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dragonLZ (99.34)

This I really don't get (another CAPS controversy)...

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August 23, 2010 – Comments (25) | RELATED TICKERS: GOT , SCO , RE

I just noticed that BravoBevo is now #3 (was #2 for a while), behind bullishbabo and chk999.

I'm very confused about it. I'm really lost as to how's this possible when I know that BravoBevo has incredibly high score (much higher than anyone else).

Let's take a look at these Top 3 players' scores, accuracy, and average pick score:

bullishbabo   Score: 14,467   Accuracy: 88.2%   Average Pick Score: +7.7

chk999   Score: 13,469   Accuracy: 86.2%   Average Pick Score: +6.8

BravoBevo   Score: 28,368   Accuracy: 84.4%   Average Pick Score: +8.9

Now, is CAPS scoring system trying to tell us it's more important to be right on your calls 1.8% of the time (difference between chk999's and BravoBevo's accuracy) than scoring a bunch more points on your calls?

That's how it looks to me, and I think it ain't right.

Think about it.

If both chk999 and BravoBevo picked 100 stocks, chk999 would make a correct call on 86 stocks, while BravoBevo would make a correct call on 84 stocks. 

So far, chk999 is clearly a better stock picker.

But what about the score?

Based on their avrerage pick score, chk999 will make $670 (on top of what the S&P's return is) on his 100 picks (100 x $6.7), while BravoBevo will make $890.

That's $220 more in BravoBevo's pocket, or 33% more than what chk999 would make.

Now, you tell  me, is it better to be right 1.8% of the time or to make 33% more money on your picks?

Or am I looking at this completely the wrong way?

Please help me with this.

p.s.

On 100 calls, bullishbabo would make $770, which is still $120 less than BravoBevo.

Btw., all 3 of them would perform really poorly comparing to UltraLong, who, on 100 picks, would make $4,200 (more than all Top 3 players together) or comparing to portefeuille3, who would make $3,500. 

portefeuillie2, would make $3,000, JakilaTheHun would make $1,600, ... (do you know of any other high average-per-pick players?)...

25 Comments – Post Your Own

#1) On August 23, 2010 at 3:28 PM, Valyooo (99.81) wrote:

It can't be just accuracy either, because tenmiles has better accuraccy than all of them and he is #4

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#2) On August 23, 2010 at 3:35 PM, portefeuille (99.78) wrote:

checklist34 66.69

andreylikesmtl 56.28

It would be nice if you could see "average annualised pick scores" (at least if the "annualisation" is done in a reasonable way. it is not entirely obvious what a reasonable annualised reaturn is for a 10 trading days return of 20% is, for example ...).

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#3) On August 23, 2010 at 3:35 PM, portefeuille (99.78) wrote:

reaturn

return

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#4) On August 23, 2010 at 3:39 PM, TMFBabo (100.00) wrote:

Taken directly from the "Help" section:

Raw rating = (2/3 * score rank) + (1/3 * accuracy rank). 

As of right now, I'm 7th in score and 26th in accuracy.  I have the highest combination of score and accuracy rank, weighting score twice as much.  It's as simple as that.  

It's not really a controversy.  I looked at the rules section before I picked a single stock to determine how I would go about playing.  If they ever change the rules, I will change how I pick.

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#5) On August 23, 2010 at 3:40 PM, portefeuille (99.78) wrote:

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#30) On June 11, 2009 at 8:24 PM, foolsMeThrice (< 20) wrote:

Whether or not you're a buy and hold investor depends on how much money you have at stake.  If your slinging around 50 billion it is obvious that short term trading will not be effective for a market participant of this nature.  The sheer weight of the trades will kill the returns.  On the other hand, guys like us don't have to worry about market impact, even if you're slinging around millions.

I wrote a python script that would calculate the compound returns for a player given the following restrictions:

1) Sells occur before buys in a given day.

2) Underperform is considered going short.

3) Outperform is considered going long.

4) The weight of the next pick will be equal to capital/(number of remaining picks).  If I have 190 picks and 10 units of capital the weight of the next pick will be 10/10 = 1.  The working capital is reduced by that weight.

5) When you sell (or cover), your capital will be augmented by the  weight*gain (w*g). I define the gain like they do it engineering (price sold)/(price bought).  For a underperform call this is (2 - (price bought)/(price sold short)).

So here is the effective gain (for return subtract 1)

2006-10-06 2009-06-11 bravobevo capital + equity: 3.364334
2007-09-17 2009-06-11 fransgeraedts capital + equity: 2.154132
2008-11-17 2009-06-11 translator999 capital + equity: 1.738266
2008-11-20 2009-06-10 portefeuille capital + equity: 1.953434
2006-06-26 2009-06-11 chk999 capital + equity: 1.738482
2007-01-29 2009-06-11 mgiv capital + equity: 1.800625
2007-07-05 2009-06-11 abitare capital + equity: 2.157164
2009-02-09 2009-06-11 AndreylikesMTL capital + equity: 1.54

2006-10-16 2009-04-17 SpecBear capital + equity: 1.901175

To convert these into logical scores, subtract 1 then multiple by 100 then by 200 for max number of picks.  We also have to add the S&P out performance amount.  Using the start date for the very first pick and the end date of the very last pick to estimate the S&P return to get about 30*200 for both bravobevo and mgiv.

bravobevo 47200 + 6000 = 53200

mgiv 16000 + 6000 = 22000

which trounces the score using the motley fool approach because it takes advantage of compounding and corrects the underperform call score calculation by looking at capital not how it does versus the S&P.

Now you may want to consider tax.  Well taxed like income, for guys like us it is still better to sell short term and pay your tax.

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(from here)

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#6) On August 23, 2010 at 3:44 PM, portefeuille (99.78) wrote:

The "point" of the discussion is usually whether the "caps" game "accuracy" is useful. It is obvious that some measure of the "outperformance" should enter the "caps" game ranking system, it is not obvious that the "accuracy" should enter ...

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#7) On August 23, 2010 at 3:46 PM, dragonLZ (99.34) wrote:

#4 I know the rules (and I'm not complaining you or somebody else is #1), I'm just asking if CAPS scoring system really works when it comes to determining who is the best stock picker.

Maybe there is no better way to do that, but it doesn't hurt to ask what other people think...

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#8) On August 23, 2010 at 3:47 PM, portefeuille (99.78) wrote:

The "point" of the discussion is usually whether ...

The discussion usually centres on whether ...

 

centres on whether? well you know what I mean, I think ...

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#9) On August 23, 2010 at 3:52 PM, portefeuille (99.78) wrote:

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

Don't pay too much attention to CAPS rankings

June 19, 2009 – Comments (56)

Yesterday I was perusing the blogs and came across a comment I've heard too many times. An individual was citing another individual's CAPS score and accuracy, implying that the values in some way lent credibility to the opinions they were voicing. It's quite distressing to read things like this, not because I care what people do on CAPS, but because I worry that people may make decisions with their hard earned money based only on recommendations from Top Fools. I'm going to explore in detail the accuracy component of the CAPS ranking, but first a note on score.

Browse through the profiles of the leader board and you'll see two tickers on almost every single one. GMGMQ.PK (yes, that's GM equity), and PXCE.OB. It is near certain that GM equity is worthless, and PXCE is a shell of a company that has most likely had it's price manipulated by "pump and dumpers." So, to rack up points, you simply red thumb these (in some cases more than once) and it's an easy 100 points plus an additional "correct call." This sort of thing is clearly not actionable in practice and so is irrelevant from an investing stand point, yet in some people's mind, the points it generates lends credibility to one's arguments. More important than a person's score is how they have achieved such a score. Have they made picks that are actionable in practice, and supported their pick with thoughtful commentary, or have they gamed the system?

Accuracy

Accuracy is critically important to CAPS scores, but is it really important? I'll often hear comments like "individual X has been right on Y% of their calls, therefore they should be listened to." Oh really? I will submit that it is not at all relevant, and in fact, a computer could beat anybody's accuracy. Let's explore.

It is well known (well enough that I'm not going to source this statement) that stock prices typically follow a random walk about some longer term trend. With a margin of "success" of only 5%, how well would you do if you simply made picks at random and closed them once the score exceeded 5? To do this we simply need to run a random walk simulator and compare the results to what human players have done.

Methodology:

Lognormal daily stock prices projected for 252 days, or approximately one year (not attempting to model intra-day). The price is not in absolute terms, but in terms of price relative to the S&P 500, so it begins at 1, and a price of 1.05 gives a success on an outperform pick. The pick, either outperform or underperform is chosen at random (this part isn't actually relevant). Volatility is fixed throughout the projection. I projected 10,000 picks, and closed each as soon as it generated a score greater than 5. No pick is closed with a negative score. Esentially, I'm trying to replicate with a simulator the kind of strategy most of the top CAPS players use.

Clearly the volatility assumption is critical. The higher the volatility, the more likely it will at some point be successful. So what is our assumption? I looked at three widely followed companies, and took a standard deviation of the difference in their daily returns and that of the S&P 500. Since prices in our model are relative, so too should volatility. The period of time is 1st quarter 2009.

BAC - 11.4%

XOM - 1.3%

AAPL - 1.9%

Results

A 2% volatility during this period seemed like the most reasonable assumption to me for a real life (not CAPS) portfolio. Clearly in CAPS you can take on more risk than you would with your brokerage account. The results may surprise some people. Fully 85% of the picks were recorded as a success. That means, if you simply picked stocks at random, at some point, 85% of them would have beaten the S&P by 5%. Increase volatility to 5%, and the success ratio is 92%. If we use BAC's volatility, which in truth is the kind of pick a lot of CAPS players have been using over the past 9 months, (think triple levered ETFS like FAZ and FAS) the success ratio is a whopping 95%. So, in actuality, CAPS players, even the best, are underachieving the accuracy a computer could generate. Chalk it up to the picks they actually believe in and hold for a longer period of time.

I'll conclude by saying what I think everyone already knows, but perhaps at times forgets. When it comes to investing, it's not what you do, but why and how you do it. The Fool with a rating of 99 point something, score over 10K, 85% accuracy and average score of 5 is doing nothing more than playing the CAPS game, and should not be taken any more seriously than the Fool with a score <20. The strength of a person's research and argument is what's really important, and is the true value of this site.

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#10) On August 23, 2010 at 3:55 PM, dragonLZ (99.34) wrote:

#6 I think accuracy is very useful, but I think it's given a little too much importance.

That's why I'm asking does a guy with 86% accuracy, and "only" 14,000 points is really better than a guy with 84% accuracy, and 28,000 points? Does that make sense?

I also feel points only should not count either (BravoBevo made 1,000 picks more than bullishbabo or chk999), and that's why in my "little experimen't" above I used Average Score per Pick.

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#11) On August 23, 2010 at 4:00 PM, portefeuille (99.78) wrote:

Fully 85% of the picks were recorded as a success. That means, if you simply picked stocks at random, at some point, 85% of them would have beaten the S&P by 5%. Increase volatility to 5%, and the success ratio is 92%.

Thus that post by bigpeach shows that a computer script making calls on "high beta stocks" can easily get an "accuracy" of above 90%. So at least we know that very few of the current "caps" game players are "accuracy optimising scripts" ...

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#12) On August 23, 2010 at 4:02 PM, dragonLZ (99.34) wrote:

Porte, you are banned from posting any more comments on this blog (unless they are less than 3 sentences long).

Look at what you did.

Whose gonna read all of this now?

Spammer... :)

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#13) On August 23, 2010 at 4:03 PM, dragonLZ (99.34) wrote:

I meant who's, not whose...

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#14) On August 23, 2010 at 4:05 PM, TMFBabo (100.00) wrote:

How do you define best stock picker? Someone with abnormally large returns but with ridiculously stupid risk (all his money in a penny stock) might make the most money, but I would never listen to that person's advice. 

CAPS is largely based on its star rating system.  Given the context of the star system (which is not perfect), I think the rating system is okay.  It'd be pretty hard to make a different system that would both be useful and encourage a decent number of talented individuals to participate.

Others may debate the utility of CAPS the way it stands, but I've certainly learned a lot in my time here and I'm not alone. 

The Fool with a rating of 99 point something, score over 10K, 85% accuracy and average score of 5 is doing nothing more than playing the CAPS game, and should not be taken any more seriously than the Fool with a score <20. The strength of a person's research and argument is what's really important, and is the true value of this site.

I like this quote from bigpeach's blog post in portefeuille's link.  I've learned the most by others' blogs and pitches, not others' picks.  The quality pitches and blogs (which seem to be scarce nowadays) are the best things about CAPS. 

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#15) On August 23, 2010 at 4:11 PM, SockMarket (81.75) wrote:

can't agree with you here, dragon.

I would agree with bbabo that it is simply a game with a certain scoring method. The person who tailors their investments to it is the top fool. period. not necessarily the best investor (although he is very good) but the highest ranked player.

Further one cannot invest the way that BravoBevo trades in CAPS, even he has admitted it.Therefore I am glad that he is not #1 (not only because I enjoy the humorous posts from UL and bbabo far more than the proselytizing that Bevo attempts) but also because I don't think it would reflect an accurate ranking for actual investing.

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#16) On August 23, 2010 at 4:12 PM, portefeuille (99.78) wrote:

I think the best way might be to not give an "overall ranking" at all. A list of some useful metrics would be much better. A human can easily see who is good at what. And the current ranking system (and any not entirely different ranking system) leads to stupid behaviour by the players.

If you "know" a few stocks from the biopharma sector it is pretty easy to see that zzlangerhans is the best player in that sector, you just have to scroll through his calls and read a few pitches, comments or posts written by him.

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#17) On August 23, 2010 at 4:24 PM, dragonLZ (99.34) wrote:

#14, #15, #16 I agree with all of you.

I didn't mean to argue or to try to convince somebody that CAPS system sucks, I just wanted to hear other people's opinions.

I, for example, don't like BravoBevo's style (but like some of his calls and pitches), but I also don't like the fact that UL scored majority of his points (and all accuracy points) on ETFs (and one could assume I really like UL as I said he would kick everybody's ass based on his av-score-per-pick.

Once again, I was just asking (I'm not rooting for anyone), and I'm very happy with the answers I got in #14, 15, & 16.

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#18) On August 23, 2010 at 4:35 PM, chk999 (99.98) wrote:

What bullishbabo said in #4. If they changed the scoring system I'd change my strategy.

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#19) On August 23, 2010 at 5:03 PM, dragonLZ (99.34) wrote:

#18 I play the game too and would also change my strategy if the rules change, but what about the rules now?

Is it OK to have a person with 33% more money in his pocket (based on av-pck-score) be rated lower than you?

p.s.

Just a question. I have nothing against you or your style. As you can see, I give a lot of importance to av-pck-score, and CAPS doesn't. All I'm asking is: Which system is better?

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#20) On August 23, 2010 at 6:42 PM, Valyooo (99.81) wrote:

People used to complain that I would beat them in madden using strategies that were not good in real life.  I told them, I was trying to win in Madden, not trying to prove I could be a great football coach.

So I am with babo on this actually.

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#21) On August 23, 2010 at 6:43 PM, zzlangerhans (99.78) wrote:

This is the oldest thread in CAPS.

There is no easy method to find the best stock pickers in CAPS if you are looking for "advice" on long equity investments.

TMF has no interest in having us utilize CAPS for this purpose. Their priority is page views.

If you make stock picks based on top player green thumbs, more than likely you will get your butt toasted.

None of this is the fault of the top players. They are very good at what they do, which is reading the rules in advance and tailoring a strategy to maximize rating. Most of them are very good at predicting stock movements as well, but nowhere near as good as their ratings would seem to indicate. There are better stock pickers who are invisible because they don't try to game the system and don't prioritize things such as accuracy. Good luck trying to find them.

 

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#22) On August 23, 2010 at 9:57 PM, TMFUltraLong (99.96) wrote:

Behold my awesomeness.... I think....

UltraLong

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#23) On August 24, 2010 at 12:05 AM, truthisntstupid (95.99) wrote:

Threads of this nature will probably continue to pop up occasionally. Hopefully anyone who sticks around long enough will know better than to simply gamble real money on others' picks...regardless of their CAPS numbers. 

I have never read the rules for CAPS.  What a waste of time.  I'll read books on investing, teaching me useful knowledge.  I have hundreds of dollars worth of those. 

I wouldn't give you two cents for a book on how to win at CAPS.  I simply pick stocks I might put real money in if I had more money to work with, and mark the ones I really do put money in.

 

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#24) On August 24, 2010 at 12:34 AM, Tastylunch (29.93) wrote:

dragonLZ 

I'm just asking if CAPS scoring system really works when it comes to determining who is the best stock picker.

That was never its' intent Dragon, the intent of CAPS is to generate star ratings for the Fool's proprietary use through a wisdom of the crowds approach. It never has been to find the best stock picker. 

If CAPS' goal was to find the best stock picker, then I would agree with you the accuracy weighting is very silly.

Any reasonably intelligent person (such as yourself) can tell you why CAPS doesn't find the best stock pickers. But the people who get upset about this don't seem to realize the game never was meant to.

This is the single biggest misconception CAPS players seem to have.  It is not a stock picking game, it's not a portfolio game and likely never will be.

The closest analogy I can think of for CAPS is that the CAPS game is a sell side stock analyst game. That's why there is no compounding or weighting.

basically the guys who say "buy", "hold" or "sell". In their world Accuracy is pretty much how they are graded.  They've got no money on the line, so all the other stuff we traders/investors must also consider are non factors for them.

There are weaknesses in that approach, but I think if one is to evaluate the CAPS game fairly you must first make sure you are measuring it to the right criteria.

The biggest danger I see in all of this is after 4 years, most players still do not understand this and many may be dogpiling gamers with real money. A very dangerous thing to do.

FWIW I do not manage my rl account anything like I manage my CAPS account. While I will short stuff in real life, I'll never let them blow up on me like I will in CAPS..

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#25) On September 15, 2010 at 12:25 AM, portefeuille (99.78) wrote:

#12 Oh, I did not notice I was banned. Oh well, here is another one.

doubleaughtnine 

Rank: 184 out of 71452

Score: 9,514.87 (+31.71)

Accuracy: 68.78%

Average Pick Score: +46.41

number of players that have chosen him as one of their "favourites": 2.

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