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Will CAPS become Bigger than the Fool?

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By fransgeraedts
August 28, 2009

Posts selected for this feature rarely stand alone. They are usually a part of an ongoing thread, and are out of context when presented here. The material should be read in that light. How are these posts selected? Click here to find out and nominate a post yourself!

1. I believe in Caps. I think that a Caps will become the preferred web-environment for (all) investors. I think that actual buying and selling will be possible within them. I think that analysts, economists, financial journalists, stockletters and advisers will tie their work to it. I think that the Caps will become global and cover all markets. I think that they will become the prime originators of trends, hypes, fads on the markets. I think that they will have millions of members. (I think that Caps could become a generic name like Google or coke.)

2. I think that Caps could become much bigger then the Motley Fool. I think that if the Motley Fool realizes that, both Caps and TMF would benefit from it.

3. Caps is in many ways like a MMORPG -only better. It is a pleasure to play, it creates a community, it makes individual learning possible, it produces infosight, it can be used to make better investment decisions and make individuals and the world richer.

4. Participants will use Caps in unexpected ways. That was clear from the beginning. Intended as an extension of the buy and hold stockpicking philosophy and strategy of TMF it morphed quickly into many other directions. Caps should embrace that, welcome it, make it the core of its philosophy: we do not yet know what directions a caps will take, what strategies there will develop within it, but we are curious, we want to see, we will accommodate those strategies over time and mine the data for the benefit of the whole community.

5. That means that the baseline version of a Caps, should be as wide as possible, should be as open as possible, should have as little limits as possible, should cover as much as possible, should maximize, in other words, the possibility of the emergence of the unexpected. The TMF Caps has done this reasonably well. It could have forced us into a stockpickers mode, for example, but it did not. It is, however, certainly possible, to open up the baseline even further. For example, by dropping the lower limits that exclude certain stocks. For example, by adding stock markets from which stocks can be picked. For example, by going real time. This ever more widening of the baseline should be one important direction of the development of Caps.

6. A second direction of the development of Caps should of course be the gradual type of enhancement we have been witnessing. A better screening function, an easier way to "sell" positions, better visibility of posts and easier following ..etc.  A third direction should be to actually promote the tie in of others. The existing "wall street" feature is a great beginning but could be much better implemented.

7. However, the most important direction of development for the next years, i believe, should be the accommodation of certain distinct strategies that have emerged within Caps. If we do that in the right way that would have an effect that is comparable to a MMORPG-extension -the addition of a new "continent" with new adventures that make a different kind of play possible and promote a new kind of skill set. It should be used to generate publicity, to attract new participants, to seduce existing participants to accept a new challenge. Of course the most important goal should always be to generate more and better infosight about the financial markets.

8. The key to adding a new "continent" to a Caps will (always)be to add a new ranking. Nothing below that level will have a comparable effect. (I of course realize that the addition of a new ranking is a major undertaking. We should not fear this, however, but use it. Done right it will mobilize the entire existing community . It will also attract a slew of new players, because they see a better "entry point", but more importantly, because they are interested in the underlying strategy.) Only a new ranking will do because it is the idea of a competition where we pit ourselves against all comers over a (theoretically) infinite period of time that is the main attraction and the core of a Caps.(Of course we should only add rankings in a very slow rhythm. Just like MMORPG adds "continents". One every two years? for example?)

9. I have suggested three new "continents", three new rankings for Caps, all three based on existing player styles. The stockpicker, the macroplayer, the specialist. (See my earlier posts, for an explanation)

10. I will in the rest of this post explain how such an addition of a ranking should be undertaken. I will use the stockpicker's universe as the example to illustrate the main points. That choice is not a coincidence. A stockpickers rating should in my opinion be added first.

11. People who are very good in picking individual "winners" in the stock market, stocks that outperform an index for a long time, cannot win the baseline rating in Caps. That is discouraging. The infosight value of their stock picks is very high. We should therefore entice them to stay and attract as much of them as we can. We also do not datamine the decisions of stockpickers good enough. (See earlier posts.)

12. There is an additional reason to finally accommodate them. Because of the TMF philosophy Caps in its rhetoric promises to be an ideal environment for stockpickers...but it isn't. This is a broken promise. It is high time we made good on it. (I admire the loyalty of all those players that still are active on caps with a stockpickers strategy.)

13. The basic formula for the SP-ranking should be this. Everybody has to pick between 10 and 25 stocks. Only greenthumbing is allowed. Only stocks are allowed. The score is the same as in baseline Caps. (accuracy, points ..points are not absolute but relative to S&P.) Stocks need to be held for at least six months. If at any time the amount of stocks held longer then six months falls below 10 the score goes to zero.

14. Lets first outline what kind of investor-behavior this kind of ranking will promote. To have a chance of success i will have to think very hard about individual stocks. Something like a list of my best 25 ideas will probably work best. While i can do it in the form of sector bets (all 25 within one sector) if i do that my risks are very great. If my bet on the sector is wrong my losses could be great and difficult to overcome without breaching the 10-at-all-times-rule. So diversification would be a wise choice. The combination of the six-months-rule and the 10-at-all-times rule would make for a slow turnover. The mean holding period of a stock will probably be much longer then six months. I believe that the SP-ranking will therefore indeed generate the best individual stock idea's in a buy and hold kind of context. The infosight value will be high and it should make the star-rating of individual stocks much more valid.

15. Very important is that this should be a real ranking, that is, a universal one. Every participant should get an SP-ranking -even if he does not want to play in that fashion. Only when we do that the SP-ranking will become important enough, will get enough "weight", will become (almost) as important as the baseline-ranking. (There needs to be a way to designate SP-picks.Players who have not (at least)10 designated green 6monthsheld SP stocks will be ranked zero on the S&P score and ranking)The SP ranking should be prominently displayed on the MY-Caps page. And then, of course, in the usual way visible all over the community.)

16. It should be possible to play this from within an existing page and portfolio. So out of my 200 picks i should be able to designate a maximum of 25 green picks as SP picks. It should of course also be possible to create a page just for SP-picks. (But that page will then also be rated against the baseline!!!)

17. If we add a ranking in this way i believe that several things will happen at once. The existing stockpickers will play with much more gusto. Their efforts will finally be recognized. By word of mouth that will also attract newcomers, first of all from the disgruntled TMF community, but then also from outside.

18. However maybe even more important this new ranking will act as a gauntlet for the existing player base. So you are among the best overall players...a couple of thousand points...ranking 98.. but are you also a good stockpicker? the good stockpickers in the community have always maintained that you are not... will you take on the challenge?? (If you score 0 because you don't designate enough stocks...you are a coward..if you do participate....you could lose...grin). I think that many of the existing high ranking players would make room for 25 SP picks within their existing list. It will be difficult not to do it! That also means that we channel their collective intelligence in the direction of a specific and very high infosight value.

19. Most importantly we could use the new SP-ranking to generate publicity and attract a massive amount of new players.The Caps community hereby challenges the best stockpickers of the world to come and compete. The Caps community hereby offers everybody the chance to become one of the world leading stockpickers.(Etc.Etc.)

20.In a similar fashion, slowly over time, a handful of rankings could and should be added.

fransgeraedts