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The Purpose of CAPS



March 09, 2014 – Comments (16)


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.   





16 Comments – Post Your Own

#1) On March 09, 2014 at 7:40 PM, portefeuille (98.32) wrote:

I thought the issue was settled here :)

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#2) On March 09, 2014 at 9:17 PM, CMFbbmaven (100.00) wrote:

???  There are a few comments here and there about purpose, but not sure why you think anything was settled in that exchange.

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#3) On March 10, 2014 at 4:23 AM, jiltin (45.96) wrote:

I do agree on "CAPS has been a brilliant success since its launch in 2006", but needs review/change to be more effective.

From my perspective, it just gives whether I am beating S&P or not. 

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#4) On March 10, 2014 at 9:44 AM, chk999longonly (98.21) wrote:

Nice article. 

Sadly, TMF seems to have largely abandoned CAPS. I think part of this is that David Gardener (the force behind it's creation) was hoping that CAPS pick scores would correlate with stock performance much better than it did. 

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#5) On March 10, 2014 at 10:09 AM, TSIF (99.97) wrote:

CAPS was not designed for the 2009 event. 

As far as correlating the "masses" and a database of useful data, CAPs is severly flawed. Now you could say that it meets it's purpose statement in those areas, but due to the volitility of the market we have stocks rated at 5 Stars that are now bankrupt.  The weighting, balancing, not expiring calls that are clearly abandoned dilute the value.  Even accountability of the Cramers since the portfolios are not maintained.

Overall it's a useful tool.  If the best bloggers hadn't been pulled to the blogger network, the bugs been kept out, and the best analysts not pulled to the subscription services, it could do better at maintaining its goals.

It certainly was not used to it's full potential.

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#6) On March 10, 2014 at 12:10 PM, TSIF (99.97) wrote:

I agree with your underlying premise that most complaints are non-productive and mirrored.

Not to open old wounds, but I do think the accuracy factor hurts the other tracking/data collection aspects of caps as players do not close their picks even when they have no faith in them, or they did not meet expectations. 

Due to the moat of longevity of skilled players, there are few "goals" "incentives" left for new players.  So having a rolling year would have been nice for many metrics to earn awards, but again, this is past tense at this point.

Rules, even if not the ones some people would use, when fairly applied are fair to all and better than ever changing rules, or no rules at all.


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#7) On March 10, 2014 at 1:01 PM, constructive (99.97) wrote:

I send TMF error reports weekly at this point.(And never get a response.) The functioning of the website has been going downhill.

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#8) On March 10, 2014 at 1:15 PM, dragonLZ (70.08) wrote:

Ask the TMF management what's the purpose of CAPS and I'm pretty sure they'll tell you: "What CAPS?"



I don't think the question is whether they are sending a ship to save a few of us left on this small deserted island or not. I think the main problem is nobody even noticed we are missing. 

Some of us died years ago, some lost all hope and are just waiting to die, and only a few are still thinking someone somewhere is going to see the signals we are sending with these broken mirrors we have (which I guess is the reason why they refer to us as Fools).

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#9) On March 10, 2014 at 3:24 PM, portefeuille (98.32) wrote:

comment #8 is a good candidate for comment of the decade :)

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#10) On March 10, 2014 at 5:36 PM, devoish (86.34) wrote:

 "The purpose of CAPS is to help investors pick better stocks." - David Gardner from "An Interview with David Gardner" 

Best wishes,




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#11) On March 10, 2014 at 8:15 PM, ikkyu2 (98.57) wrote:

Application of two-valued Aristotelian logic to questions that aren't appropriately answered by it is a common failure that denotes a fairly mediocre mind.

CAPS also does some other things.  It puts ad impressions up and makes revenue that way for the Fool (and its owners Yahoo! and YHOO shareholders by extension.)

I have found CAPS to have educational value; I learn about stocks, industries, and investing strategies that I never would have heard of, and that's made me a lot of money since I started playing.  I think this was intended as there has been a social (comment-based) aspect to CAPS since the very beginning.

For a time I thought Dave Gardner basically built the thing starting from a set of thoughts he had along the lines of "I wonder if Cramer's picks really beat the market, I bet they don't."  He came on my blog and explicitly denied that this was the case, however.  Mr Gardner is a lot of things but he has never seemed to me to be a liar and so I tend to believe him.  I have always expanded the acronym as "Collective (Collaborative) Aggregator for Picking Stocks" but he refuses to say if it was ever an acronym, either.

CAPS is still useful to me, and I suspect more folks pay attention to the All-Stars, and the star rating they generate, than is generally known.  I know CAPS will go away eventually, that is the way of the Internet, especially the free-to-play Internet, but I am enjoying it while it lasts.

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#12) On March 24, 2014 at 12:37 PM, brittlerock (< 20) wrote:

So I just recently started looking at CAPS and finally decided to see what made this guy the all time winner. And then I find that most of his calls are negative, and a lot of those are ETFs all negative for exactly (copy/paste) the same reason. Most other calls are without explanation.

So, maybe it's not "cheating", but it's also not particularly enlightening either. Whatever the "purpose" of CAPS, all I can say is that information gleaned from the top player is not particularly useful. Kinda makes me question the utility of the whole thing.

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#13) On March 25, 2014 at 1:27 PM, FoodLong (71.16) wrote:

The thing is you could make this game 100x times more interesting by making just a few changes.

1. Give new players a starting amount of money, say 50k.

2. Add one more field to when you pick a stock, number of shares.

3. x2 simple taxes on gains. Long and Short capital gains.

4. A simple flat fee tacked on to trades like in a discount brokerage.

 This would add virtually no overhead to the database, these are very simple calculations. Also all the code and programming to make this work is already there for the most part. It already track all the daily prices and your picks etc.

But yeah seriously, if I saw some guy with 2 million, I would be damn interested in what he was doing!



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#14) On March 30, 2014 at 9:39 AM, DrGoldin (99.56) wrote:

I'm getting tired of the "short leveraged ETF's" strategy, to be honest.  The defenders of CAPS always retort that one of its greatest achievements is to highlight bad they are as a long-term investment.  And there is probably some truth to it.  But it has come to skew the game because a huge proportion of every successful player's picks are red thumbs on leveraged ETF's.  As #12 states, that's not particularly enlightening--and it belies the pretense that the purpose of CAPS is to help people pick better stocks.  It's not as though the world beyond CAPS doesn't understand that leveraged ETF's are to be used as day-long investments, not year-long investments.

I also have to agree with the comments that the support for CAPS has been lacking.  Some tickers have mysteriously inaccurate quotes, and when I've reported these bugs, I generally get no response--and the bugs are never addressed.  That failing also belies the pretense that the purpose of CAPS is to help investors pick better stocks.  If I have to pull out of a call just because CAPS won't award me the points that I deserve, that's going to affect the CAPS rating of the stock in question.

But I agree with #11 that the game is still fun and I've learned a lot by playing it.  I'm not arrogant enough to think that I can't learn from other people. 

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#15) On March 31, 2014 at 4:37 PM, DrGoldin (99.56) wrote:

P.S. LCI (utterly mysterious) and DOV (because they never adjusted for the spinoff of Knowles) are two notoriously inaccurate tickers that I can remember off the top of my head  There have been others.

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#16) On July 31, 2014 at 10:39 AM, zmrobins (< 20) wrote:

If you think there are flaws to CAPS - it may interest you to look at a new social stock app I am building called Bullseye.

I designed it to be more of a social chat and discovery platform for stocks so that you can get curated discussions based on the stocks youre watching or from the people youre following.

Chcek it out and let me know what you think. I am launching the beta soon!

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