The Purpose of CAPS
As I surf around the TMF site, I run across certain assumptions about the “true” purpose of CAPS and how flawed it is. There are always suggestions about how it can be improved to discourage the behaviors some don’t like and encourage the behaviors the particular player would like to see encouraged. The underlying assumptions about the purpose of CAPS are almost always unstated in the suggestions about how to improve the game. The fact that these assumptions are unstated leads me to that those putting forth the arguments may not be examining those assumptions under the impression that the purpose is obvious.
Last year, I wrote somewhere that the failure to examine these assumptions and recognize that there can be multiple purposes to the game (and not just the one we think it should be) reminds me of the debate about whether Major League Baseball or the National Football league is a sport or a business. It is a silly debate that folks on both sides weigh in on with some mixture of snark, condescension, and arrogance, thinking they have possession of the truth while those on the other side are naive. The reality is that MLB and NFL are both sports and businesses. It depends on your perspective.
Let's take the baseball perspective.
Is it a business to the owners? Yes.
Is it a sport to the owners? To most of them it is - but they need to operate using sound business principles to be successful.
Is it a business to the players? Yes - but how important that is to them varies. They earn their living doing it, but I would hazard a guess that the successful ones do not regard it primarily as a business, though they have to keep business principles in mind as they navigate their way through relationships and contracts.
Is it a business to fans? NO! NO! Let me say that another way - NO!
So, how does this apply to CAPS? I think Motley Fool's purpose in establishing the game was well documented. I may not have the complete story or remember this correctly, but the purposes of CAPS were and are multifaceted. Among them, these kind of stand out:
1. To establish a mechanism to measure the accuracy and magnitude of stock picking ability among individuals or organizations
2. To establish a databases to measure the wisdom of the masses over a number of years
3. To establish a mechanism to track and hold stockpickers accountable, whether they be well known touts like Cramer or investment advisers such as Roth or GS,
4. To establish a mechanism where individuals can identify and track stocks by entering picks, recording their thinking at the time, and learning from their successes and mistakes,
5. To track over a long period of time how the wisdom of the masses measures up against a market average;
6. To perhaps establish a mechanism to expose folks to the Motley Fool and increase the visibility of the business within the investing world.
We, the players of CAPS, tend to focus on the first of these exclusively and then find fault with the measurement mechanism. The commonly identified flaws –
1. all picks are equally weighted,
2. the scores don't correlate with investing ability,
3. accuracy shouldn't be as important as magnitude (it isn't by the way)
4. shorts shouldn’t be allowed
5. etfs shouldn’t be allowed
I am sure I have missed some other commonly identified flaws.
I believe that CAPS has been a brilliant success since its launch in 2006 within the perspective of its multifaceted vision. While suggestions to improve the game are all worthy of discussion (and I have engaged in some of those conversations), I really don’t pay much attention any more to folks who are arrogantly dismissive of it because it doesn’t meet their narrow expectations of what they think it should be – rather than what it is or is intended to be.