Who Is the World's Smartest Investor?

Remember "Deep Blue"? This chess computer famously defeated world champion Garry Kasparov in 1997. Today, Deep Blue has a much broader significance to me and many of my fellow investors. In fact, Deep Blue means more to you than you may realize.

Deep Blue is how you beat the market.

The pieces are stacked against you
Let's step back for a moment, all the way to May 1997. Reigning world chess champion Kasparov is defeated in a six-game match by an opponent whose playing strength, in the words of Wikipedia, was mainly "brute force computing power."

Deep Blue, built by IBM, brought its 11.38 gigaflops of calculating power -- along with some guy in spectacles pushing pieces around -- to the table. The headlines soon read: "Machine Beats Man." It was the first time under standard tournament chess rules that a machine took down the world's best chess player.

As I start to explain how Deep Blue will help you beat the stock market, let me ask you this: Had a machine really beaten the man? I don't think so. Forget the headlines. Concentrate instead on the particulars of the situation.

A whole bunch of IBM programmers, teaming up with a gaggle of grandmasters, worked together to program the machine that beat the man. It wasn't really a story of a machine winning. It was a much simpler story, the sort that plays out on the proverbial unsupervised school lot: A bunch of bullies ganged up on one geeky guy and knocked him down. It was a completely unfair match.

At The Motley Fool, we're quite aware that investing isn't a fair match, either. People who go it alone -- even the grandmasters -- are increasingly in deep trouble. That's exactly why we're aiming to be the bullies.

We believe that by working really hard as a community -- together -- we will ensure that we all arrive at better information, deeper insights, broader perspectives, and bigger profits than a single mom-and-pop investor, or a single Wall Street analyst, or even an entire hedge-fund research team. We are building a new model for research that brings together tens of thousands of people, not one lone analyst.

The pawn stands alone
Do you still invest by yourself? Are you quoting your portfolio, reading your 10-Qs, checking the stock charts, keeping a journal, typing it all into Quicken, and tracking your performance ... alone?

Rather than settle for solitude, why not add your efforts to our community intelligence and reap the benefits of what we have to offer?

More than 165,000 members of our CAPS investment community pick whether they think a stock will outperform or underperform the market. Our proprietary CAPS algorithm then rates those stocks on a scale of one to five stars, weighted by each member's stock-picking ability.

To date, CAPS has a great record of achievement:

Internal data from Jan. 3, 2007 to April 30, 2010.

By combining our knowledge, CAPS members managed to avoid some of the biggest recent blowups. For example, members indicated a year ago that they had little confidence in the following stocks by giving them one-star ratings:

• Raser has shown an inability to make money and a huge willingness to fund its operations by issuing stock.
• CAPS members were worried about Blockbuster's declining sales and weak competitive position.
• Borders also continues to face declining sales and net losses.
• CAPS members were skeptical of Discovery's management's team.
• Palm is debt-laden and has lost its technological edge to the iPhone and the Blackberry.

Conversely, a large number of top performers were rated five stars one year ago:

• Sorl Auto is capitalizing on the rapidly growing market for Chinese auto parts. The company's growth tends to exceed its multiples -- even though net income more than tripled last quarter, the stock trades for just 11 times earnings.
• inVentiv had been undervalued until it announced it would be taken private at about where it trades today.
• Despite increasing competition, Akamai has been able to increase its gross margins last quarter.
• Dolby has significant growth opportunities in 3-D installations, as well as the transition to digital formats in China, India, and Russia. CAPS members love the company's strong intellectual property and high margins.
• Titanium Metals is getting a boost as the aerospace industry continues to replace depleted inventories.

It takes a village ...
If you take away just one thing from this article, let it be this: Investing should not be a solo venture. Going it alone might just make it harder than it needs to be.

When you get the benefit of interactive, community-based research -- which draws doctors, techies, homemakers, accountants, mallrats, and investment junkies of all shapes and sizes -- you will operate like a good venture capitalist. Like them, you'll get in front of "deal flow" and locate the best companies, because like them, your information is simply better.

Think of your portfolio as a chess computer. You want as many people -- as many expert insights -- as possible programming your portfolio.

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