Motley Fool CAPS – An Interesting New Investment Tool

If you are an investor then you are probably familiar with the Motley Fool website, a nice resource on many types of investments as well as personal finance. I don’t usually use the site all that frequently, but this weekend I noticed a new service in beta testing called CAPS. After taking a look, this appeared to be a unique and fun new investment tool. The premise of CAPS is simply to allow a bunch of individuals to work together to improve investment results. Individuals can rate stocks and indicate when you should buy or sell individual holdings. So how does this work?

Step 1. Players rate stocks.

At the heart of CAPS are thousands of predictions. Players predict whether stocks will outperform or underperform the S&P 500 and over what time frame this will happen.

We compile the data, showing all the picks you have made and all the picks for individual stocks.

Step 2. We keep score.

As stocks change in value, we evaluate players’ predictions. Players receive an accuracy percentage, indicating how often they make correct predictions and a score, which is the percentage by which their picks beat the S&P 500.

Step 3. Players receive CAPS ratings.

Based on the performance of their picks, CAPS players receive a percentile rating (from 1 to 100). This rating indicates the percentage of people that player is outperforming. The higher the rating, the better!

Step 4. Stocks receive CAPS ratings.

A stock’s CAPS rating is the aggregation of every prediction for that stock. The rating indicates whether or not players think that stock will outperform the S&P 500.

Players with higher ratings have more influence on a stock’s rating.

If you’re a great investor with a great track record, we think what you have to say is very important. So, we give you more weight. However, if you don’t know the difference between a stock and a parking ticket, we’re not going to allow you to affect the company rating very much.

Step 5. CAPS gets smarter

Every CAPS rating is updated every five minutes. And with each additional prediction, CAPS recalculates and recompiles the data, constantly refining the community sentiment.

Over time, the best investors will naturally work their way to the top and will gain more influence over the stock ratings. Conversely, the less successful players will have less impact.

And then the cycle repeats. Players make more predictions, which affect their player ratings, which affect the stock ratings, and so on. The result is a service which will help you find better stocks and follow the best investors.

Will this actually be beneficial to investors or will it be nothing more than an online game where people simply compare egos with their stock picking abilities? Only time will tell, but I can say that after playing around on the site for a while and creating an account it is put together quite nicely. Given the rules and how the site is slated to operate it sounds like it could have long-term promise. Either way, it is still very young and obviously still in beta testing, but it is free to sign up if you are interested. I have created an account and plan on participating a bit just to see how well I do as it does seem at the very least, quite fun.

I will occasionally update the status on the site and hopefully we can track the progress of how accurate this becomes and whether or not it truly turns into a usable resource for future investment decisions.

Courtesy of: Motley Fool CAPS

Author: Jeremy Vohwinkle

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4 comments
Stercustormapense
Stercustormapense

hey :)
its very reasonable point of view.
Good post.
realy gj

thank you ;)

david r. ligon
david r. ligon

I was looking at one of your reader comments. He was discussing a company called "country roads.Said it was owned by one of the smartest and richest men in the Netherlands. The company owns all new tanker ships with double-hull technology and is cash-rich with a good dividend history.
I am not a free-loader=I am a member of the Motley Fool Family....Could you please forward any info. and a stock symbol for this stock ? Many Thanks in advance.David R. Ligon.

Jeremy
Jeremy

Very cool, thanks for the link. It should be fun to monitor and watch how the site evolves, it could end up proving to be a great new tool.

Laurie
Laurie

Looks like a very cool and valuable research tool. I've played with a few of these types of serivces, and this is the best that I've seen by far. In clicking around the site, I found that somebody is trying to track how predictive the stock ratings are, even at this early stage:

http://caps.fool.com/ViewPlayer.aspx?t=01007999450359615993

Looks very promising.

--L