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TMFEldrehad (100.00)

How to Become Top Fool

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December 20, 2006 – Comments (19)

Looking to learn the secrets of what it takes to sport that sparkly Top Fool jester cap? Want to taunt your Foolish friends mercilessly with your King of the Hill message? Want that big red star and red ribbon as lucky charms? I know the secret of how to do it, and I'm about to tell you - free of charge.

In the past two days I have been absolutely *clobbered* on the score front, losing, I think, nearly 300 score points between yesterday and today - and today's not over yet.

The primary reason? My underperform call on ESCL - though today my outperform call on NFLD is also making no small contribution to the complete score meltdown over the past two days. I'm sure I'll get no sympathy from those of you trying to catch me, so I won't bother crying in my coffee here (at least not publicly), but herein lies the secret of how to move up in the CAPS rankings as quickly as possible.

I've noticed that a lot of Fools like to copy (okay, steal) ideas from one another, especially from Fools with high player ratings. This is a decent strategy, and one I've certainly employed myself. But there's a better way.

The key to the strategy is to remember this - player rankings are relative.

ESCL is still a one star stock, and while NFLD is down at two stars, I think it was at 5 stars when I rated it to outperform. Anyone who had an outperform call on ESCL or an underperform call on NFLD gained *a lot* of ground on the Top Fool over the past two days. While my score has been getting hammered, those on the other side of these calls have seen their scores soar. And remembering the key to the strategy, that all rankings are relative, these players have gotten the benefit of the double whammy of their score improving while so many others above them (including the Top Fool's) have been sinking.

You'll never catch the people ahead of you by copying them. You may be able to catch them by picking stocks that they have no CAPS call on, but the fastest way to catch them is to bet against them... and be right.

This isn't to say that the next time TMFBent discovers a heaping pile of... well... you know what, that you'd necessarily be ill-advised to follow his lead. Score points are score points and your player rating doesn't much care where they came from. What I am saying, though, is that rather then scouring the scorecards of top rated Fools in an attempt to copy them, you will gain ground on them more quickly by scouring their scorecards and looking for opportunities to bet against them.

Being a contrarian, in CAPS as well as in real-life investing, takes some courage. And of course, it isn't enough to be contrarian, one also needs to be *right*. That said, since the key to moving up in the player ratings standings is that all player ratings are relative, betting against the leaders, or betting against the crowd (calling outperform on 1 star stocks or underperform on 5 star stocks) is the quickest way to claw your way to the top.

For the brave enough, and the good enough, the sparky Top Fool jester cap is yours for the taking. Just know that I'm not just going to give it away - you'll have to earn it.

At least now, though, you know the secret.

19 Comments – Post Your Own

#1) On December 20, 2006 at 12:50 PM, Zikar (< 20) wrote:

Quite true, quite true. I'm a big fan of your style, even though I'm not as brave with the underperform calls as you are. I understand the massive points drop, I'm taking a hit on the chin right now from my underperform call on Nortel, which I refuse to recant. Your blog posts are entertaining, informative, and I'd just like to say, keep it up! Wish me luck getting that cap!

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#2) On December 20, 2006 at 2:30 PM, Steve819 (97.86) wrote:

One advantage of the new 20 min. delay, is I was able to get out of ESCL at $6, and by the day's end it was at 10. Now at 11 and rising....

Sorry Russell.....

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#3) On December 20, 2006 at 4:20 PM, Steve819 (97.86) wrote:

The other thing though is betting against top rated players is a lot harder than say, betting against the market. The market is often inefficient, but the top players are in most cases, a extremely smart bunch of Fools. Situations like ESCL, Northwest, Northfield etc. are really not THAT common, although the past few days certainly paints a different picture.

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#4) On December 20, 2006 at 6:15 PM, TMFEldrehad (100.00) wrote:

Hey Steve!

Last time I checked, the Top 10 rated CAPS players all had accuracies in the 65% to 75% range or so - that means that even these players are wrong 25% to 35% of the time. I think there's a fair amount of fertile ground there for the would-be contrarian.

I know when I started out in CAPS I bet against David Gardner a few times. His player rating wasn't so hot back then, but hey, it was David Gardner! You know, they guy that picks stocks for Stock Advisor which is trouncing the market.

I admit it's not easy - but for those brave enough to try it, the CAPS rewards from betting against the crowd are far, far greater than those one gets from betting with the crowd.

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#5) On December 20, 2006 at 8:39 PM, Steve819 (97.86) wrote:

Fair enough.

I did a quick peek at my current port and my ended picks. I have 25 picks total that have given me a negative return of 15 points or more.

Given I've made 250 picks, that means essentially 90% of the time, you won't make up any more than 30 points on me.

It seems like a dangerous risk/reward bet if you ask me.

Stats isn't my strong point, but I think the above makes sense. :)

Steve

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#6) On December 21, 2006 at 2:30 AM, dodgelaw (69.17) wrote:

I believe that you are both misled. The only way is the WARREN-WANNA-BE-SOROS way!

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#7) On December 21, 2006 at 8:09 PM, SH2F088 (93.76) wrote:

A cynic might suggest that you are just trying to keep the riff-raff down -- something one might expect of a flamboyant elven illusionist.

Despite the insightful disavdavtages you raise, the copycat idea could probably be executed successfully to the top. Although picks will be ~1 day behind, this would not necessarily be a disadvantage. The idea could be pushed further and someone could copy the all of the top 10's new picks all the time. This would likely work well -- the trick would be ending the picks. In the end it would be way too much work with too little reward for me. Though it would serve to magnify the effect of the top 10, which could serve a useful purpose in CAPS.

I prefer to test my own stock picking mettle, although I like to use others picks to help me generate ideas. For example I have a working hypothesis that seeking the right sample of the worst (most negative) picks from excellent players with high accuracies will lead to big wins over time. The key is in determining which picks were just ill-timed and which turned out (or are turning out) wrong.

Your idea of betting selectively against the CAPS community is a good one that also has the potential to improve the CAPS rating system.

For you to maintain your high perch though, it is a bad way to go. Since CAPS works by percentile you don't gain as much by boosting your score. You are hundreds of points ahead of #2 and nearly twice #4. You would buffer yourself better by chipping up your accuracy.

A chintzy way to do that would be to pick volatile stocks with good fundamentals and lock them in at just over 5%.

This idea of what lags in a players rating is an important insight though for players trying to move up. By clicking the "How are these numbers calculated?" link on your player page, you can see your own percentile for each score & accuracy. Trying to keep them balanced or with score a bit better (its worth 2x) should help move one up also.

For example Bill Mann (TMFOtter) is, as I write this, #5 in score. He can only get 4 tiny percentile ticks in score, and must more than double his score to do so. He is likely to get much more leverage by improving his accuracy.

Although it is much trickier thing to find where other players stand in accuracy percentile. This is because accuracy is based upon probability and the list does not show total picks (only active).

-Keith (SH2F088)

I'd also like to give a shout out to my boys at Highland Capital Management (I actually have no clue who they are) who might as well have written me a check for thousands today: "Yo, thanks!" Feel free to check my blog out if you are interested in what the Hedgies are doing with Delphi this Xmas.

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#8) On December 21, 2006 at 8:25 PM, yoursfooly100 (74.41) wrote:

boy and I thought I was buying stocks to try and make money in the long run. My accuracy will be hopefully money in my account for the future. I love finding the stock no one is paying attention to. Has a good growth history and pays a little dividend on the side.

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#9) On December 21, 2006 at 9:07 PM, hlacheen (99.31) wrote:

I'm coming for you! In top 100 now =) Most of my gains come from shorting small caps though... I want to start looking for some solid small and mid cap companies to go long on... GPIC is one I picked recently.

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#10) On December 22, 2006 at 3:20 PM, LattePup (98.46) wrote:

Combining your contrarian point with the "my-kid-can beat-your-kid" argument, I'm going to pick B to Underperform. ;-)

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#11) On December 23, 2006 at 10:17 AM, jtallenmd (99.24) wrote:

Russell, it has been a pleasure to learn from you. I think this is excellent advice, although I find it very hard to go against the stream as you recommend.

Still, I think there are other ways to gain the top stop. One is to capitalize on your own strengths while exploiting your opponents weaknesses. The hard part is identifying those strengths and weaknesses.

If I do succeed in taking the top spot away from you, I hope that you won't be too mad at me. After all, I will owe a lot of my success to you.

BTW, I have stolen your line about shamelessly stealing stock ideas. In addition, I've stolen some stock ideas from you, too.

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#12) On December 26, 2006 at 9:06 AM, IntelligentValue (< 20) wrote:

It's one thing to say something and another to do it. Elderhead proposes a system of choosing Outperform on 1-star stocks and Underperform on 5-star stocks - but all it takes is a quick perusal of his picks and you can see that he has done exactly the opposite.

His method is simple: He is holding 198 stocks, so he's picking all the 1-star and all the 5-star rated stocks and betting against the 1-star and with the 5-star stocks. His comment of Dec. 20 is simply a very deceitful way to get rid of anyone that might be getting close to him. Tsk, Tsk, sir!

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#13) On December 26, 2006 at 10:13 AM, TMFEldrehad (100.00) wrote:

Hello there IntelligentValue.

My comment was an honest one, based on my experience with CAPS - and there is no faster way to catch me, or anyone else for that matter, than to bet against the person you are trying to catch - and be right.

The other thing I think your comment misses here, and it's a glaring omission, is that what's important is not the star ratings of my CAPS stocks *now*, but the star ratings of my picks *at the time I made them*.

Being Top Fool, my CAPS portfolio attracts some attention. When I make a pick there are often a few Fools who follow my lead. If I rate a one star CAPS stock to outperform, a fair portion of the time enough other Fools jump in and push the stock out of one star status. This has happened on several occasions. The same also happens when I bet against the grain on 5 star stocks.

Are there times I bet with the crowd? You betcha - but I think an *honest* examination of my record speaks for itself and proves that I am not at all unwilling to bet against the crowd here in CAPS, and that at least a good portion of my success to date stems from this very fact.

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#14) On December 27, 2006 at 10:40 AM, stephenjpauls (70.17) wrote:

I would like to suggest a diffrent way of trying to catch up... Though I'm no expert, what I have done is look for the 4 and 5 start stocks that are currently doing poorly. Hence someone like yourself has done research to find that its a good stock, but taken a short term hit. Now its time for me to jump in, get on the stock you picked at a lower price than you did and when the stock wins, I have a larger gain from it than your origianal pick.

for example, if someone I follow "buys" a stock at $50, and that stock droped to $45, that is the time for me to "buy" that stock when it goes up to $60, my gains will be larger than the person I'm following.

One thing that I think is very important for people to get from your post is that a 5 star stock may be raited that high because it was raited that way before it made a big gain. Be sure to look at how the stock has done, and what the price was when people were giving it an outperform raiting.

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#15) On December 27, 2006 at 2:28 PM, BadassMFer (62.62) wrote:

Although a great strategy for this caps contest, what use will it be when this is over?

It's tempting but I will stick to my own strategy. This way if it works its actually real world applicable.

Wouldn't it be great if in the real world you did know every trader's moves? Perfect information!

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#16) On December 29, 2006 at 12:21 PM, hhasia (61.29) wrote:

Please Help

How does CAPS calculate the split?. My opening price did not split when the "current" did. Result... My drop was HUGE.

This make no since, as in the real world I would get that "extra" share , effectively making my opening price 1/2.

I went from all star.. to nobody over night, and I've only be doing this caps thing for 30 days..

Ok your the leader, please explain.

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#17) On January 03, 2007 at 5:12 PM, tranc3 (89.10) wrote:

Don't worry #1, I'm coming for ur spot ;-)

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#18) On February 13, 2007 at 11:44 AM, 11Below3 (< 20) wrote:

test

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#19) On February 20, 2007 at 10:51 AM, playingtheturns (30.79) wrote:

I opened a position this weekend in CAPA, and this morning the system tagged it with an opening price of $8.88 something, which goes back to LAST THURSDAY, rather than the price it closed at Friday (6 something) or opened at today (6 something).

I'm not here for ratings, but this has opened my eyes and will give me more reason to completely disregard how a particular player APPEARS TO BE doing. His starting point prices may be completely wrong. And this does have a huge effect. Without this error, my player rating would be above 70. With the error, it's a tad above 40.

Don't tell me how to fix it. Instead, realize that trading isn't about playing a game, and it isn't about someone else doing the work for you. Rating systems are almost always complete baloney, as evidenced by this Foolishness -- one system error that impacts my rating by a huge factor. And if it had gone the other way, I'd look like an all star!

I have this screw up in my data after only two weeks and 17 picks. How many players, with hundreds of picks, have accurate ratings? Any? If their ratings are swayed in their favor by this kind of error, would they tell us?

Check this out. Look at my start date on CAPA (Feb 20), and then look at the start price -- and then look at the chart and notice that CAPA hasn't been above 6 something since last Thursday.

Fun and games. In real money, I'm up better than 2% for the day. I would honestly appreciate the opportunity to help other people make good real life trades, with real money. I figured this would be a good place to do that. It seems, however, that my own goodwill and personal integrity is not matched by the integrity of the system.

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