Use access key #2 to skip to page content.

JakilaTheHun (99.94)

The Great CAPS Accuracy Dilemma + A Personal Shill to Public Accounting Firms

Recs

9

May 06, 2009 – Comments (14)

CAPS Rewards DayTraders and Short-Sellers

I cracked the CAPS Top 40 for the first time today, but it will be difficult to move up further given CAPS's heavy reliance on accuracy points at the top.  In fact, if you look at the Top 40, I have the lowest accuracy percentage of everyone in there, while my score is higher than quite a number of people.  This brings me to the great CAPS dilemma --- do I start trying to increase my accuracy percentage in order to game the system or do I continue to play CAPS similiar to how I would truly invest? 

Take a look at the top 20 CAPS players?  Take a look at their scores and take a look at their accuracy.  You will discover that score hardly seems to matter at the top. 

As of right now, BravoBevo is ranked one spot below Dwot.  Yet, BravoBevo has a score of 16,870 while Dwot has a score of 7,940.  In real investing terms, BravoBevo has made twice the gains of Dwot, yet is ranked lower.  You could argue that this is explained by the number of picks they have made, since making more picks increases one's ability to score more points.  However, that argument would fail since BravoBevo's average score is 9.40 while Dwot's is only 5.78.  Hence, not only does Bevo have a greater total return; but has been making a better average return, too. 

While the CAPS accuracy component makes sense on some level since you want to reward those who are able to most accurately pick good and bad stocks - the design of the accuracy component does not make sense.  Instead of calculating accuracy based on one's total score on a particular stock, CAPS calculates based on total picks.  The difference might seem trival, but it's not at all because it encourages people to short and re-short crap stocks in order to "game" accuracy points.  In fact, this is really the only way to move one's self toward the very tip-top of the CAPS pyramid.     

An Example 

If CAPS calculated accuracy based on the total score on a particular security, this would still favor the short-side, but nearly as much as it does now.  To give an example, let's say that Player #1 red thumbs Stock XYZ at $100.  Over the next year, it falls all the way down to $10.  For simplicity sake, we'll say the S&P traded sideways.  Player 1 has a score of +90 on this pick and gained 1/1 for accuracy.  He had 99 other picks and was right on 69 of them with a total score of +3000, so this gives him an accuracy total of 70% (70/100) and a score total of +3090.

Player #2 red thumbs XYZ at the same original price of $100, but he ends his pick after every 10% score gain and then re-initiates the red thumb at the new pricepoint.  He does this all the way down to $10.94.  After this, the stock jumps back up to $32.83, where he finally ends his underperform pick.  Player #2 has the same stats on the other picks as Player #1, but for this particular stock, he was able to re-short successfully 21 times before getting burnt on the 22nd try.  As a result, he has a score of +10 and gained 21/22 for accuracy.  His accuracy total after this pick is 74.38% (90/121) and his total score is +3010. 

In CAPS, Player #2 would be ranked higher due to having a signicantly higher accuracy total than Player #1.  This is despite the fact that if one did this in real life, they would not have made that much of gain since they got burnt on the last short.  This problem could be removed if instead of giving Player #2 credit for every single +5 pick on that particular stock, he was instead given an accuracy score based on his total score for it --- so instead of 21/22, he would simply be given 1/1 for his overall +10 score.   

Given the Fool's focus on long-term investing but the CAPS system overrewards day traders and short-sellers due to its overemphasis on the accuracy component,.  It's actually significantly easier to find companies that are crap than it is to find great companies and for this reason, you see a lot of red thumbers at the top of CAPS.  This isn't to denigrate anyone at the top; those in the top 40 are good investors one way or another and there is real value in being a smart short-seller.  But I can't see any value to rewarding the practice of "re-shorting" crap companies. 

Naturally, there are other ways to game the CAPS system, but this is the most blatant and the most annoying to me, because I don't want to have to sit around and "re-short" everything after it hits +6, just so I can move up.

 

Employment in Public Accounting/Valuation

By the way, now that I've got the floor, I wanted to attempt something a bit crazy on here.  You see --- the job market is absolutely terrible right now, so I thought I'd take the opportunity to exploit my top 40 CAPS fame (Ok, so it's not "fame" till I crack the top 10 --- which might be never!) to make a long-shot bid at obtaining my dream job.  Hey --- don't blame me!  Blame portefeuille --- he started it!

So here's the story --- I've been searching long and hard for mid-sized public accounting firms where I could get my foot in the door.  I graduated with my Master of Accounting from one of the nation's best public schools and now I'm working with a consulting firm that provides financial management and accounting services to public clients.  The people I work with are great, but after being in this industry for about a year, I've concluded it's not where I want to be long-term. 

Over the past year, I have discovered the things love.  I know what industries I like and I know what work I like to perform.  Basically, I've been looking for mid-sized accounting firms where I could work in Assurance Services (auditing, financial statement preparation, etc) and potentially move over into Valuation (which is what I really love doing!). 

This might seem like an odd forum for this, but consider something --- the reason why my CAPS rating is so high is precisely because my valuation skills.  I have developed ways to value stocks in a very quick and efficient manner --- I adapted it to my particular investing type and it's been a great success thus far.  I've even been more successful with my simulated portfolio at KaChing.com, where I've made a 60% return since I created my portfolio in December --- and I'm not a daytrader.  In fact, I have one of the most diversified portfolios you will find --- but I invested in wisely.

From all my investing and writing activities, I came to an awareness of the industries I am most interested in:  REITs/real estate, manufacturing, cleantech, energy, financial services, and mining. 

As far as location goes, I'm not set on living in one particular place.  There are a few places I would consider.  Due to my interest in urban development, desire to own inexpensive urban property, and be somewhere that I could be active in the community and make a potential difference --- the three cities I want to live in the most are: (1) Memphis, TN; (2) Baltimore, MD; and (3) Raleigh, NC.  All three would be ideal for me and have friends in all.  I'd also consider many other cities in the South/mid-Atlantic region (my homeland!)

So there you go --- my own CAPS advertisement.  Like I said, it's a long shot at best, but it is really discouraging finding absolutely no one hiring these days.  Next, I'll have to go out on the streets of Baltimore holding up a sign that says "Brother, Can You Spare a Public Accounting Job?" ;)

14 Comments – Post Your Own

#1) On May 06, 2009 at 4:05 PM, motleyanimal (92.22) wrote:

This is true, it's not like you can just walk down the streets of Baltimore and find yourself starring in a John Waters movie.

Report this comment
#2) On May 06, 2009 at 4:38 PM, cclogic77 (25.39) wrote:

It would be unfair to combine all of a player's picks on one stock into a single accuracy socre. Successfully predicting a stock's moves once does not guarantee a successful prediction the second time.

However I do agree that something must be done about accuracy. Someone with an accuracy that is a few percentage points higher but has half the score of someone else should not be ranked higher.

For everyone who says it is easier to gain points by shorting, you forget that the returns on successful gree-thurmbing are much greater. Do you think any short-seller could have risen to the top as quickly as portefeuille did, even in the strongest of bear markets? I doubt it.

Report this comment
#3) On May 06, 2009 at 5:00 PM, portefeuille (99.60) wrote:

I think you should just ignore accuracy. I hope the ranks that are displayed here do not directly enter the "proprietary" formula for calculating the star ranking of the stocks (if it does then they (the staff) are throwing away much of the usefulness (see here) of the "caps" system).

Something useful might be blog posts that "introduce" caps players. I think it is pretty easy to write down in a few sentences what a player is good at (in this game and if he is good at anything).

So please do not change the way you make your calls. 

 

Report this comment
#4) On May 06, 2009 at 5:00 PM, devilinside (77.16) wrote:

We sure make a big thing out of nothing. Who cares who's on first or second or third. Hell guys it's just a game. How about coming to the table with some good thoughts about investing.

I'm a long investor, so how about some input on some long term stocks.

I actually think this rally is overheated and needs to take a breather. I think you could safely say that it will make a correction. But don't ask me to tell you when. no one is that good.

 

Report this comment
#5) On May 06, 2009 at 5:52 PM, JakilaTheHun (99.94) wrote:

Portefeuille,

I'd like to ignore accuracy, but the thing about me is that I'm the type of person who learns a system and finds all the strengths and weaknesses and proceeds accordingly.  It's sorta instinctive in my way of thinking. 

When I look at the CAPS info for members, I normally look at "Score" and "Average Pick", plus read their commentary --- that's how I judge how good a player is, b/c I know the accuracy component is bunk --- but all the same, I see this giant rating every day and I know that my accuracy weights it down and it's almost like I instinctively want to improve that.  I just wish that they'd change the way it was calculated so I would see the merit of playing a red thumb for a +80 score --- as it is, I can't see any reason to use the red thumbs except to try to improve accuracy, because I'll score more points on green thumbs. 

I wouldn't be 'changing the way I make calls' so much as making more red thumb picks and not following them for as long of a time period.  But in real life, I'd definitely weight my picks towards the long side because that's where the real money is to be made. 

 

devilinside,

Is that an INXS reference? 

Of course it's just a game, which is why I ultimately don't really care if I'm ranked #40, #125, or #2000, so long as my score is high (which is a better determinant of one's success as an investor).  All the same, I think TMF should change the system to encourage people to make more long-term picks and stop making red thumb picks of junk over-and-over-and-over again in order to increase ratings. 

I'm also not sure why you're suggesting that I should 'provide more input on long term stocks'.  Have you ever looked at my blogs or commentary?  As far as the top CAPS members go, there aren't too many that provide more commentary on long-term investments than I do.  I want CAPS to promote more of that and less silly game playing.  The only way to encourage that is to make CAPS ratings resemble the real world a little bit better.

Report this comment
#6) On May 06, 2009 at 5:53 PM, Melaschasm (53.44) wrote:

Good luck on your job search!

Report this comment
#7) On May 06, 2009 at 6:48 PM, btown819 (95.13) wrote:

I think CAPS depends on the element of time to address the accuracy issue.  That's why I think this project needs a minimum of 10 years to have more meaningful results.  If you were chicken little and started playing a year and a half or two years ago saying that the sky is falling and that you would red thumb everything... you would have a high accuracy.  However, even if the market turns bullish for an extended period and you are still Chicken Little screaming that the sky is falling you're accuracy is going to take a hit unless you close out your picks or change your mind.  Your score going forward of maintaining that accuracy or losing it hinges on your ability to accurately predict market conditions and individual picks consistently over long periods of time. Consistency is important and time will help to address the accuracy component in CAPS. 

It's like running a marathon and having a pack of runners in the lead at mile 3.  Perhaps one of those runners would win the race, but more often than not many of those runners who are near the lead early on do not end up winning the race.  Some do not even come close.  Others remain in the top 10% until the end.  I'd be curious to see who are sprinters and who the real distance runners are here in CAPS.  As your example above suggests, CAPS hasn't been around long enough to distinguish between the sprinters and the distance runners.  I already have some guesses but will be interested to see if I am right.

Also keep in mind that CAPS is operated by a business owner(s) and has an incentive to gather as much data as possible for their own benefit.  The scoring system definitely has a bias towards more picks rather than less picks in order to solicit as much data from the user community as possible.  More data to mine is always better as long as there is no significant deviation in quality.  

JakilatheHun, as for your personal goals, I wish the best of luck to you.  I had worked in audit at a midsize public accounting firm (I loved it) in the northeast but was laid off due to the economy the week before Bear Stearns collapsed and was unable to find another firm that would hire me.  It sounds like your current gig is pretty good in consulting; what is the big difference with audit over what you are doing now?  Is it just that you see audit/assurance services as a stepping stone?  Just curious to see what your thoughts are because we probably have similar backgrounds.

Report this comment
#8) On May 06, 2009 at 7:20 PM, JakilaTheHun (99.94) wrote:

btown819,

Thanks for the well wishes.  Sorry to hear about your misfortune.

Now that I re-read my post, I realize I was a little ambiguous about my current job without meaning to be.  When I wrote "public clients", I meant to write "public sector clients", as in government agencies. 

I'd prefer to work with private enterprise because that's what really interests me and I feel like I could have a greater impact there.  I also want to work with small- and medium-sized companies because I feel like you get more hands-on exposure to finance and accounting that way.

I interviewed with the Big 4 before I graduated, but I had the unfortunate luck of choosing to interview in Charlotte.  That was due to my program's structure and recommendations from career advisors about the various job markets.  We had to make a decision on where to interview within 2 months of starting (which was way too soon for me) and traditionally, Charlotte had been the city where pretty much everyone got hired traditionally.  The financial crisis sorta changed that, though, so the "Go to Charlotte, Young Man!" advice ended up being poor.

I got put on a few waiting lists, but ultimately, the public firms decided to scale back hiring efforts in Charlotte and I was left out.  After being rejected by them, I looked around and decided to give the consulting gig a shot.  I don't regret it as I've learned a lot over the past year, but after being here, I can't say this is what I want to do long-term.  We do a bit of work with ERPs, as well, and I'm more interested in the hard-core finance and accounting stuff, because that's what I'm good at.

I'd prefer to find a firm that I could potentially stay with for the long-term (10 years+).  But as I mentioned, Valuation has become my primary interest and I would like to go somewhere that I might find opportunities in that field at some point in the future.  I could envision myself in Auditing & Assurance Services long term as well, but given my eclectic interests, I think I'd like to be somewhere that I might have some flexibility to move in different paths. 

What's your story?  How long were you in public?  Are you still trying to get back in or have you moved in another direction?

Report this comment
#9) On May 07, 2009 at 1:13 PM, JamesAven (< 20) wrote:


I have been using Desktop Budget from http://Spryka.com to manage my personal finances for a few months now. Its the easiest to use free,  offline personal finance software I have seen so far.

Report this comment
#10) On May 08, 2009 at 8:35 AM, btown819 (95.13) wrote:

JakilaTheHun,

I completed a M.S.A. and spent two years working at a small forensic accounting firm.  After realizing my career growth was limited and the incremental skill development I'd get from working there was no longer attractive, I moved on to auditing at a public accounting firm.  I also realized that forensic accounting didn't carry much weight on a resume outside of the niche profession.  I actually had quite a bit of trouble getting public accounting firms to even interview me.  Working in my forensic specialty we never touched a GL or balance sheet... other than inventory valuation (e.g. pricing) and limited AR work (e.g. collection ratios), the work was strictly P&L forecasting and analysis.  In two years, we never dealt with interest rates, time value of money, capital structure, debt, receivables (excluding above)... all these areas I wanted to learn more about after getting exposure to this stuff at school.  Furthermore, since most of it was forensic analysis we were not required to have a strong knowledge of GAAP, nor was there much exposure to GAAP.  

After two years I took a new job as an auditor at a midsize accounting firm in the Northeast close to where I went to college and enjoyed it a lot.  I was learning new and different things and felt like I was on a good career path - something that I was missing before.  Unfortunately, when the economic downturn hit I was cut right before busy season ended last year.  No other public accounting firms (audit) were hiring at the time (unless you were a senior and/or CPA) and I couldn't risk being uninsured/unemployed for months so I took one of two job offers I received. I've now been working in internal audit at a publicly traded company for a year.  It's a job with decent pay, the people are nice, it leverages off of some of my knowledge and experience, and it's not totally boring.  That said, it's a cushy job where I am not really learning and developing my audit or accounting skills any further.  I am also using little, if any, of my analysis skills on the job.  This isn't where I want to be long-term, but it's ok for now.  In the meantime, I am using this additional time I have to pass the CPA exam.  I am hoping that passing the CPA exam will open up some additional doors for me in the near future.  I'm not sure if I'd go back to public, even though I really enjoyed my last firm and thought at least two years there and I was golden.  I consider going back now and again, but I would want to sure it pays off before I'd commit to it considering the hours I'd be working and free time I'd be giving up.  The biggest incentive I have is because if my ideal career doesn’t pan out, I’ll be stuck in an internal audit position where people who I used to work with in public who weren’t laid off will probably join my company in a few years and I’ll probably be reporting to them.  That’s not to say they don’t deserve it, but it’s frustrating because I want to do more, I know I can do more, and I am limited in my opportunities to do so in my current position. 

I can understand how you want to branch out outside of working exclusively with government clients.  I found forensic very limited in scope and expertise and am now finding internal audit to be broad and not necessarily requiring substantial skill and expertise to perform the job which is quite the opposite.  It's hard to find a good balance that will develop some of your skills now, but also position yourself well for the future.

Exactly what kind of job and position are you aiming for eventually if you didn't want to stay in public?

Report this comment
#11) On May 09, 2009 at 4:26 AM, JakilaTheHun (99.94) wrote:

I'm preparing for the CPA right now, as well.  Been trying to decide what state to register in as I don't plan to stay in Virginia long-term. 

Actually, I wouldn't say I'm aiming for anything other than public accounting long-term.  Not that I couldn't forsee myself eventually branching out in another direction eventually, but it's not really my plan at the moment.  IIf I did eventually move in another direction, I imagine it would have something to do with private equity or REITs.   

Report this comment
#12) On May 12, 2009 at 8:21 PM, btown819 (95.13) wrote:

I'd recommend applying to a state that has higher candidate requirements (relatively, e.g. 150 hrs+) because if you decide to move out of state, it should be easy to transfer your license once you pass the exam.  If you take the exam in a state with easier candidate requirements and move to a state with more difficult candidate requirements it will be harder to transfer the CPA license.  Remember, even though different states have different candidate requirements, the test is the "same" because its administered by the same entity regardless of which state you apply to. 

I've been studying for this exam for months now and hope I can pass the remaining two exam sections I have left.  It can be difficult at times, but not extraordinarily difficult.  It's just a lot of material to cover and be prepared for. I'm banking on passing this exam in the next few months to help off-set my limited job prospects as a result of the less-challenging job I took when I was laid off last year.

Report this comment
#13) On October 04, 2009 at 10:13 PM, btown819 (95.13) wrote:

JakilaTheHun, how's the CPA exam studying going?  I've nailed down AUD, BEC, and FAR to date... I am hoping to pass REG before the end of the year.  I don't think I'll ever go back to public, but I still want to get the CPA credential. 

Report this comment
#14) On June 24, 2010 at 8:06 AM, btown819 (95.13) wrote:

I finally passed REG in Q2 2010!  It took me a lot longer to pass that section than I thought.  It's taken me almost 3 years to complete since I started.  In a few months after I send in my application I should officially be a CPA.

Report this comment

Featured Broker Partners


Advertisement