Re-Examining Dogpiling In CAPS
The entirety of my last post got deleted by the weird CAPS blogging gremlins. Take two...
Tastylunch's recent post on dogpiling reminded me of my earlier post on the subject. I think it is time to re-examing dogpiling to see if my fears that dogpiling would disrupt the system were indeed founded in reality.
A player named Semper77 has been mimicking my picks over the past few weeks to great results. He has already scored 350 points and racked up 74% accuracy just entering the exact same picks as I do--that makes him a top 1,000 CAPS player from merely following my ideas. He's caught really nice moves in TZA, SKF, HPGP, S and others off my lead (By the way Semper, if you read this, congrats, I wouldn't have the patience to trust other people's (particularly my) ideas--keep up the good work). Are people who makes picks in the same manner he does (just following me) throwing off the CAPS system?
I believe the answer is no. Sempergumby77 commented in Tasty's post that he had been tracking DemonDoug earlier this year but stopped after DD remained on the wrong side of the energy bubble as oil started to fall. Semper was talking about the concept of "trust & verify". He trusted Demon's picks but verified; once they quit working he moved on. For now, his focus has landed on my picks as he says that I've had my finger on the pulse of the market recently. What is the net result of this? Semper will probably keep tracking my picks until my hot streak ends, and then he'll move on. My picks influence on a stock's CAPS rating will be elevated until my luck breaks, and then my followers will move along, my influence will drop and the stock's CAPS ratings will return to normal. Thus, in the short run, the picks of CAPS elite that have momentum will probably be overweighted in the system. If five other people (I've detected five or so people that often copy my picks the same week I make them), I can unduly influence the rating of a small company for a short period of time. However, I don't think any all-star can cause a stock's rating to become far out of whack with reality.
I do have one concern though: let's look at GT Solar (SOLR) for an example. Up until Nov. 5, 2008, when I turned bearish on the stock, opinion on CAPS was largely mixed. The stock bounced between 2 and 3 stars and CAPS held a variety of opinions. (I actually put a green thumb on it, and cashed in 19 points off a nice dead cat bounce... here was my very bearish bull pitch:
"I hate solar stocks, this one included. But I love bounces... and I knew this little punk had a bounce in it.")
In the week leading up to Nov. 5, not a single soul put a red thumb on the stock. No one with a rating over 99.35 had ever put a red thumb on SOLR up until my pick. Within two days of my pick, SIX new bears came in and underperformed the stock. Then, the hammer fell! I don't know if TMFBent got the idea from me, or independently, but his bear pitch came in on the 10th, and the CAPS rating was sunk for good. 13 (14 counting my re-load) bear picks have now come in the past week on the stock. I fear that as soon as multiple CAPS elite hone in on a stock, it will get brutally punished by the CAPS community as a whole. The stock got 0 red thumbs in the first week of November, 6 in the 2nd week, and 14 in the third--exponential growth of bearishness). The stock was sharply dropping the whole time, so no reason for people to get in late unless they were merely following TMFBent and myself--the stock stunk equally over the whole time period. I fear that stocks that experience a sharp drop will end up getting thrown into the 1-star bin as elite's chasing momentum throw in red thumbs very late (check out my misguided AGM pick to see this in action.) Thus, a stock buyer will see a 1-star caused by CAPS elites chasing a few points when they really should be buying and hold off on a purcahse. Though SOLR is in fact garbage, one of these days it is sadly quite possible that both TMFBent and myself will wrongly reach the same conclusion and apparently cause the CAPS stock rating to plummet.