Motley Fool CAPS is the most exciting development for me during my lifetime as an investor. The Internet has already done many great things for us. It has allowed us all to get free stock quotes, real-time stock charts, free 10-Ks on EDGAR, and all of the discussion and blogs we could want.

But ... never before has community intelligence been brought to bear across the entire long tail of the stock market. Never before has any service been able to put even half the number of ratings on stocks that CAPS does today -- it now features ratings on more than 4,400 stocks, and it even rates them against each other. And the number is always growing.

The rating in action
A CAPS rating indicates a stock's potential to outperform the S&P 500 as determined by our community. Five-star stocks are the highest-rated ones in CAPS, while one-star stocks are the lowest rated.

Some of the ratings might be surprising at first glance. You'll find that a supernova stock like Google (NASDAQ:GOOG) receives only one star and the indomitable Apple (NASDAQ:AAPL) gains just three. Meanwhile, relatively obscure stocks such as Unit Corp. (NYSE:UNT) and Mueller Water (NYSE:MWA) carry five stars and are among the highest-rated stocks in our entire CAPS universe.

This all makes sense, however, when you consider the philosophy that underlies CAPS. These ratings are merit-based -- we construct our stock ratings based on the transparent, accountable calls of more than 50,000 Fools, and we weight those stock picks based on the ratings of the people making them. That's right, CAPS stock ratings show you the best ideas from the best stock pickers, and the "best" are the one's who've earned the right to be called so. They're not just people with a Wall Street business card, or their own TV shows. In fact, CAPS already has thousands of investors in the community who rate far more accurately than Jim Cramer or Merrill Lynch. (We track all of these professionals with their own pages on CAPS -- including the TrackJimCramer page, where we type in everything he says on his TV show. Curious to know whether he's right even half the time? Take a look.) Accountable stock-picking: fully tracked, rated, ranked, and scored. A new meritocracy is emerging, and it's based not on your talk, but on your walk.

The secret sauce
Just like Colonel Sanders or Coca-Cola, we keep the precise "recipe" for our stock ratings proprietary. Simply put, however, the ratings rely on three factors:

  • The calls for the picks (e.g., outperform or underperform).
  • The time frames for those picks.
  • The ratings of the players making the picks.

It's fairly simple, yet it's very powerful by being so simple. So have a look at the rating for any stock you may own or are looking at -- plus more than 4,400 others! And get into the game by contributing your own intelligence and opinions! Rate seven or more stocks, and you'll receive a rating along with nearly 28,000 other players. Simply click here to get started. CAPS is a free service.

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Fool co-founder David Gardner does not own shares in any of the companies mentioned. The Motley Fool has a disclosure policy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.