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truthisntstupid (81.06)

My Newest Pitch - And Why CAPS Star Ratings Are Sometimes Just CRAP!

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July 21, 2011 – Comments (51)

I'm not sure I should post this, but I'm going to.

 

http://caps.fool.com/Pitch/DRI/5390118/i-made-dri-a-caps-pick-on-dec1.aspx

 

 

51 Comments – Post Your Own

#1) On July 21, 2011 at 7:27 PM, ChrisGraley (29.64) wrote:

You said it best yourself:

A word about CAPS star ratings. Many all-stars and highly rated players adopt a "never close a pick in the red" strategy for this game. All-stars' picks carry more weight in determining a company's CAPS star rating. 
This may have worked well for them in reaching their high ratings - but it also means you'd better do your homework. 

A few all-stars that don't want to "close a pick in the red" can make a company's star rating absolutely retarded - as it has here. 

Probably the biggest flaw of the CAPs scoring system right there. 

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#2) On July 21, 2011 at 7:33 PM, anchak (99.84) wrote:

Well - nothings going to make them change this - Accuracy is what makes you zoom the rankings!

 

LOL!

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#3) On July 21, 2011 at 7:34 PM, truthisntstupid (81.06) wrote:

Thanks Chris

I'm not the first - and I certainly won't be the last - to write a blog or make a comment about this.

Every so often someone has to to help protect newbies from overrelaiance on the star ratings. 

People, investing in individual stocks is not for someone who doesn't love to read and learn!   

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#4) On July 21, 2011 at 7:44 PM, truthisntstupid (81.06) wrote:

anchak

I'm sure that's probably true.  I really don't have any ideas how they even could.  But often enough someone posts a blog like this to help warn newcomers of the risks of not thinking for yourself enough.

It was just my turn, I guess.

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#5) On July 21, 2011 at 7:48 PM, Borbality (46.77) wrote:

great post. and you make quite the case for DRI. 

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#6) On July 21, 2011 at 7:54 PM, TMFCrocoStimpy (95.62) wrote:

truthisntstupid -

Why shouldn't you post this?  It is a good caveat to repeat to anyone looking at the CAPS ratings, with the proviso that you emphasize sometimes

We have found that very consistently,  star rating quintiles, when treated as portfolios of stocks, perform in the manner you would expect to see: 5 Star returns > 4 Star returns >......> 1 Star returns.  But what exactly does this mean in terms of the individual stocks in each star rating?  There are roughly 1,000 stocks in each star quintile, and the performance of the group is a type of average of the returns for each of the stocks.  This means that we expect some form of distribution of returns for the individual stocks that could have tail values that far exceed the mean, and would make you shake your head in a double take and say that the rating assigned to the stock has no bearing on reality.  This seems to be the case with DRI - it is an outlier that for whatever reason the community hasn't recognized the changed story, or refuses to change their strategies based on other factors.

Is this something that can be "fixed"?  Well, not in the manner you might expect.  It is unlikely that we can make the consistency of returns for every stock in a quintile will be so consistent that we will be able to eliminate these types of outliers, though it would feel more satisfying if there where an incentive to see members close picks which had clearly gone south and are not coming back.  HOWEVER, and I'll stress this point, it isn't clear to me that it is safe to assume that the reason people who are deep in the red on this stock are not closing the pick simply because they consider it a strategic move to not close losers. 

Also, the excess weighting of the allstars probably doesn't have as much effect on the rating as you might imagine, given the ratio of total underperform to outperform calls that have been made.  Since the entire CAPS rating system is rank ordered, it is as much the enthusiasm for members have for many other stocks that pushes DRI down as it is the people who are hanging on to their old underperform views.

-Xander (TMFCrocoStimpy)

 

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#7) On July 21, 2011 at 7:55 PM, truthisntstupid (81.06) wrote:

Borbality

Thanks!  But DRI makes a great case for itself - doesn't it?

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#8) On July 21, 2011 at 8:04 PM, TMFCrocoStimpy (95.62) wrote:

Accuracy has become a bit of an achilles heel, because a fairly uniform strategy has evolved around how to push the value up, but we have yet to find something which seems to resolve those issues without making the rest of the system brittle in some other area (Unless, of course, we wish to adopt the passer-rating strategy of creating a phenomenally esoteric formula which nobody can understand the mechanics of, but that seems like it will cause people to lose interest in playing).

The funny thing about the "never close" strategy is that it doesn't buy you anything except a dead spot in your 200.  If you have accepted the fact that you will never come out of the red, then you have effectively locked in the negative impact on accuracy.  It is only if you believe that your future picks that would fill that slot have a lower probability of being accurate than your current net accuracy that it would make sense to not fill that slot with a new pick.  It isn't that players don't do this (because some have stated explicitly in blogs that they do), its just not the most rational strategy to maintain over the long term.

So what would entice someone to close a pick that was deep in the red, especially if it has a lower cost basis than the price of the security today?

-Xander (TMFCrocoStimpy)

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#9) On July 21, 2011 at 8:05 PM, truthisntstupid (81.06) wrote:

Hi TMFCroco

I know it's probably not possible to do anything about it.  It seems like every few months, someone (this time it was me) gets irritated enough by it that a blog like this gets posted.

And I think it's a good thing that someone does every so often.  People do need to know.

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#10) On July 21, 2011 at 9:01 PM, TSIF (99.96) wrote:

Croco, my suggestion for the issues would be to reduce the timeframe of the picks to a maximum of one year.  You would renew it if you wanted to when you got the warning that your pick exceeded the timeframe.  Once it passes one year it's not counted in any metrics unless you "renew up on it".  While players deep in the red might "renew it", they could chose to not change their timeframe, let the pick stand, but expired.

This would help with the other area that you are not considering......players "leave" caps with the pick open.   There's a tremendous amount of churn on CAPS and many dead accounts. 

Thats why Britannia Bulk Holdings , Nasdaqoth:  BBLFK.PK is a $0.02 5 STAR stock.

The second part of this would be to have some of the metrics used for top player, top bloggers, top pitches etc have a total lifetime column and a rolling one year column.

If a player could be the top fool in the last 12 months they would have a target to shoot for that might be attainable. I think many of these metics used to spur on competition have a "moat" built into them.

Leave the overall top fool, top blogger, etc, but add the one year leaders on a rolling level.

Another option would be to not count the picks in the star system that are made by any player with a 90 day inactive flag.

I think what's lacking is keeping CAPS as an lifetime cycle in such a volitile market and not having merits for a shorter term.  It's rather embarrasing when the outside community picks out a 5 star stock that's been dead for two years. Not only aren't those calling it up going to close thier picks, they are not pickable so no one else is going to call them down.

Truth, while I've disagreed with you on past blogs that the metrics used are not being applied uniformally, I do agree that I do agree the rating system itself has some holes in it!!!  I definitely agree that keeping picks open and not using the space for something more productive if you are an active player is in some cases "foolish".  I suppose you could get some help if the S&P crashed again by 50% and yoru red thumber took the brunt and sometimes one could go BK, but I do agree with Truth that some of open picks skew the system.  Fool writes thousands of articles a year pointing to their service and sometimes they look rather "Foolish".

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#11) On July 21, 2011 at 9:08 PM, truthisntstupid (81.06) wrote:

TSIF

You probably have some good ideas.  Just one thing, though.  I often go more than 90 days without doing anything.  I make long-term picks.  So I don't know about "no activity for 90 days"  automatically rendering me inactive.  

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#12) On July 21, 2011 at 9:36 PM, DaveGruska (95.98) wrote:

I would think that people mostly take CAPS ratings with a grain of salt, but who knows. I personally like reading the pitches from people who really get and are passionate about the comanies (like your pitch).

BTW, thanks for the quote from the Buffet book. I always wondered why McDonald's current ratio was under 1 - that's got to be the reason.

 

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#13) On July 21, 2011 at 9:53 PM, truthisntstupid (81.06) wrote:

streeter

Thanks!  I would hope most people wouldn't blindly invest based on ratings, either.  But you never know.

I tend to write long, blog-like pitches.  It's actually a decision I made awhile back.  I can try to help people learn what to look for while avoiding some of the abrasive commenters that sometimes respond to blogs.  I don't feel as compelled to answer them in a pitch.

My pitches are my "secret blogs", haha.

The full title is Warren Buffet And The Interpretation Of Financial Statements: The Search For The Company With A Durable Competitive Advantage by Mary Buffet and David Clark.

 And yep.  That's why McDonald's has a current ratio of less than one.  It's far from a problem.

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#14) On July 21, 2011 at 10:22 PM, dragonLZ (99.59) wrote:

Truth isn't stupid...

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#15) On July 21, 2011 at 10:54 PM, truthisntstupid (81.06) wrote:

Thanks, dragon!  

Gotta get up early.  Up at 3:30 to go to work.  

Thanks for the comments, everyone!

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#16) On July 21, 2011 at 10:58 PM, Momentum21 (96.14) wrote:

thanks for the DRI pitch...interesting and looks like a pretty solid track record of success if you ask me. 

The ratings system is what it is...I use it on occassion but give more weight to why All Stars are picking or pitching a stock. It pays to make high beta picks in this game so the ratings are always going to have a bias of some sort. And typically an investment theory should be given years to unfold, not weeks or months. 

I do like the debates about how to improve scoring, ratings etc though.  

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#17) On July 21, 2011 at 11:13 PM, awallejr (85.51) wrote:

Well I learned the hard way about that.  I would be 99 rating otherwise.  I screwed up my accuracy by not understanding the game.  So be it.  I defied Alstry during the dark days telling him that time will tell, that I would pass him and he would go negative.  It happened, so be it.

But I refused to open a new account and decided to try to dig myself out of a hole, which I did to a respectable level.  Truth it is a game in the end.  It is flawed.  Some game it perfectly.  Most don't care.  They use the site for testing theories, listening to others, hopefuly to profit in real life in the end.  And hopefully some listened to me along the way and made some money.

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#18) On July 21, 2011 at 11:17 PM, TSIF (99.96) wrote:

#11 Truth:  I wouldn't make you "inactive after 90 days"...just not count your picks in the star system until you pick another one and reset it.  No hard stake on the 90, was just mimicing the bomb charm.  I didn't realize you skipped out for that long....no wonder the place is quiet and missing something from time to time!!!

 

 Players with the No Picks In 90 Days lucky charm:

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#19) On July 21, 2011 at 11:21 PM, TSIF (99.96) wrote:

I agree that despite my comments, that this is a game, and sometimes the comments to improve it or change it are tiring, but it hasn't had too many changes the last few years and the star system reflects back to the outside world. Overall, I fully agree, it's a learning tool, and if you take it too seriously you probably aren't using it for what it's meant for.

I messed my accuracy early on also.  But I also realize that I'm a high beta, let's have some fun type player.  I wouldn't have nearly as much fun or learn nearly as much if I focused completely on accuracy, but I do realize that in the real world that it's pretty important.  ;)

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#20) On July 21, 2011 at 11:50 PM, awallejr (85.51) wrote:

Actually no TSIF, accuracy is irrelevant in the real world compared to overall profits.  That's the shortfall of the game.  You are stuck with the start postion for example, but you can't double down or triple down to turn a loser into a winner. 

Also you can lose 2 out of 3 times but if that 3rd time more than offsets the 2 losers that is what matters too.  Finally the game underplays the power of the dividend mainly because if they reduced your basis dollar for dollar you could wind up with an infinity rating on a stock. 

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#21) On July 22, 2011 at 12:38 AM, portefeuille (99.67) wrote:

Finally the game underplays the power of the dividend

Dividend payments are treated in a standard way. They chose the "reinvest at the open" method.

see comments #2,3,4 here.

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#22) On July 22, 2011 at 9:22 AM, TSIF (99.96) wrote:

awallejr, I agree with your pionts, but I still think accuracy is important...not as important as CAPS treats it, but I do believe it is important and not irrelevant.  If you don't have some semblance of accuracy you won't have any funds to try the second or third time.  Again, I agree with your points, just not quite that it's "irrelevant".  As far as dividends, I agree with Port that the model used is one model accepted and has some consistancy. You can't always agree on rules, how accurate stars are, how dividends are counted, etc, but overall, especially in a game, I'm happy to have consistancy even when I don't agree with the rules.  There are a few dividend paying equities that have been around Caps long enough that someday one will approach a small enough number that it will skew the points.  Those who bought and held it, however for that period of time did get some excellent compounding.

Thanks,

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#23) On July 22, 2011 at 10:04 AM, GraemesPSP (99.49) wrote:

CrocoStimpy,

I'd agree with automatically closing out picks after 1 year. 

Also why not include the average pick return in the score calculations.  It wouldn't make the formula much more complicated, but it would discourage gaming the accuracy.

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#24) On July 22, 2011 at 10:33 AM, portefeuille (99.67) wrote:

There are a few dividend paying equities that have been around Caps long enough that someday one will approach a small enough number that it will skew the points.

(1/1.1)^50 ≈ 0.0085, so a starting price of $100 would be reduced to around $0.85 after 50 "10% dividend payments" ("stock opens at 10*dividend"). Thus there will probably not be too much trouble in the next few decades ...

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#25) On July 22, 2011 at 11:53 AM, dragonLZ (99.59) wrote:

Here is an example why I don't like CAPS player rating system / accuracy:

There is an account here on CAPS that is in TOP 5, with 15,000+ points and 88% accuracy.

This account's best pick is at +105 points (1-bagger). 

If you ask me, I think that just by chance (dart throwing), one should be able to pick a stock that doubles or triples in value (especially if you pick over two thousand stocks like this account did).

So, how many more 1-baggers this account has? None.

(he has a few more, but they were his red-thumbs so he actually lost points on these calls - lost up to 600 points). 

This account has a total of only 53 picks that earned more than 50 points (meaning they all were between 50 and 100 points).

This means that only 2% of his picks (he made more than 2300 picks) have earned more than 50 points, with only one earning 100 points.

Is that really somebody who should have 88% accuracy (in real life)? Or somebody who should be in TOP 5 of all investors here on CAPS?

I honestly think that my 3 year old can do better than that (even though she's still not that good at dart throwing).

Now, some new CAPS-ter will look at his rank (and/or score and accuracy) and will think: "Wow, this guy is a great investor", but is that really so?

In my opinion, he's great at this game of scoring easy accuracy points due to poor CAPS scoring system (one of the best five accounts here), but his rank doesn't really tell us anything about his investing or stock picking skills.

p.s.

Just to clarify, the person behind this accounts seems to be a very nice and a very, very smart person so I honestly have nothing against him. I just think that CAPS scoring/ranking system is bad, and has nothing to do with real life. That too is affecting stock rating system thruthisverysmart is talking about. 

Good Luck to All! 

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#26) On July 22, 2011 at 2:26 PM, anchak (99.84) wrote:

Dragon....You are obviously talking about Chris - who as you point out is very nice and smart.

He doesn't do Long Term Holds - and yes plays the system to bank accuracy......

Even after this his alpha over S&P as per CAPS is 6+.

Additionally if you notice Chris is one of the very few CAPSters  - who have been around - 5+ years.

There are a lot of people - who opened accounts in 1st week of Mar 2009 - did the tums - and had multi-baggers to show.

Multibaggers - are an extreme norm usually - and became - a simple commodity at that time.

While CAPS is essentially a mechanism to have been set up for identifying potential mulit-baggers early....

 

There is also definite value - for longevity - and beating the index over long cycles.

 

Both works!

 

What the CAPS system allows you to do - is it unfortunately lets you hold shorts indefinitely, has no compliance on activity ie pick strategy whatsoever - as TSIF points out.

 

Xander....if you are listening - I brought up these very points to you, Chris and Jake - before -which TSIF reinforces.

The 12 month rolling return and ranking - needs to be incorporated....

 

Does it impact the stocks/rolling portfolio Star return  -no...but definitely enriches the GAME aspect.....

 

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#27) On July 22, 2011 at 3:38 PM, truthisntstupid (81.06) wrote:

#18 TSIF

Ha, you should al be so lucky.  No, I don't skip out for that long.  I'm here, reading, making comments, etc.  

I just don't often make new picks.  I do, however, occasionally update my pitches in the pitch reply sections.

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#28) On July 22, 2011 at 3:54 PM, TSIF (99.96) wrote:

Porte, #24.  I really hesitate to question Porte, but your starting figure in your dividend example giving a few decades doesn't cover some real life dividend payers.

Check out the History here on CAPS of NCZ and AGNC.  By my poor math skills estimate that early adopters could approach zero in 2-3 years more years  Some already have 280+ points after 3 years and it will accelerate from here. The S&P has risen faster than most dividend payers can cover from a CAPS perspective, but that is/will turn.   There might be other examples where the approach to zero is closer, depending on how long it's been on CAPS, and what the base price has done.

Truthisntstupid, I was pretty sure the voids had not gone that long!  I'm glad!!!  

TSIF

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#29) On July 22, 2011 at 4:01 PM, truthisntstupid (81.06) wrote:

TSIF

I don't believe anyone's cost basis can ever go to zero; that's why they chose to treat dividends as being reinvested at the ex-dividend day opening price.

See this:

http://caps.fool.com/Blogs/dividends-and-capsand-how/591837

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#30) On July 22, 2011 at 4:14 PM, portefeuille (99.67) wrote:

#21,24,28

--------------

2 correction factors make sense.

day n = last trading day before the ex-dividend day
day n + 1 =  ex-dividend day

a :=  closing price on the last trading day n,
e := opening price on day n + 1,
d := dividend,
c := d/(a - d),
cf1 := 1 - d/a,
cf2 := 1/(1 + d/e).

The price goes from a to the theoretical "ex-dividend day opening price" a - d, so it is multiplied by (a - d)/a = 1 - d/a = cf1. multiplying the starting price with the same factor ensures that the performance is "continuous at the close of trading on day n".

Using the dividend to buy shares at the open of the ex-dividend date you get d/e shares. As the number of shares is multiplied by (1 + d/e), the starting price is multiplied by 1/(1 + d/e) = cf2.

(For e = a - d you get cf2 = 1/(1 + d/(a - d)) = 1 - d/a = cf1, as it should be.)

cf1 is the correction factor you get if you reinvest the dividend at the close of day n. For 1 share you need to buy c shares at the close.

1/(1 + c) = 1 - d/a = cf1.

(As it should be you can afford to buy exactly those c shares for every share you own at the close, as (1 + c) * d/a = c.)

So whether you prefer cf1 or cf2 depends on whether you assume dividend reinvestment at the close of day n or at the open of day n + 1.

(To buy at the close you would need to know the closing price in advance, which is usually not possible, so using cf2 (as in the "caps" game) might "make more sense" ...)

cf2 -> 0 for e -> 0 (as it should, as the number of shares you buy at the open is d/e which goes to infinity). In the "caps" game cf2 is used.

 

As cf2 = 1/(1 + d/e) ≠ 0 the starting price will never be zero and "decay" rather slowly.

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#31) On July 22, 2011 at 4:16 PM, portefeuille (99.67) wrote:

As the number of shares is multiplied by (1 + d/e), the starting price is multiplied by 1/(1 + d/e) = cf2.

if you understand this you understand why there is no problem with the "dividend implementation" in the "caps" game ...

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#32) On July 22, 2011 at 6:03 PM, truthisntstupid (81.06) wrote:

The last thing I'll say about this:

People who red-thumbed this company (DRI) years ago at prices between $12 and $22 that have no better reason for keeping it red-thumbed now than not wanting to close a bad pick are a detriment to the CAPS rating system's ability to provide an accurate representation of investor sentiment for this company.

 

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#33) On July 22, 2011 at 7:03 PM, TSIF (99.96) wrote:

#23  GraemesPSP    FYI, I wouldn't advocate closing any picks, just not counting them for the "star system" unless the player "renewed" them.  There would be no penalty for not renewing, it would still count in their profile. They would renew if they still believed in the pick and wanted it to count, or ignore the "renewal" question if they wanted to keep it open and not have it count.

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#34) On July 22, 2011 at 7:11 PM, truthisntstupid (81.06) wrote:

#33

That would be great.  Perhaps some of them would make the choice not to undermine the validity of the CAPS rating system.

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#35) On July 22, 2011 at 7:29 PM, TSIF (99.96) wrote:

21, 24, 28, 29, etc.

Porte and Truth, thank you for the dividend explanaitions. I am apparently not making myself clear.  I have never had ANY issues with the way they are calculated. I have done the math, (though I wish I'd had your blog to help me at the time!), and proven to myself (and said in 22) that it's consistant and that I agreed with Porte's mathematics.

I liked your dividend blog and how you encouraged the reader through the "hard parts" and then showed them the "short cuts" after they got the concept. Are you a Math teacher??!!!!

The point I am trying to make, and apparently doing so poorly, is that players who have ridden some of these calls will be reaping huge rewards that "may not seem proportional" to their risk by other players.  I think the risk/reward on the dividend calls is heavy toward the risk, especially in the short run. Some of these dividend players can collapse suddenly. I closed one that I had been "nurturing" for almost two years and I was up 20 points and growing each month, but the legs on the stool started wobbling 10-15% back and forth and it looked ready to collapse..  Some of the closed end income funds can become shaky over time. Some of the high payer REIT's can also collapse. Both types of dividend players suffered during the S&P collapse, albeit for different reasons.  So I think the players who called these and rode these deserve their points.  My comment/concern is that some players in a few short years (4-5 total) will earn their 500 point charm on what appears to others to be a low risk dividend play. That perception would be unfair, (in my opininon), but will happen. At least we can point them to Truth and Porte's math, but that won't change perception.

The S&P on a tear makes dividend picks look very unattractive and I've held a few for long periods of time while they were in the red and I wondered what I was doing!!! ;)  (A constant affair for me)!  Eventually the compounding kicks in and then the accelerator hits the pedal.

So, I agreed with Porte in 22 that the process was consistant.

I commented that "small enough number that it will skew the points" and "approach zero"  in relative terms.  A 500 point charm will look to some as a skewed system.

Using AGNC again, those who picked it first have had it open for three years.  They have accumulated 246 points against what has proven to be a relatively flat S&P. Cost basis is $8.33, (Darn close to your shortcut method of $8.36 for a 7/18/08 start date, so the math works).  If I extrapolate the dividend forward and assume the base remains relatively stable (acknowledging that the equity price will drop and reset and repurchase will not be 1:1).

Player A  has 246 pints, buying of $8.33. After 8 more quarters, (two years) of $1.40 dividend = $11.20, what will Player A's buyin be?  What will their score be?

  I see typing "out loud" that I'm making assumptions I shouldn't be and it won't be that clean, but I would still roughly estimate that while Player A may not reach zero, Player A after two more years will have a heck of a lot of CAPS points and the multiplier effect will really start kicking in.  No sub-divide by Zero concerns, but a few look like they could reward the early adopters in a serious way.  Thank you both for your help.

TSIF, ruminating bull getting heat stroke today!!!  What's that, the farmer dropped some fermenting barley off his wagon when he turned the corner....guess I'll just mozzy on over and start the weekend!!!   ;)

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#36) On July 22, 2011 at 7:31 PM, TSIF (99.96) wrote:

#33, 34.  I'm expecting a lot of them would be gone and have the bomb charm.  The turnover rate is getting pretty high around here.  Keep pitching, making a few picks, or an occasional blog so I don't fear you're one of them!!!  ;)

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#37) On July 22, 2011 at 7:36 PM, truthisntstupid (81.06) wrote:

I could go look it up, but what's the bomb charm?

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#38) On July 22, 2011 at 8:31 PM, TSIF (99.96) wrote:

 Players with the No Picks In 90 Days lucky charm:

Looks like an old fashion bomb that is lite.

You must have had it intemittantly based on the spaces in your picks.   See Tastylunch for an example I was just chatting with him.

To speak to the Ratings on stocks and the inactive accounts there are 65,623 "inactive for 90 days" accounts. A few no doubt just use CAPS for their real life calls and have quiet periods. Most, however, including many in the top 100, are inactive and have been for over a year.

73,957 Accounts.  Some with no picks.

65,623 inactive

88.7% inactive accounts mixed in with the star system. 

 

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#39) On July 22, 2011 at 8:40 PM, TMFCrocoStimpy (95.62) wrote:

A few quick comments about various issues that have been brought up:

TIME DECAY OF PICKS: There is a time decay factor involved in weighting the contribution of each particular pick into the final ticker rating.  The exact formulation of the time decay is a part of the secret sauce ratings formula rumored to be known to only two individuals who are never allowed to travel together lest disaster strike.  However, the implication here is that the strategy of having players "hold their losers forever" does not indefinitely doom a ticker even if some allstars neglect to close their negative calls.

DIVIDEND MAGNIFICATION:   From a CAPS point stance, it all boils down to the basis cost of your pick - the smaller the basis cost, the larger a move is for any dollar amount shift in current price.  Non-dividend stocks realize this through growth of the value of the single unit of stock that you buy at the beginning.  Dividend stocks realize this through increasing the number of units that you own through re-investment, thus translating it into an equivalent dollar move even though the growth of the stock itself may have been small - dividend adjusted pricing in a nutshell.  The path to large scale CAPS point moves in any given day will generally come from long term holding of either growth stocks or steady dividend stocks.

ACCURACY: A bit of an Achilles heel as I mentioned above, the difficulty is that a fairly singular strategy for boosting this value has been narrowed in on by players, so the strategy universe in CAPS is getting a bit thin.  This introduces a certain degree of brittleness to the entire system since so many player's picks are increasing in correlation, which is a definite bad thing.  This has become particularly evident since the beginning of 2011, and we are examining metric changes that might dissuade this type of myopic strategy and encourage players to return to the more diverse approaches that were used earlier.

ANNUAL METRICS: Anchak, definitely listening in, though I have been away from the blogs for a while.  My short answer is that it might be an interesting boost from a player experience standpoint (very important to keep people interested playing, to be sure) but it does not raise the expected return or accuracy of a players near to mid-term predictive capabilities.  A bit of a chicken-and-egg problem, I know, because it might induce a change in pick behaviour.  Annualized returns are also far more susceptible to the RandomSockPuppetxxx player creation, which is one of the reasons we have stayed away from annualizing returns.

There are some variations on what I will refer to as "Quality" that might be an interesting metric to offset Accuracy, taking into consideration both the returns, the volatility and the timeframe such that capturing excessive numbers of small positive gains is not as attractive if it isn't balanced out with some additional longer term capabilities, though I'm just now restarting those studies.  We have also put together a few larger scale presentations of the behaviour  of the CAPS quintiles against some of the standard market modeling (both simple Market Cap modeling and the more sophisticated Fama-French models), and found some very interesting dynamic adaptation that takes place in the community.  I've been trying to figure out how to make some of this available and I may just start by posting the figures on flickr and embedding them here in the blogs for discussion - there are sufficient quant gearheads here that I think it would be quite helpful.

As a last thought, in case anyone wants to play with the CAPS API and/or gain access to 4 years (2007-2010) of CAPS data, don't forget to go to the developer site.

-Xander

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#40) On July 22, 2011 at 9:12 PM, DaveGruska (95.98) wrote:

 TMFCrocoStimpy - 

"As a last thought, in case anyone wants to play with the CAPS API and/or gain access to 4 years (2007-2010) of CAPS data, don't forget to go to the developer site."

Awesome - I didn't know that this existed! I just signed up for a dev account.

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#41) On July 22, 2011 at 11:56 PM, scruffy4life (67.47) wrote:

Scruffys points were derived by believing in his Companys.

Hmmm Hrmmmm.

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#42) On July 23, 2011 at 11:38 AM, TSIF (99.96) wrote:

TIME Decay of picks.

Then why is  Britannia Bulk Holdings , Nasdaqoth:  BBLFK.PK is a $0.02 5 STAR stock.  It's been bankrupt for 2.8 years.  Trust me, I know.  No one can downthumb it, so the 5 stars is from those who did upthumb it over two years ago.  I care about CAPS and to have equities like this one get called out by a message board community as a reason why CAPs is trash gets my blood pressure up, and that's not good for a BULL.  The farmer says if I break out of my fence again that he's going to send me off to market!  The STAR rating system on why something that's pretty much DEAD is 5 stars is embarassing.  There are many examples of 5 star stocks that should be one star and one/two star that should be higher.  Click on the top ten and look at the list of highly rated stocks. At any given time at least 40% aren't rateable. Yes, percentilewise it may seem small, but which are people more likley to advertise, your faults or your positive attributes??

I really do appreciate your efforts and your replies to our queries, but I think that secret sauce needs updated now that TIME has drifted into the equation.

Annual Returns:  I believe the interest you generate by giving newer players a chance to hit metrics/goals FAR outweighs the negatives. Why are 88% of the CAPS accounts inactive??  I know it's for various reasons, but losing interest must be high on the pareto.  Many players are here to learn and only track thier own investments. Some are here to GAME ON.  To GAME ON you have to have a chance to win. I was happy to set small GAME ON Goals for myself early on.  All Star, Top 1,000, top pitcher, (until someone created 5 fictional friends and rec'd themself), then top 100 etc.  I don't have goals to be much higher as I enjoy the FUN enough that living by the accuracy rules would crimp my ability to speculate and learn.  A rolling time schedule might help.  Over time though Top Ten blogger, or pitcher, or any metric becomes harder and harder.  Achievable goals help keep interest.

This is why there are All TIME Records to beat and Best player of the Year awards.  Occasionally someone might break the all time home run record (if you can negate steroids), but their are plenty of BEST of the Year awards to try to achieve.  If someone uses steroids.  The RandomStockPuppet might be a form of steroids, but that too would scroll off and hopefully the volitility of the market won't give excessive opportunity for this. It will happen with or without the rolling year and last much longer.

If you made changes involving Quality then either that would have to be time factored in in some manner or you'd have even more new accounts springing up and old ones abandoned.

Regarding Dividends. I fully understand.  At some point a FAQ blog explaining things might help players who join in later and see someone with 800 pionts from a dividend player that has had minimal stock growth appreciation over the 5 years they held it. I agree they deserve the points, but again, the time factor works against new players.

Thanks again, I make suggestions because I appreciate CAPS.  There are several areas that I won't get into here where CAPS has become a laughing stock in the "outside world".  This will always be true in some degree as there are large variances in personalities, but it could be MUCH better.

Thanks,

TSIF

 

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#43) On July 23, 2011 at 4:46 PM, TMFCrocoStimpy (95.62) wrote:

TSIF,

BBLFK.PK is in a peculiar class of troublesome ratings that isn't due to any time decay issues or even pick related issues, and is still not something that is a cut and dried issue to resolve.  What happens with stocks like this is that they drop below the thresholds where a rating can be assigned, and then stay there.  Lacking any additional information from the community that can be gathered from the community, the default mode is to keep all information about the stock unchanged.  This would include the last rating value that it had, so if the community had made a very poor estimation (such as this stinker) and then it drops below the thresholds that allow others to put in a negative sentiment, the stock captures its high rating and then no new information is ever available to change it.  This is a difficulty with rigid thresholds.  If something is close to the threshold and just dips below for a short while, you don't want to immediately take it off the communities radar - it could just be volatile and people are waiting for it to pop back up in to a range that they can rate it once again.  However, if it gets stuck below the threshold or continues downward, then you would want it to be pulled off the community radar or listed as garbage.  We haven't found any really good algorithms that give us a consistent result in these situations, and sometimes we just have to play deus ex machina and tackle one ticker at a time as it is brought to our attention.  This particular ticker I'll bring up and see what is the most sensible thing to be done.

Let me dive into thinking outloud about the annualized measures (or even multi-year measures) in a different post - I think there is a lot of merit there from a game play incentive standpoint, and I'd love to have more back and forth over the strengths and weaknesses to be found.

Foolishly,

-Xander

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#44) On July 23, 2011 at 5:19 PM, TSIF (99.96) wrote:

Thanks Xander,  what I'm trying to say on tickers like BBLFK.PK is that the rating mechanism could also be annualized.  A years worth or 18 months worth of current data would seem to meet the integrity of the star system. I do understand where the star system is of personal interest to you and your Foolish Team and why you wouldn't want to tinker with it. Unfortunately, BBLFK.PK is just one example. AS I indicated there's probably a 40% unpickable population of 5 stars and it was much higher before the pick threshold was lowered from $1.50 to $0.50.  New ones became unpickable by the volume rule, but this issue has always existed. 

Thanks for the clear concern and willingness to dialogue even if don't see merit in our points. I look forward to a new blog from you as I do agree Truth has made thier point in this one.

(PS. I'd just as soon that if you are going to handle stocks such as BBLFK.PK on a one on basis for now that you let it be for now as it's just one example of many.....it's of particular interest to me and helps prove that I wasn't the only one Fooled by this particular stinker.  I learned a little bit about the difference between the US Courts and the British Courts and a little bit about British bond holder mentality.)  ;)

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#45) On July 24, 2011 at 3:21 AM, ikkyu2 (99.27) wrote:

Average pick score should be weighted by pick duration.  Alpha is meaningless without a time period.  For example:

Someone who beats the S+P 500 by 1% per century is not very special.  Someone who can outperform the S+P 500 by 1% per year is maybe special enough to get a job on Wall St.  Someone who can outperform the S+P 500 by 1% per month is going to be in the very top echelon of stock pickers worldwide.  Someone who could outperform the S+P 500 by 1% per week could retire at 50 as the wealthiest man on the planet (not even Warren Buffett's done quite that well, year over year.)

All of these people would have a CAPS "average pick score" of +1.00.  Meaningless. 

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#46) On July 24, 2011 at 3:36 AM, portefeuille (99.67) wrote:

Someone who could outperform the S+P 500 by 1% per week

some come close. Jim Simons, I (see here, hehe ...), ...

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#47) On July 24, 2011 at 12:55 PM, TSIF (99.96) wrote:

I'm not sure ikkyu2 that I would agree with you that someone who hit those metrics would only have an average pick score of 1.  It could be hundreds depending on how much individual picks had multiplied and how many picks they had. I do agree that the average pick score metric is not a cureall either, nor a substitute for the accuracy. They both have their advantages and disadvantages. If I'm a "trader" then I might not have as high of an average pick score, but I could have more points overall. Unfortuantely, neither Accuracy nor Pick Score are metrics that demonstrate ability, but total point score is also potentially flawed, so I see why they attempted a blend.  I just think that "time" affects the metrics as well in this type of game.

Overall I'm happy to have rules that I understand and that are consistantly applied.  For those of us using the game to learn then that works fine.  For those really trying to "compete" in the "game" on the highest level then they would have to adapt their game accordingly.  I'd rather do a blend and try to move up in the game, but sacrifice some level of "Game achievement" to play my style and learn the most I can.

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#48) On July 24, 2011 at 9:19 PM, truthisntstupid (81.06) wrote:

awallejr, momentum21, porte, graemes, ikkyu

 Thanks for reading and commenting, guys.  I'm sorry I missed some of you when you commented.  I have to get up at 3AM on weekends, and I'm worn out when I get home.

awallejr, It is a game.  I realize that, but I also think newcomers need to be aware of the fact that the star ratings have shortfalls and shouldn't be overly relied upon.

momentum, thank you.  When I write a pitch, I like to put some meat in it.  I hope I did.

porte, you are so facile with those mathematical formulae!  I think my brain does flip-flops when I try to read them!  

graemes, thanks for reading and commenting.

ikkyu, I'm long-term and my picks are meant to be long-term barring any changes in my opinion of the financial strength, profitability, and competitive advantages of the companies I pick.  Good idea.

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#49) On July 25, 2011 at 7:58 PM, TSIF (99.96) wrote:

Truthisntstupid,

I didn't know if you noticed that your pitch was the Pitch of the Week this week.  nicely done!

TSIF

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#50) On July 25, 2011 at 10:42 PM, truthisntstupid (81.06) wrote:

TSIF

I saw that!  Thank you!  

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#51) On July 26, 2011 at 1:38 AM, ikkyu2 (99.27) wrote:

porte, I've been following your portfolio moves; I hope that you retire at 50 as the richest person on the planet.   I think it more likely, though, that your performance so far reflects outsize beta, not alpha, and that when the market takes a turn your strategies will lose you money.

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