Moneyballing the Financial World, Part 3

Closing out my Moneyball series, I bring you the third part of the trilogy. I have no Ewoks for you, we will not defeat Sauron today, and as much as I may have liked Rocky III (can't exactly remember my feelings, 30 years later), please do not expect the eloquence of Clubber Lang. But I do have something important to share.

Concluding Part 2, I wrote:

... next week, I will introduce, highlight, and explain a new editorial feature that The Motley Fool is pioneering here in 2012 that brings a lot of the points above together into real-time Moneyball present on our site.

Before I unveil CAPScalls, though, two paragraphs of restatement for those who missed Parts 1 and 2.

Previously on "Moneyballing the Financial World..."
My invocation of Moneyball in this series, "Moneyballing the Financial World," began with perhaps my greatest pet peeve as an individual investor: That we all are bombarded through every media channel these days with unaccountable financial prognostications. Predictions that augur the market will do such-and-such by October, that XYZ stock is a dog and will drop to $4, that here are the "12 best bets for 2012." I likened all these predictions and market calls to taking swings in the game of baseball. But, in direct contrast to baseball, none of this prognosticating is scored, and so none of the activity is accountable. In major league baseball, every aspect of what players do is scored, rated, and ranked with a deep set of statistics that enable any casual Internet user to find just about any number throughout all of baseball's recorded history. In major league finance...not so much. In major league finance, though the media channels like CNBC and The Wall Street Journal shine the same bright lights on their own players -- leading with big headlines of one or another's prognostications -- seemingly no one is keeping stats on any of these sources, including the sources themselves.

As a consequence, I wrote, we need a Bill James revolution in the money world. James, one of my living heroes and the mind behind Moneyball (now both a book and a movie), has brought real intelligence to the data of baseball and has caused a whole generation to get smarter about baseball performance and strategy. By sad contrast, the financial world -- James-less -- stumbles along in a blind haze wherein none of the players generate statistics and no spectator is any the smarter. As a consequence, the audience has no idea whether the person just quoted in The Wall Street Journal is even hitting above the Mendoza line. Individual investors are left to guess whether they should trust this broker or that one, this media source or that one. In Parts 1 and 2, I ultimately called on all of us to insist of our sources that they provide us statistics and accountability -- "What's his record?" is the clarion call that I urge.

Hello, World
Which brings me back to the point at hand. For the past month, my company and our website have been piloting a new approach. I'll call it a "rather than join'em, beat'em" approach, insofar as I'm not content to join the rest of the world in refusing to keep score. So The Motley Fool has been trying out...CAPScalls.

CAPScall (n): When a Motley Fool writer or blogger takes a strong stance on a specific stock or ETF -- either bullish or bearish -- in an article. In that case, the writer would then go into CAPS and rate the stock in accord with the article, holding the argument within that article publicly accountable.

So begins the CAPScall article on Foolsaurus, our membership wiki -- a hyperlink I invite anyone to save, use, or forward to spread the word about the value and importance of this initiative. 

In the month of December, fully 124 CAPScalls found their way into our channels -- articles written by our staffers that are read on our site, and broadly distributed through Motley Fool partners such as Yahoo!, MSN, AOL, etc. If you want something done right, you do it yourself; I can think of no more important action that we at the Fool can take than simply to model out the exact behavior we're calling for. 

And we have been, for a while now. Every pick in any Motley Fool premium service comes with this kind of accountability by default, with transparent and exhaustive premium service scorecards revealing every home run and strikeout we have ever produced from our premium services' batters' boxes. But here on the free side of Fool.com, we have been informally CAPScalling for years; here's a classic example from yours truly, a CAPScall on the future of Lehman Brothers (backed up on my CAPS page as well).

Or even just on CAPS itself, how about TMFStockSpam? That's the hilarious and revolutionary and oh-so-telling CAPS page dedicated to taking every spammy, penny-stock hype ad and giving it a big thumbs down -- and tracking the results. Shift-click this link and spend 30 seconds seeing its own eloquent (though wordless) testimony.

Now, not every pronouncement within the financial media needs to be scored; every financial source has its own forms of spring training and pregame warm-ups. But the obvious reason I'm writing this article today is that so many market calls do need to be scored, and should be. That is why in conjunction with the publishing of this article today -- which will be forwarded to every one of our writers -- I ask that anyone among our membership who believes that accounting for financial predictions and strong statements will help the world would take the time to do two things:

  1. If you encounter an investing article anywhere on the Internet that makes a strong statement but with no backup -- no CAPScall, no listing of the writer's record, etc. -- use the comments box to let that person know that you can't esteem their work without their showing leadership and willingness to score and be scored for their assertions.
  2. For all your friends who are individual investors and have not been "switched on" to ask and expect for accountability from their financial advice sources, that you send this article, or Part 1 of the series, to them and invite them to study and to care -- to join in our demand for scorekeeping.

Either of the actions above, and any of their iterations, will truly help take our world higher. You will be helping to spread a call for transparency in an opaque financial world where all the interests (Wall Street obfuscation, unaccountable media channels, mediocre advice-givers who would blench from being scored) are firmly and complacently entrenched, and have been for a long time. Kick out their crutches.

Leadership begins at home; I insist of my own organization that we get better at this, too. Help us! If you see a Motley Fool article or hear a Motley Fool podcast that makes a strong case for or against a stock, and you don't see any CAPScall explicitly called out -- see (1) above -- please comment. Let us know! You'll be making us stronger in pursuit of our corporate mission, which is to help the world invest better.

Players welcomed
Finally, making accountable financial predictions is no exclusive right owned only by financial professionals. The accessibility and democratizing strength of the CAPS platform are primed to enable anyone to get in the batter's box, swing, and be scored. We continue actively to hire and employ Motley Fool contractors and employees who achieve consistent, long-term, demonstrable excellence with their CAPScalls. There is an embarrassment of riches in our community, and we will continue shamelessly recruiting that and showing that off to the world. Leadership begins at home, and indeed, for any fellow Fool so inclined, CAPScalling can begin at home, too. Right now!

No doubt there are other strong steps we can all take together to bring the financial world out from its skulking, distant remove, and closer to the accountable, bright lights shining on performance in major league baseball. Let's continue actively to consider them. Your further ideas and comments below are welcomed. Between inveterately asking, "What is his or her record?" though, and hatching a new brand of financial journalism predicated on performance, not puffery, we're off to a plucky start.

Read the rest of the "Moneyballing the Financial World" essay here:

David Gardner is the co-founder and co-chairman of The Motley Fool. You can see David's CAPS score and his Fool profile.


Read/Post Comments (23) | Recommend This Article (94)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 19, 2012, at 5:55 PM, ihtfp92 wrote:

    There are some missing factors in the model you've outlined to make experts accountable for their investment recommendations.

    The first is 'when to sell?'. Anyone saying 'buy' also needs to state up front for how long or otherwise let us know when to let go. This is rarely done and unless it becomes a new standard practice we are left to guess.

    A related problem is 'how much?'. Do we assume a portfolio allocation (e.g. 4%) for each strong recommendation? Do weak recommendations get 2%? When we hit 100% do we rotate recommendations in and out using a FIFO queue?

    Almost all investments are part of a portfolio, and portfolios are oriented toward different investment needs. Everyone wants more money, but what is good for a 25 year-old with no family might be much too risky for someone who is 55 and looking toward retirement after their last child graduates from college.

    This is a very good idea - but some kind of method to tie up all the loose ends is also needed.

  • Report this Comment On January 19, 2012, at 5:58 PM, Jellywig wrote:

    I agree whole heartedley with the above post! Well stated!

  • Report this Comment On January 19, 2012, at 7:47 PM, colleran wrote:

    I see what you are saying, but I completely ignore Wall Street predictions. I use 3 premium services and CAPS to decide on stocks to buy or sell. I enjoy Fool articles, but I never buy a stock based on any of them without at least reviewing CAPS data in detail and putting them on my Watch List for a time.

    By the way, CAPS is by far the best free investing tool anywhere. I have predictions from thousands of investors, not just one Wall Street "analyst". Has anyone done any research on how accurate CAPS predictions are?

  • Report this Comment On January 19, 2012, at 8:48 PM, larry392 wrote:

    Dave I like the way you think. Thank You

  • Report this Comment On January 20, 2012, at 8:31 AM, MatiasR wrote:

    I do think keeping oracles accountable for their gloom and doom predictions and their too-many-buys-to-no-sells-ratio is useful.

    And I think of CAPS as a group of very clever people that might me looking at some sides of the trade I might be overlooking (one of the ratios you're mentioning, for example). So it's damn helpful to me!

  • Report this Comment On January 20, 2012, at 1:02 PM, mikenpdx wrote:

    @truthisntstupid

    i think part of the push behind this is to illustrate to others, who don't currently know how to think for themselves or who blindly rely on "professionals" to take care of the money, why or why not they should listen to this or that guy.

    reality is not everyone is going to want to study for themselves what companies they should buy or what funds they should buy. just like not everyone wants to learn how to fix their own car or any other number of things we pay others to do for us.

    as i see it, two of the things this would accomplish is, illustrate to Aunt Libby why she shouldn't listen to so-n-so and then perhaps introduce people to the educational mission of The Fool to help people learn to invest for themselves.

    for those, and there are many, who have no desire to learn how to do this themselves and would rather have someone do it for them, it gives you a way to make an informative choice on who to hire that's based on their record. that doesn't guarantee anything but at least you have some gauge as to the ability of the person you have hired.

    I don't think it is geared toward convincing someone like you of who you should or shouldn't listen to.

    With this initiative, I don't see them abandoning their core mission which is to educate, amuse and enrich, rather shine light and put numbers to the ability of anyone touting the next big stock winner. A very educational endeavor indeed!

    Fool on,

    Michael

  • Report this Comment On January 20, 2012, at 2:03 PM, mtprx wrote:

    To amuse, enrich, inform. That's why I joined the Motley Fool website and a premium service. What we have proposed here is a "Motley Circus", in which the ringmaster (financial pundit) shouts out the next act to appear (stock or company) and why you should pay to see it performed.

    Do these things ever turn out as planned? Sometimes, but maybe not for the reason we think. As a long term investor I try to take my emotions out of the buying decision and as stated above stick to the facts I glean for myself. I'm not an expert by any stretch of the imagination but if an act (stock or company) appears to have the makings of something that interest me I'll take a look using metrics specific to my taste.

    Unfortunately there is no real metric to measure emotions and let's face it buying and selling stocks are emotional decisions that can bring us great joy (gains) and great disappointment (loses) and no one wants to be fooled. The only thing really missing from whats proposed above is the promised time frame. A value investor may win after holding 10 years while a growth investor may loses by selling out too early. Choose carefully....wait patiently....Invest wisely.

  • Report this Comment On January 20, 2012, at 2:27 PM, Nolte808 wrote:

    Good idea to score the pundits, even with the inherent limitations that others have pointed out. Perhaps MF could encourage Seeking Alpha to keep score on its authors, either universally or on an opt-out basis, to help build critical mass for this movement. I will do my part and suggest it to SA directly.

    Another option is an App--I'd pay (a little) money for an app that allowed me to look up the financial batting average of any given financial author/pundit, in a Marketocracy style. It'd allow me to disregard the advice of someone who had consistently low scores or had a score of 'untrackable' because they only made vague or macroeconomic calls, and hopefully allow me to find 'hidden gem' pundits who have more substance and smarts rather than histrionics and huff.

  • Report this Comment On January 20, 2012, at 2:56 PM, TheRealGlaird wrote:

    It just occurred to me that one can find the dogs of the prophets fairly easily. Use your broker's stock screener and look for dramatic losers. Of that list, pick fairly large cap stocks. Then do a search of the web for the stock name and key words that typically accompany stock prediction articles. (I haven't got a list off the top of my head. I just thought of this.).

    With the hits one gets, will be the authors names. Bingo, your list of loser forecasters, that can now be automatically discounted.

  • Report this Comment On January 20, 2012, at 4:08 PM, DJDynamicNC wrote:

    Nolte88 - I'd love an app like that, I'd pay a few bucks for that for sure.

    I was working with an media research think tank a while back and one of my suggestions was a registry for pundits that would enable them to make their predictions and then be tracked on it. When proven wrong, they'd have an opportunity to explain themselves and apologize as well, so it's not without value for them either (and of course the ones who are frequently right would love such a thing). I love that the Fool is doing something very similar, albeit for financial reporting. I think it'd be worth pushing financial pundits to register for CAPS to give themselves a trackable record on their predictions.

  • Report this Comment On January 20, 2012, at 7:54 PM, Hawmps wrote:

    I like the idea of accountability for one's "recomendations", but I have to agree with much of what truthisntstupid says here which can be summed up in five words... teach a man to fish.

  • Report this Comment On January 20, 2012, at 8:20 PM, TMFSpiffyPop wrote:

    @colleran & @truthisntstupid & @Hawmps, I totally agree that you can ignore or dismiss what Wall Street is saying. I'm not here to shine a light on them because I think you should be paying attention to them... I'm here to shine a light -- and ask for scoring, and ask for people to ask for scoring -- because our membership here at Fool.com represent a tiny minority of financially engaged and often DIY kind of people -- we call 'em Fools. There is a *great big world out there* full of people who have no clue about finance and have no scorecard to refer to in terms of who they should be listening to. They need more Moneyball. Further, some large and influential media portals and players are getting larger and more influential largely based on pushing unaccountable predictions at audiences that have no tools to evaluate them... and few good alternatives.

    Moneyballing the Financial World is by no means about not teaching people to fish -- and we as a company are now in our 18th year as perhaps the best single teacher of investing in the world today -- we have educated millions of investors and there are tens upon millions more to educate. This effort toward more Moneyball is actually part of that education.

    Finally, I want our members to know that our writers are operating at a totally different level from most financial journalism and opinion on the Internet -- they are (yes) teaching but also like the best profs you may remember from school -- and unlike so much financial publishing today -- they are also taking accountable scored actions beyond mere ivory tower words.... Anyway, thanks for taking the time to comment and to care. Fool on! --David

  • Report this Comment On January 20, 2012, at 8:20 PM, TMFSpiffyPop wrote:

    @frogdog30,

    Exactly. Have a Foolish weekend! --David

  • Report this Comment On January 21, 2012, at 5:06 PM, zgriner wrote:

    Dave, you wrote that no one is scoring. What about the Hulbert Letter, or whatever it is called, that tracks financial newsletters put out by self-styled pundits. I suppose that these newsletters have evolved to e-mail messages.

  • Report this Comment On January 21, 2012, at 11:33 PM, TMFSpiffyPop wrote:

    @truthisntstupid

    There are many uses to scoring -- but it comes down to how you score, and why you score. I agree with you that if you're just judging over one-year increments that you neither are scoring anything very important, nor will you find people who consistently and flawlessly win (over those increments or any). Even if just scoring shows up the people who are consistently horrible -- or even if scoring simply turns away people who are not willing to be accountable -- helps. I disagree with your conclusions -- most of them -- but it takes all kinds to make a world. Further, I do appreciate you taking so much time to think and comment. Over and out. --David

  • Report this Comment On January 22, 2012, at 12:09 AM, scruffy4life wrote:

    Scruffy believes in the Fools rating system.

    HmmmHrmmmm!!!

  • Report this Comment On January 22, 2012, at 4:42 PM, imyoung wrote:

    @ colleran,

    Here is a study on CAPS done in 2009:

    The 'CAPS' Prediction System and Stock Market Returns

    by

    Christopher Avery, Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

    Judith A. Chevalier

    Yale School of Management; National Bureau of Economic Research (NBER)

    Richard J. Zeckhauser

    Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

    April 12, 2009

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1404750

    im

  • Report this Comment On January 23, 2012, at 11:18 PM, fiveminutemajor wrote:

    I love the concept. In fact, I don't even bother watching CNBC due to this very reason - non stop short-term predictions without any accountability. Well, even worse, they seem to always conveniently mention the successful trades and never mention the unsuccessful ones.

    Its been many years since I've ready Moneyball. But, from what I remember, Moneyball was a different concept to me. The financial press is in the stone age -- baseball is being played and nobody is tracking any stats. Moneyball explained an emphasis on different stats that were already being collected and available to all (Average - old scouts versus OBP - popular Beane metric). In addition, Beane started collecting new data. For instance, treating a sharply hit line drive to center caught by the center fielder different than a dribbler to first base.

    With that being said David, I applaud your vision to increase accountability in the financial press. Me personally, I don't pay attention to any predictions unless I can get a sense for how successful they've been.

  • Report this Comment On January 26, 2012, at 3:29 PM, 16prcnt wrote:

    As evidenced by the ISE Wealth index:

    Another way to Moneyball is to follow Billionaire Insiders, large ownership by the Big Brass ie

    FDML and IPGP.

  • Report this Comment On January 30, 2012, at 4:45 AM, thidmark wrote:

    I imagine many people told Billy Beane "It can't work" or "It won't work."

  • Report this Comment On January 31, 2012, at 12:07 PM, Truth2Power wrote:

    I am all for this idea!

    Question, though: for an analyst (or whatever) not associated with the Fool, is it realistic to ask them for a CAPScall? After all, if they are publishing via another site, network, or company, to say, "by the way, head on over to one of my competitors and check out my record" would probably be frowned upon.

    That being said, I'm all for accountability from the Jim Cramers of the world, but I'd like to offer them some means of doing it without forcing them to link people to the Fool (even though I am all for getting as many people to Fool.com as possible!)

  • Report this Comment On February 08, 2012, at 9:37 AM, akakroke wrote:

    @TMFSpiffyPop,

    Wow, David, such passionate disagreement! Indeed I remember a post I made to which 'truthisntstupid' replied 'Who Cares?' totally missing the point, not that I care, but I don't need that kind of feedback.

    Long ago I turned down an offer to be 'Director of Academic Computing' at a prestegious North-eastern university because I saw massive egos in action ahead of time and I wasn't about to waste MY time with them (not that ALL academians are that way; the better ones are not).

    In any event this Fool who really enjoys 99% of my cohorts in RB likes your idea so long as the self-proclaimed gurus don't participate. If they do, I'm outta here....

    Oh, and perhaps I'm mistaken but I thought you were extending an invitation to interested parties to participate, not asking for a diatribe of negative evaluation of your idea???

    akakroke

  • Report this Comment On November 16, 2012, at 2:55 PM, gsturgis wrote:

    @fang : m.f.

    david - Ideally you and other M.F. gurus of financial advice should propose objective criteria, date/ time of recommendations, triggering events of purchase, relative amounts, % of portfolio, timing relative to specific market or economic conditions, goal or time to sell or add to commitment, and other specifics that the investing-advice community considers useful before investing in a specific stock. An outside group later grading each category & end result by objective quantitation would identify the best advice. It's likely few non-M.F. advisors would participate!

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