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Varchild2008 (84.67)

How the Motley Fool CAPS System is Broken (Pt. 2)

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June 30, 2011 – Comments (5)

This company has All Star Underperform Percentage of 5.4%
Same Company has All Star Outperform Percentage of 94.6%

What's the Caps Rating?

P.S.  The Statistic actually improved greatly today versus yesterday...But the CAPS score remains the same.

5 Stars???           NOPE!

4 Stars????        NOPE!!!

3 Stars????       NOPE!!!

So what is the Caps Score of this Mystery Company?

Well.. Let's take a look at the entire sector first because this stock is in the same sector as the following stocks (and CAPS scores are supposedly based on in part on a curve that involves pitting one stock against another within the same sector of stocks)

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(TGT)

This company has All Star Underperform Percentage of 7.6%
Same Company has All Star Outperform Percentage of 92.4%

What's the Caps Rating?             3

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(BBY)

This company has All Star Underperform Percentage of 12.7%
Same Company has All Star Outperform Percentage of 87.3%

What's the Caps Rating?       3

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(GOOG)

This company has All Star Underperform Percentage of 11.2%
Same Company has All Star Outperform Percentage of 87.8%

What's the Caps Rating?    4

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(ERTS)

This company has All Star Underperform Percentage of 9.3%
Same Company has All Star Outperform Percentage of 90.7%

What's the Caps Rating?   2

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(WMT)

This company has All Star Underperform Percentage of 7%
Same Company has All Star Outperform Percentage of 93%

What's the Caps Rating?   3

========================
(COST)

This company has All Star Underperform Percentage of 2%
Same Company has All Star Outperform Percentage of 98%

What's the Caps Rating?   4

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So here we have a Sector of stocks that in which ALL but (COST) have "worse" Underperform / Outperform percentage scores.    (COST) gets a shocking 4 stars and not 5 despite its 1.6% or 2% rounded up All Star underperform percentage.   Exactly how tiny of a percent of underperform one needs for 5 stars is a real mystery here.

Let's look at the worst CAPS SCORE stocks in this sector:

(ERTS)    2 stars

Everyone else is 3 stars or greater.
ERTS carries with it an underperform percentage of  9.3% from All Stars.

Now let's look at the WORST from an All Star Underperform basis (ignoring the Broken CAPS score rating system for now):

(BBY)    12.7%  are underperforming BBY.

Caps Score?    3

Ask yourself this question right now... If I gave you $1,000 and it had to be fully invested in either (ERTS) or (BBY) which of the 2 stocks above would you choose?

BBY cause its 3 CAPS stars vs.  ERTS 2 CAPS stars and BBY has 1.5% Dividend Yield?

ERTS cause only 9.3% of All Stars are red thumbing vs.  12.7% for BBY?
Can you possibly even decide between these 2?  Do you value them the same?

Where's the real CAPS Score RATING System making any sense here at all?

Now scroll to the top.... and you'll see:
(MYSTERY STOCK)

5.4%  Underperform  from All Stars

Caps Score Rating?         Try 2!

Mystery Stock was..... (GME)

And It has lost several Underperforming All Stars closing their positions while several Outperforming All Stars have added positions.   Yet there it sits.... At 2 STARS no matter what.
(GME)   

5 Comments – Post Your Own

#1) On June 30, 2011 at 4:56 PM, Varchild2008 (84.67) wrote:

Almost forgot.

Read the Description of (GOOG) for a laugh.

"So dominant it’s a verb, Google is the leading internet search provider and uses its proprietary algorithms to offer targeted advertising. "

No wonder the stock carries a 4 CAPS score... The Motley Fool Team already has fallen in love with it so much they wrote a LUVY DOVY description of the company.

So Dominant it is a verb!!!!  This Godly Awesome Stock has Android stuff!!!! And a Search Engine thingy!!!   Dominant!!!

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#2) On June 30, 2011 at 6:17 PM, Turfscape (41.08) wrote:

Are you sure you understand how the CAPS ratings work? You are judging their ratings based on their All-Star Outperform/Underperform ratios, but that's only a portion of how they are rated.

It seems to me that you like some stocks, and the CAPS rating doesn't match your preconception. But, really, what does it matter? Who really cares if a stock has 2 stars or 4? Are you putting actual money into companies based on that snapshot? If so, you have much, much bigger worries...

And, in regards to GOOG, it clearly is the dominant force in search. Can you offer a competitor who is in a better position in the internet search industry? Not sure what you're really driving at with that criticism.

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#3) On June 30, 2011 at 6:48 PM, edwjm (99.87) wrote:

Has everyone forgotten the influence of the inclination of Saturn's orbit?  TMF clearly states it is an ingredient in the CAPS system.

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#4) On July 01, 2011 at 8:38 AM, TSIF (99.96) wrote:

Guess you just want to rant.  As I explained on your last blog, it's NOT how many All Stars and the upthumb or downthumb.  The rating system also takes into account the rank of the alstar and weights the higher ranked players.  All stars are  80% of the community.  If you had closed one or two more of your picks in the green you'd be one.

Would you rather get your stock advice from Varchild2008 with a 44% accuracy or a TMFBabo with 90% accuracy???

Again, not saying the star system works or is accurate, (from a stock picking perspective), but any system that is consistant is not broken, even if you don't agree with it. 

It's one tool here on CAPS.  I put a little bit of value on it and I do more research before upthumbing a one star equity or downthumbing a 5 star as it might mean I'm missing something. It could also mean that the thumbs were made in a moment of time and there have been other catalysts more recently.

Good luck.

 

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#5) On July 01, 2011 at 8:57 AM, technlogic (< 20) wrote:

also, the duration of the picks(5yr vs. 3wks,etc.) must effect the score as well.

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