The 'greater fool' theory writ large
October 4, 2006 5:49 PM   Subscribe

The Motley Fool's new CAPS stock-picking system keeps track of your stock picks and whether they outperformed or underperformed the market. Then everyone's picks are aggregated, weighted by the quality of their past records, to rank individual stocks. Here's how it works. (more inside)
posted by ikkyu2 (13 comments total) 3 users marked this as a favorite
You're picking alongside other amateurs as well Fool employees and Wall Street's loudest-mouth touts, whose daily picks are manually entered into the system by the programmers. Then, stocks are ranked; the picks of the best-performing players are given more weight in determining a stock's final ranking.Whether this will harness the wisdom of crowds to determine the future movements of stocks is doubtful, but the interface is decent enough that it's worth a spin if you find this kind of thing fun.
posted by ikkyu2 at 5:50 PM on October 4, 2006

CAPS may originally have been an acronym for something, but now it stands for the "caps" that players earn. Depending on the accuracy percentage of your picks, you earn a more brightly-colored fools' cap icon on your player page.

Collective Aggregator for Picking Stocks?
Contentious Assholes Piling Shit?

Trying to figure out the acronym might be more fun than actually playing the thing.

posted by ikkyu2 at 5:53 PM on October 4, 2006

The greater fool theory writ large.
posted by sfts2 at 6:12 PM on October 4, 2006

Community Asset Prediction System?
Cyber Automated Prescience Sieve?
Crazy-Ass Prediction Scheme?
posted by gsteff at 6:30 PM on October 4, 2006

I read about one 'just for fun' sports betting site that noticed that some of their players consistently outperformed the average player. So what did they decided to do? Try to sell that data...
posted by delmoi at 6:35 PM on October 4, 2006

is that like this?

posted by kliuless at 7:22 PM on October 4, 2006

In fact, one of the reasons we called it " CAPS " is because we think you earn your cap in this game -- David Gardner

I wonder if this will prove to be the wisdom of crowds, or not. It's interesting. One of the Fool community hobbies has been rating investment advisors and newsletters -- people actually crunch the numbers regularly. This merges that with the message boards but without the credibility issues.

Of course, I'm thinking of several ways to potentially game this system already, so no doubt people motivated by actual profit will themselves be trying.

I wonder if this will do better than the Foolish Four.
posted by dhartung at 7:28 PM on October 4, 2006

dhartung: you can pretty much game it now by just picking a stock to underperform on its ex-div date. They don't account for dividends.
posted by ikkyu2 at 7:41 PM on October 4, 2006

The best investor in Turkey is the queen.

When she buys, the well-informed investors follow suit as her picks always go up.

When she sells, the well-informed investors follow suit as she always seems to get out right before the fall.

Therefore, the best investor in Turkey is the queen.
posted by Mr Stickfigure at 7:49 PM on October 4, 2006

I wonder how well some of the mathematical formulas used by LTCM would work in an environment such as this, I have a feeling they'd produce fairly nice returns. I always thought their idea was fundamentally sound (except perhaps the excessive debts), just that once the market figured out their models it exploited LTCM's position. That and LTCM couldn't stay solvent before everything corrected itself. Both are not problems in a simulation such as this ...
posted by geoff. at 8:29 PM on October 4, 2006

wonder how well some of the mathematical formulas used by LTCM would work in an environment such as this.

LTCM's trademark position was volatility arbitrage. I don't understand how CAPS, which looks to be effectivly a polling mechanism, will drive or reduce volatility to a material extent.
posted by dmt at 2:42 AM on October 5, 2006

Agreed, dmt, LTCM was looking at something completely different.

I like the idea of CAPS and have made my picks (come on casino stocks!), but there seems to be a disconnect between the constantly updated rating of a player and the available timeframes on which to base your prediction.

Given that people want to establish a rating as quickly as possible they will primarily be picking stocks to out/underperform in the next few weeks. That's not much help for anyone interested in a longer term view.
posted by patricio at 6:48 AM on October 5, 2006

Interesting concept. How will they avoid pile-ons and feedback loops? For example, if everyone just copies the top contender's picks, won't that mess up the scoring system?

Also, it's strange that MF would make a site like this public, since they make their money from publishing investment newsletters. Considering that most of the players on their site will be subscribers, and will likely be betting on MF's advice, won't that amount to giving away their investment picks?
posted by purple_frogs at 11:28 AM on October 5, 2006

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