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Making Omelets



September 15, 2007 – Comments (1)

It's been about a year since I started my CAPS portfolio around the initial large scale launch of the service.  I remember at the time a lot of discussion on the CAPS feedback board about what a fantastic tool this community ratings system would be. As a bit of a skeptic I figured it would be fun but I was not convinced about the community ratings benefits.

A year later and I have some thoughts on how CAPS has benefited me as an investor. For the record I would place myself somewhere between complete novice and experienced on the investor scale.

1. Unfortunately for me I don't have unlimited funds to invest in my real portfolio so in addition to a few mutual funds I can only afford to invest in a handful of individual stocks. Probably the most beneficial aspect of CAPS so far for me is having a rooting interest in a lot more stocks is forcing me to follow more companies.

2. A corollary to no. 1 I am getting a pretty good idea about how many stocks I can realistically follow.

3. Being somewhere between a complete novice and experienced investor I am relying on TMF and Morningstar for ideas. TMF is pretty easy to keep track of Tom and Bill have a convenient score card where you can see their results but Morningstar covers a lot of territory with a lot of analyst. CAPS has been pretty useful in bringing to light some strengths and weaknesses to their service. In particular I've discovered their conservative nature doesn't make them the greatest source for under performing picks (just look at my portfolio for proof :) Quite a few times I've added one of their one star stocks to under perform only to find a few months later its a three star stock with a fair value 30%-40% higher than when I picked it to underperform and it's killing me in my portfolio.

4. Discipline. I've been fortunate enough to have done very well over the year I've been in CAPS camped out in the 98'th and 99'th percentile rank for most of the time but with the collapse of the home builders and lenders, I see a unique opportunity to be greedy when others are fearful. I have been steadily adding home builders, construction material suppliers and financials as the news has gotten worse. The problem is I know it's going to kill my short term ratings. So CAPS is forcing me to learn to be a disciplined investor right now as I watch my short term ratings nose dive but trying to keep my eye on the long term. You have to break some eggs to make an omelet.

So that's my one year CAPS review. Like I mentioned in my introduction I remember lots of discussion about the value of community stock ratings when CAPS launched and I was pretty skeptical and I still am however the benefits I've discussed here have made CAPS a very useful tool to me even without relying on the community ratings.



1 Comments – Post Your Own

#1) On September 15, 2007 at 11:29 AM, XMFHelical (< 20) wrote:


Great blog and use of CAPS.  Getting some of these lessons out of the way without too much real money on the table is a big CAPS benefit.  One thing I like most is the commentaries of those negative on the companies I'm interested in.  Always find something to look closer at.


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