
Ci = $0.25M is the initial cash and
Cf ≈ $1.087M is the final cash.

-> Cf ≈ 4.3 * Ci, i.e. you end with around "4.3 times your (initial) money".

I think 45% p.a. is about "as good as it gets" during a decent stock market rally if you have a well diversified (especially diversified over several sectors) equity portfolio. The only (hedge) funds that are able to achieve far more than that are doing some arbitrage/"quant" stuff and even they only achieve that before fees, see here

http://en.wikipedia.org/wiki/Renaissance_Technologies#History.

Report this comment
#114) On February 09, 2013 at 11:43 PM, portefeuille (99.66) wrote:

$250k * 1.45^30 ≈ $17.3B by the way ...

Report this comment
#115) On February 10, 2013 at 10:01 AM, MKArch (99.70) wrote:

roofman,

 Here's a very simple example of what you are doing wrong. Suppose you found a momentum stock, bet it all on that stock and made 10% on that stock in 3.65 days. Now lets say that's the only investment you made all year. Your real world portfolio return for the year is 10%. IE you have 10% more money in your portfolio (ignoring taxes) at the end of the year than you did at the beginning of the year. However by your calculations the portfolio returned 1000% (10X return). By extrapolating short term gains out to full year you are giving credit for something that didn't happen.

By definition you closed out the position because you didn't have faith the level of appreciation you just achieved was sustainable anymore so why would you give yourself credit for being able to achieve it over 365 days? This is just a guess on my part but you mentioned that "everyone" calculates their gains this way and my gut is telling me this is a rationale you picked up from traders instead of investors, used to over sell their returns. In other words it sounds like advice from someone who espouses constant trading trying to over sell his book.

 One last point that port made that I noticed but held off from mentioning so as not to sound disrespectful of his achievements. He went all in at a once in a lifetime moment in the markets and had a serious wind at this back (markets doubled). I don't have any doubt he would do well over full market cycles as well but you really need to take this into account when evaluating someones performance. Port mentioned that he can get a sense of how someone achieved their success fairly quickly just by glancing over their selections. I agree and besides looking for how many ultra short ETF's a player has and points per rec, I look to see when they entered the competition. Even though port started at the best possible time the fact that his newest rec's continue to outperform the market gives me faith his success is due to skill not just lucky timing but timing sure didn't hurt.

Report this comment
#116) On February 10, 2013 at 10:37 AM, portefeuille (99.66) wrote:

#115 I agree with all of the that. I think ;)

Report this comment
#117) On February 10, 2013 at 10:40 AM, MKArch (99.70) wrote:

Port,

In your simulated portfolio you start with $250K and end with $1.094M after 3.926 days. You correctly indicate a 338% total gain (1094/250) and that annualizes to ~36.37%/ year. IE $250K*1.3637^3.926= $845K+the original $250K= $1.094M.

I think your 30 year return (assuming you can keep your pace up for 30 years) should be $250*1.36^30= $2.75B + your original $250K for $3B.

Report this comment
#118) On February 10, 2013 at 11:33 AM, roofman6 (< 20) wrote:

porte and MKArch,

Thank you both for your inputs. I agree that I've been figuring the average annualized gains wrong. My average assumed that every entry was held the same amount of time. They weren't. A rookie mistake. I've gone back in and weighted the AG/L by the days held against the average number of days held and the results are much more in line with expectations and with porte's figures. I've updated the spreadsheets on Google Drive to reflect this.

https://docs.google.com/file/d/0B6KYwuL7OKmAQTl4NnBILThmVWc/edit

https://docs.google.com/file/d/0B6KYwuL7OKmASVFPRWtUVUxYX1k/edit

MK, you are right about porte getting in the game at one of the great times in history, and I agree that his recent performance is astonishing. I have his average annulized gains in the neighborhood of 48%. His simulated portfolio would vary from this because it used actual stocks and dates whereas the average assumes average stocks and dates. 

Thanks again. 

roofman6

Report this comment
#119) On February 10, 2013 at 11:35 AM, portefeuille (99.66) wrote:

You correctly indicate a 338% total gain (1094/250) and that annualizes to ~36.37%/ year. IE $250K*1.3637^3.926= $845K+the original $250K= $1.094M.

Well, that is not what one usually wants to calculate.

CAGR (t_0,t_1) := (A (t_1) / A(t_0))^(1/(t_1 - t_0)) - 1 = (1.094 / 0.25)^(1/3.926) - 1 ≈ 0.456 -> CAGR ≈ 45.6%.

If you make 10% every year you call that a compound annual growth rate of 10%.

CAGR (0,t) = (A (0) / A(t))^(1/(t - 0)) - 1 = (1.1^t)^(1/t) - 1 = 1.1 -1 = 0.1 -> CAGR (0,t) =10% for all t, as it should be.

So the simulation of p2 gives CAGR_p2 ≈ 45.6%. If you have a constant return of 45.6% per year and you start with $250k you end up with ≈ $1.1M after 3.926 years.

So while your calculation is correct, what you are calculating is not what one usually wants to calculate (CAGR) ;)

Report this comment
#120) On February 10, 2013 at 11:37 AM, portefeuille (99.66) wrote:

his average annulized gains in the neighborhood of 48%

that makes sense!

Report this comment
#121) On February 10, 2013 at 11:58 AM, portefeuille (99.66) wrote:

#119 The compound annual growth rate r is just what you get when you solve

A(t) = A(0) * (1 + r)^t,

which is what A(t) looks like if it has a "constant growth rate".

Report this comment
#122) On February 14, 2013 at 11:29 PM, anchak (99.87) wrote:

Wow ! After a long long time - a spirited discussion in now moribind CAPS.

Dont see TSIF commenting -he's also gone dormant these days - alas! --- Hans(ie Porte) missed him in his list also.

Anyway - the only guy over here - who has consistently and openly tracked his portfolio returns is Hans - and his record is enviable!

CAPS - doesnt even come close to replicating real life returns - the quirks of the game - is much more forgiving IMHO!

 

 

Report this comment
#123) On February 15, 2013 at 2:05 AM, TMFCrocoStimpy (92.48) wrote:

This has been a great thread, and I'm glad to see that there is still an active group within CAPS still looking at the quantitative uses of the system. For those of you who don't know me, I was previously heavily involved in work to extract investable signals in a long/short design of higher ranked stocks minus lower ranked stocks, and in building the simulators of the CAPS system to allow us to test the impact of changing the scoring metrics and stock eligibility. Unfortunately my role at The Fool has taken me elsewhere for the last year and a half, though I have continued to monitor the performance of the overall CAPS system.

One of the competing sets of interests that have always been present when I read discussions about the scoring metrics/ranking system has been the tug of war between wanting this to be just about picking stocks (which is its fundamental design), and wanting to impose some real world constraints to make the picks and the use of the picks to be more like investing. Both have their place, but they do not always play nice with one another, and retro-actively superimposing an investing metric across the decision making process that was just based on stock picking rules could lead to some pretty unrealistic measures (not to mention really tick some people off since they wold have used a ompletely different strategy). I'd like to remedy this in the way that most any legacy system gets a major change: I want to build an add-on.

This is the basic concept I'm working with, and hope to get some feedback from players like yourselves that have a vested interest in building additional functionality. The system would be SimFool (with apologies to Will Wright), and at its heart it would be both a portfolio investment simulator and a CAPS player generator. Simplicity is the goal to prototype it quickly, with the ability to expand functionality based on active participants interest.  Each player in SimFool would start out with say $1M virtual cash, the goal is to make money. Stocks can be purchased with different sized investments (unlike CAPS, where they are all implicitly equally weighted). However, a CAPS doppelgänger player will also be generated with the buys being listed as "outperform" and having equal sized positions. In SimFool we will monitor annualized returns, plus characteristics of the portfolio such as volatility, exposure to different market benchmarks and factors, and ultimately attempt to bracket the expected uncertainty around a player's "skill" that might simply be luck. 

This initial approach wouldn't allow for tackling the down side of the market - no shorting, to translation to "underperform" calls for the CAPS doppelgänger. Those features could come later, but why weigh down the initial attempt?

I'll be very straight with people - this is exploratory on my part, nothing else. I see a tremendous amount of value that we could unlock from this system, all the while building a large scale example of the difference between stock picking by itself, and stock picking wrapped in investment strategy.  This would also help to revitalize the activity within CAPS itself, though what will be seen is an influx of long only players (which I don't see as a bad thing). 

 Feedback is what I need. Interest in such an add-on system? Does it have the right potential functionality, or is it missing something crucial? Anyone concerned it would have an adverse impact on CAPS?

Thanks in advance for any help,

Xander (TMFCrocoStimpy) 

Report this comment
#124) On February 15, 2013 at 3:39 PM, MKArch (99.70) wrote:

I love it Xander! IMO maybe learn from the CAPS mistake thinking you could design out the ability to game the system and just keep the  portfolio version simple. I'd keep the same qualifications for a stock to be ratable and have something like a 10 stock minimum portfolio requirement and maybe a max. 20% allocation for any one stock in the portfolio and call it a day.

 I put out a blog recently about my master plan for CAPS and to put my recommendation in a nutshell create real world investing categories like value, growth, dividend as well as tech, medical, international etc... and get players interested and skilled in these different categories engaged and recognized. IMO this would also help to alleviate gaming the competition. You could do this in both versions of CAPS.

In any case I'm excited to see that CAPS isn't being abandoned. I love this game!

Report this comment
#125) On February 15, 2013 at 5:18 PM, TMFCrocoStimpy (92.48) wrote:

Thanks MKArch, good to see some positive response.  It may seem strange, but from a game player/systems standpoint I actually don't find the warts in "gaming" the current CAPS scoring system to really be problematic - but that is because I have a pretty clear picture of what we would lose if we traded off those warts.  Distasteful, absolutely, but problematic no.  However, the key design factor of CAPS was for a community built around stock picking, which is a very different beast than stock usage for investing.  With SimFool I'm looking to build an add-on that will speak to people who are looking to take the stock picking results to another level and apply them to portfolio design.

I definitely like the concept of helping to define and reward players who have more specific "areas of expertise" which can be exploited, which can be something as simple as making sure you are comparing your performance against the appropriate benchmarks, and bringing these different categories to light in the ranking/rewards system.

Besides adding some heavier lifting in the quantitative evaluation of players performance, and starting with a fairly simple long only design, the only other tweaks that I would make to force this into a bit more "real world" is to include a basic transaction fee for both buy/sell, and a requirement that a player cannot transact more than say 1% of the median volume of a stock (measured over the trailing 3 months) in any give day as a proxy for the fact that we cannot asses a trading impact on the price (this helps to control making wild and unrealistic purchase/sale moves on very low liquidity stocks).

The construction of the CAPS doppleganger player for each SimFool player is one part that I am very excited about, because this gives us the ability to compare the power of pure stock picking information against the power of stock picking info coupled with an individuals strategic management.  I think there is a lot to be learned from this, especially if we have players who want to express different levels of confidence in their picks by the different weightings they give them in the portfolio.

Again, this is a very exploratory idea right now - I'm gauging interest to see if there is enough enthusiasm to try and jumpstart such an effort.  Any and all other comments are much appreciated.

-Xander (TMFCrocoStimpy) 

Report this comment
#126) On February 15, 2013 at 5:56 PM, bbmaven (100.00) wrote:

Sounds like an extraordinary amount of work Xander - but very exciting if you can pull if off and launch it.  Count me in. 

One of the interesting phenomenon I will look forward to is reading the commentary after the first six months or so about how flawed it is and what you really SHOULD have done:)

 bbmaven

Report this comment
#127) On February 15, 2013 at 5:58 PM, bbmaven (100.00) wrote:

Sounds like an extraordinary amount of work Xander - but very exciting if you can pull if off and launch it.  Count me in. 

One of the interesting phenomenon I will look forward to is reading the commentary after the first six months or so about how flawed it is and what you really SHOULD have done:)

 bbmaven

Report this comment
#128) On February 15, 2013 at 6:29 PM, TMFCrocoStimpy (92.48) wrote:

bbmaven,

Less work than you may imagine, but probably more than I'm willing to admit :)  We've already got the lion's share of the quant work that would underlay the system created - I've been building out a lot of this capacity for the last year and a half to deploy in various services within The Fool, so it would really be just some adaptation for the purposes of SimFool.  Mostly what I'll need to do is see if we can generate enough interest in the potential to build out the website infrastructure and integrate it with CAPS, which I can blithely say since I'm not a web programmer :)

And you are absolutely correct - I'm already steeling myself for learning how it "should" have been done 6 months after the fact ;D

Cheers,

Xander (TMFCrocoStimpy) 

Report this comment
#129) On February 15, 2013 at 7:18 PM, MKArch (99.70) wrote:

I've been thinking about how I would construct my CAPS real world portfolio since I hit the send button on my last post Xander, so you have me hooked. As bbmaven points out you'll never make everyone happy but my advice is if you find ways to recognize talented people using real world strategies and skills you will probably make most people happy.

Mike

Report this comment
#130) On February 15, 2013 at 8:54 PM, anchak (99.87) wrote:

Xander - if you let me trade all liquid ETFs - both ways - I am in.

I dont know anything about stocks!

Report this comment
#131) On February 16, 2013 at 1:21 AM, TMFCrocoStimpy (92.48) wrote:

Anchak - when you say trade "both ways", what are you referring to? As a matter of simplicity I probably won't try to support short selling in the first version since there is a whole layer of complexity surrounding share availability and cost to borrow that can make the difference between theoretical brilliance and practical failure, and handling that data load is no easy task. Were you referring to something other than short selling?

 

thx,

-Xander (TMFCrocoStimpy) 

Report this comment
#132) On February 17, 2013 at 12:30 PM, roofman6 (< 20) wrote:

Hello all,

After thoroughly embarrassing myself by figuring the annualized gains of some top players wrong, I'd like to ask another stupid question. What would be wrong with just letting players select stocks, pay commissions, and compete in a real world manner? Perhaps there could be some rules, like a limit on the portion of the portfolio given to one stock, but each limitation reduces the real world aspect of the contest.

We are all here to learn how to make money in the market as safely as we find prudent. In my opinion, a safety rating would need to be calculated and shown along with the percentage gains. A combination of these two figures would be used in rating the players.

roofman6

Report this comment
#133) On February 17, 2013 at 12:48 PM, roofman6 (< 20) wrote:

Another thing,

What is so great about the current contest are the years of investing history that it represents, (many players went thru the great recession). Could there be a way to convert the investing history of current active players into the new format so that the new contest will build on this history instead of starting with a blank sheet, It would be a shame to let the current contest just die, and a shame to wait years to get a good assessment of the new strong players? 

roofman6

Report this comment
#134) On February 17, 2013 at 5:22 PM, TMFCrocoStimpy (92.48) wrote:

Hey roofman6,

You've really hit on the core idea of what I'd like to do with the SimFool add-on, which is to let players simulate real world trading on top of the CAPS system. The only constraints would be to bring players actions closer to real world impacts (e.g., transaction fees) or allow us to fast-track the implementation (leaving out shorting since the relevant real world info, availability and cost to borrow, are expensive and more involved data feeds). Otherwise the mapping between these SimFool players and the traditional CAPS system would be done behind the scenes(though displayed for transparency, of course), since that comparison is interesting but should have no impact on how people design their investing strategy.

i definitely don't want to lose any of the history for current CAPS players, but since the incentives were designed around the CAPS scoring system rather than an explicitly investing goal, and contain important elements that cannot be reproduced (e.g., cost to borrow and availability of shorts), the results would need to be viewed differently. I can see placing some form of SimFool evaluator on top of the traditional CAPS players, but would want players to have the opportunity to start fresh with using different types of strategies if interested that were designed to specifically go after the SimFool objectives (the strongest being to make money over the long term!)

so, just to reiterate, my SimFool idea is simply to act as an add-on to the much vaster CAPS system itself, for people who are interested in trying their hand on portfolio management along with stock picking itself, and if I can get it off the ground would probably start in the limited but more common realm of long only investing.

 More comments please - I'm starting to feeling some encouragement here :). 

Foolishly,

Xander (TMFCrocoStimpy) 

Report this comment
#135) On February 17, 2013 at 5:44 PM, roofman6 (< 20) wrote:

Xander,

Great!! That sounds like it would answer my wishes completely. The CAPS history is preserved and an add-on is added that would reflect real world investing for those who wish to work more in that direction. I hope you are able to sell the idea.

Thanks,

roofman6

Report this comment
#136) On February 17, 2013 at 7:36 PM, anchak (99.87) wrote:

Xander - yes - shorting Liquid ETFs only.

Just have a liquidity filter and let it flow - rather than figuring out available etc --- it depends on broker. At IB - rarely is it an issue - even for some of the less common ones

Report this comment
#137) On February 17, 2013 at 8:33 PM, TMFCrocoStimpy (92.48) wrote:

Anchak - thanks for the clarification. Availability is the smaller of the two real world issues, and having run a real world money fund with long/short design through IB I agree that it is rarely an issue to be able to short.

The cost to borrow is the tricky issue, since the liquidity of equities of any form is not that tightly correlated to the cost to borrow, so we would need to actually get this information as a live data stream. This is both a licensing issue and technical issue which I would likely defer on dealing with until the SimFool system gained some traction, just to speed up the launch cycle and lower the barrier to starting.

The reason why I consider the cost to borrow issue as critical is that from direct experience, I can say that this has the capacity to make the difference between a theoretically brilliant strategy and a losing strategy in practice.  

From the licensing side, if anyone is aware of daily cost to borrow data that is a publicly available source (it would have to be some form of average since the actual cost to borrow is determined by your broker), please let me know. The technical issue is the easier of the two to solve, and I'd be in no way adverse to tackling this at the outset if we have a convenient data source.

Thx,

Xander (TMFCrocoStimpy) 

 

Report this comment
#138) On February 17, 2013 at 8:33 PM, TMFCrocoStimpy (92.48) wrote:

Anchak - thanks for the clarification. Availability is the smaller of the two real world issues, and having run a real world money fund with long/short design through IB I agree that it is rarely an issue to be able to short.

The cost to borrow is the tricky issue, since the liquidity of equities of any form is not that tightly correlated to the cost to borrow, so we would need to actually get this information as a live data stream. This is both a licensing issue and technical issue which I would likely defer on dealing with until the SimFool system gained some traction, just to speed up the launch cycle and lower the barrier to starting.

The reason why I consider the cost to borrow issue as critical is that from direct experience, I can say that this has the capacity to make the difference between a theoretically brilliant strategy and a losing strategy in practice.  

From the licensing side, if anyone is aware of daily cost to borrow data that is a publicly available source (it would have to be some form of average since the actual cost to borrow is determined by your broker), please let me know. The technical issue is the easier of the two to solve, and I'd be in no way adverse to tackling this at the outset if we have a convenient data source.

Thx,

Xander (TMFCrocoStimpy) 

 

Report this comment
#139) On February 20, 2013 at 10:59 AM, roofman6 (< 20) wrote:

porte, et all

I found a slick little Internal Rate of Return Calculator online for $9.95 at https://www.pine-grove.com/financial-calculators/irr-calculator.htm

I tried it on David’s portfolio, and using only the symbols that Yahoo gets prices for, his IRR is 15.95%. I used the adjusted closing prices for his stock buys and sells with no transaction fees and no days added.

I then tried it on your porte portfolio, and got an IRR of 39.19% as of 2/16/13. I used $7 transaction fees with $10k per stock and days held plus three.Only stocks that Yahoo recognizes are used and no shorts are included.

The calculator accepts .txt file inputs with a comma separating the date and the amount. (03/09/2009 , 10005.15). To get the data in this format, I put the date and amount columns in this format in a spreadsheet, and added a column of commas between them, then copied and pasted the columns into Notepad and saved it as a .txt file. The investments are negative and the returns are positive. I’ve posted your input file at https://docs.google.com/file/d/0B6KYwuL7OKmAZTF5RllQalBjV1U/edit The output file from IRR Calculator is at https://docs.google.com/file/d/0B6KYwuL7OKmAMVMzNlVsVkl4Um8/edit

I’m not sure just how the internal rate of return differs from annualized rates of return, but I think it’s a slick way of evaluating a portfolio’s performance.

roofman6

Report this comment
#140) On February 23, 2013 at 6:49 AM, portefeuille (99.66) wrote:

#139 see comment #8 here.

http://caps.fool.com/Blogs/statistics/795633.

For my portfolio simulation with "realistic position sizes", i.e. those keeping cash close to zero the (annual) IRR and CAGR are about the same, as they should be, corroborating that someone following portefeuille2 in a reasonable way would should have made around 47% per year over that period. Would he have made equal sized buys his IRR would have been much higher but his CAGR would have been much lower (he would have ended up far less enriched ;)) as he would have had quite a bit of "excess cash" after the first major sells. All of that are rather obvious results ...

You can get IRR by simply using the IRR definition and using interpolation. It takes just a few seconds to get an IRR approximation with a few correct decimals ... 

Report this comment
#141) On February 23, 2013 at 6:53 AM, portefeuille (99.66) wrote:

http://en.wikipedia.org/wiki/Internal_rate_of_return.

Report this comment
#142) On April 04, 2013 at 11:51 AM, jiltin (29.53) wrote:

I just joined the caps club recently and my experience is just a month. I am still a starter. Being in real estate and very conservative on money matters, I do not know where to pick up and what to pick up with 100000+ stocks. 

Having worked in real estate, I picked up few real estate stocks and they were moderately good on my returns. However, some of the CAPS pick (green thumbs up) really helped me get high returns. I do not pick CAPS green blindly. I spend many hours, at least one hour to choose one pick and daily a pick max (somedays I do not pick up). Once I complete the pick, next day I buy them. Overall, I spend 4 to 6 hours on reading and researching.

My Traditional real estate gave -4% to +4% return while CAPS pick gave me 10% to 16% return. The CAPS home is really helping me educate, especially and caps pick pages. As a starter, it really helps me.

Overall, I got 5% return on 10k. If I get 25% return year, I am perfectly fine with stocks. I bought stocks like bullish way, never short and never played options (I said very conservative and cautious approach). 

I just want to give you all feedback how CAPS really helping a starter to jump on stocks. 

Thanks to everyone in this blog and this is very great discussion to know how CAPS rating is there.

 

 

Report this comment
#143) On April 26, 2013 at 12:00 AM, Beginners777Luck (21.54) wrote:

you are too humble.  good job.

Report this comment
#144) On September 04, 2013 at 11:00 PM, prdeepak (< 20) wrote:

Xander, what did you eventually decide about SimFool?

Report this comment

Featured Broker Partners


Advertisement