Today, we're e-sitting down with John Keeling, whose job title at the Fool is Senior Vice President, Community Intelligence. John plays a key role in developing The Motley Fool's revolutionary stock picking service, CAPS. Not only has John agreed to field some questions, but he pointed me toward a Wired Magazine article that deals with the concept of "radical transparency" in corporate America. The gist of "radical transparency" is that it's almost impossible to keep things secret these days, so companies might as well be more, well, radically transparent.
Dan Rubin: John Keeling, SVP, Community Intelligence. What exactly does that job title mean?
John Keeling: Well, our vision for The Motley Fool is to develop the world's greatest investment community. To achieve this vision, we have to develop great analyst, advisor, and editorial talent in-house. Equally as important, we must create a community platform that supports robust information-sharing among the community at large, between this community and our in-house Fools. My job is to focus on creating this platform, specifically a platform like CAPS that helps us to discover new stock ideas and talented new investors, and to aggregate the collective intelligence of the world's greatest investment community (for example, in the form of CAPS stock ratings). Plus, the title looks good on a business card ...
DR: I know the Fool is still passionately interested in educating investors, but your title could imply that the company is making a subtle but important shift from focusing on educating investors to harnessing collective intelligence. Do you think this is the case?
JK: I don't think this is a shift in focus. If anything, it's a return to our roots and reflects a relentless desire to improve upon what we think sets The Motley Fool apart. Tom and David like to tell the story (over and over and over again) of how the Fool started out of a conversation among a handful of investors on AOL's message boards. That conversation got started because one participant was an expert in oil and gas stocks, Tom and David had their own areas of expertise. The genesis of the community was the group recognition of the different contributions that each member could make and a desire to learn from one another, challenge each other, and do more collectively than any could individually. The Fool built its brand on enabling those types of conversations and learning communities. And the Fool recognizes that often the smartest minds in the community don't have "TMF" in front of their screen names.
One of our goals for CAPS was to rethink how we could support a community of investors from the ground up. First, we narrowly focused on equity research. This focus enables us to do things that we can't easily do on our boards.
You're correct that this framework for our CAPS community is a "subtle and important shift" in tactics that enables us to do a much better job of "harnessing collective intelligence." We also think this platform can do a better job of helping community members to build their reputation as world-class investing talent.
The vast majority of online investors aren't looking to play a game; they're looking to cut through all the noise out there and find an information provider who can give them an edge to make better investing decisions, to make more money. CAPS and our focus on community intelligence is a reflection of our belief that our community is a secret weapon in providing superior investment ideas and analysis across the market as a whole.
Perfecting the service
DR: CAPS manages a tremendous amount of information. The possibilities for making adjustments and additions to the service must be virtually limitless. What are some of the criteria you use to determine the most effective changes?
JK: Initially, we focused on anything related to building the core stock ratings database, so what were the features that would motivate people to make stock picks and provide their analysis, and how could we represent individual and aggregate sentiment in the most compelling ways? We needed to build a valuable ratings database to build an audience, and we needed an audience to help us create the stock-ratings database!
First, we needed to provide coverage across the long tail of the market that isn't followed by professional analyst research. We know more than a third of all public companies have no coverage, and about half the market is very thinly covered by Wall Street analysts.
Second, we needed to provide a way for people to evaluate the opinions of Wall Street and Main Street alike. Some may want to quibble with our ratings, but they're so valuable to have as a reference point.
DR: OK, there are many smart Fools out there, and several of them have been highly critical of the metrics used by CAPS to evaluate player rankings. One is that the system gives too much credit to players who "bank accuracy" by ending picks that have beaten the S&P 500 by 5%. Does the frequent griping about this irritate you? Or do you respect the point and plan on making an adjustment?
JK: We've let the "banking accuracy" problem linger for too long and deserve the criticism. The fact is that only a small number of players are deploying this strategy, and many of these players are top-notch investors, but obviously the purely quantitative strategies that some have deployed to generate a high CAPS rating don't directly correlate to a winning real-world investment strategy.
We do plan to make an adjustment and recently had a proposal that we were close to implementing, but we're now evaluating a couple of alternatives based on the feedback we received when we requested some peer review.
We've looked at solutions to prevent opening and closing a pick in the same direction by creating new threshold requirements -- either time-based (a kind of "wash rule" restriction) or by magnitude of score change (your proposal to increase the threshold that defines what it means to win in a stock), or even a price-change threshold that makes a stock eligible for reupping prior to the time threshold having been met. There are proposals to measure accuracy within a stock rather than per pick. We can also start to tie accuracy to duration and weight accuracy scoring over the time frame associated with your original call. Or rather than tie accuracy to an arbitrary threshold, we can measure accuracy against a weighted measure like IRR. And then there's the proposal to measure performance based on one-third accuracy rank, one-third score rank, and one-third average return per-pick rank.
All these proposals have merits and drawbacks. The golden rules we follow are to do nothing to limit breadth of coverage or frequency of stock picking. Our current system is better than any alternative that violates these rules, but we'll roll out a solution -- shortly, I hope -- to eliminate the banking accuracy incentive.
DR: Hooray! I think it's obvious that if this banking accuracy thing were fixed, I would be the top-rated Fool. When I say "fixed," I mean that more in the mobster sense of the word.
OK. I want to ask you about another criticism. The system rewards making lots of stock picks, and this often causes top players to rank north of 150 stocks. It's tough to wade through all their picks. I realize that CAPS is not a "portfolio simulation," but will there be a time when players can put more weight on their favorite picks?
JK: It's a slippery slope, and we can very easily devolve into a portfolio game where the winning strategy is to load up on a handful of picks. Currently, there's CAPS coverage on something like 7,000 stocks, and 4,600 stocks have met the threshold to get a CAPS rating. Breadth of coverage is what sets us apart and helps the community to find new stock ideas, tomorrow's great stocks, etc. In my opinion, creating a stock-ratings database is more valuable than recreating the portfolio simulation model. Although we can extend CAPS to do both, and maybe that's the right course for us long term.
That said, we've come close to supporting some form of double-down ability, but I hesitate to pull the trigger here. The problem you describe might be better solved by providing additional labeling of your picks --"pick tags" perhaps. I'd like for you to be able to label "your best picks," your "picks for new money" versus your "hunches," and so on.
DR: Let's talk about the very thing that has eluded me for the first 39 years of my life. Money. Will CAPS players be able to profit directly from their work on CAPS?
JK: I hope so. We see models for how this could work with sites that are creating ad revenue share opportunities for content contributors. That's a model that might work for us. CAPS can also be a platform for personal newsletter creation and publishing, as well as other peer-to-peer transactions. And now you have me pondering a CAPS dating service ...
DR: Ooooh, I hope my wife will let me join!
The Fool has numerous individual stock-centric multimedia newsletters services. Over time, might the Fool partner with each CAPS player and give them the tools to create hundreds, if not thousands of newsletter services, filling virtually every conceivable niche investing style?
JK: Yeah, I think there's the potential to do exactly what you describe.
DR: I'm thinking of launching one focused entirely on bald-headed CEOs. It's called Chrome the Dome and Take the Big Bucks Home.
JK: Hey, a guy traded up from a paperclip and ultimately scored a nice house in Canada. Shine on, crazy chrome dome.
DR: Let's get a little more human. With virtually all of the communication between Fools flowing through computer networks, it's easy to forget there are people and stories behind every screen name. What drew you to The Motley Fool, and do you care about your work beyond the paycheck?
JK: It's funny. I was about to make a career change into online health and wellness when I started talking to the Fool about CAPS and community. Ultimately, I was more excited about helping to build this product and the potential it has as to become an invaluable community resource than anything I thought possible in online health in the near term. It's also ironic that I've always had the philosophy of not wanting to be a member of any club that would have me as a member, and yet, I can't think of any place I would be happier than building community applications, and there's no better place to do that than The Motley Fool.
DR: How does one prepare for being an SVP, Community Intelligence?
JK: I dropped out of a Ph.D. program to help start a site called The Real Beer Page, an online beer-enthusiast community. Between researching collaboration software at Stanford and Real Beer, I think that was all the preparation I needed. From there, I went to work for Netscape; it was the logical next step. Prior to the Fool, I headed up AOL's Money and Finance product group. And now that you mention it, there's some kind of connection between Dr. Crane and Real Beer that I can't quite put my finger on...
DR: OK, let's play a little Buy, Sell, or Hold ... pantsing the Wall Street Wise by exposing their lousy CAPS scores.
JK: Strong buy. It's about accountability and providing a single basis of comparison for those in the public domain.
DR: David Gardner.
JK: Strong buy, of course. A creative genius and brilliant stock picker, but he has a truly sad competitive streak that more or less alienates him from the rest of the world. Pity the man, because he will never find peace. Just kidding, David.
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Fool contributor Dan Rubin does not own shares in any of the companies mentioned in this article. He's already completed the first draft of the first issue of his newsletter. The Fool has a disclosure policy.