In yet another example of the Wisdom of crowds at work, we would like to point out Motley Fool’s CAPS. This is a website where investors can gather to rate stocks. Each member can rate a stock, and say whether they think it will outperform or underperform the trading indexes, by how much, and within which time frame. The results are then aggregated by Motley Fool in order to show which stocks are rated highest and which lowest.
While we at Dumbagent always applaud applications such as these, we also feel it is our duty to point out certain caveats, as relate to the accuracy of the website:
First, the application costs nothing. Members can gain points depending on the accuracy of their stock assessments. As we have noted in the past, however, if there is no cost to the consumer for participating the end result tends to be less accurate than if there were a commission or fee to pay.
Secondly, buying and selling stocks themselves is the most accurate form of determining their value. In essence this is a secondary market rating the accuracy of the primary market by utilizing the same methods, only with fewer members who have less at stake.
Having said this, however, we still think this could be an interesting idea for those who might want some reassurances before investing in these troubled markets.
As a test, we will buy 100 shares each of the top 5 picks, and we will short 100 shares of the bottom 5 picks, and we will check back in a couple months to see how this portfolio performed.
STOCKS BOUGHT: STOCKS SOLD:
For simplicity’s sake, a $1 gain in the Stocks Bought will add $1, and a $1 loss in the Stocks Sold will also add $1.
I think FCX looks the best out of the stocks bought. For shorting… I’d go with GM
What kind of time frame do you think would work? I left it open here, thinking I’d check back in around 3 months, and 6 and so forth.
I think it’s better to approach this from a payoff perspective rather than a time frame no?
As in? I meant when should we check back to see how we did?
As in we should ‘get out’ once our financial goals of x dollars in gains is met rather than applying a specific time frame to how long we should hold onto the stocks. Otherwise, we could potentially hold the stocks forever and never really realize a loss or gain. I might be completely wrong though.
Or you could post when you “sell” or “cover” a stock to track your progress. It’d be a nice exercise in technical analysis.