Moneyballing the Financial World, Part 2
Jan 5th 2012 2:20PM
Updated Oct 29th 2012 4:54PM
Rarely has an article appearing on our website received such unanimity of positive replies as "Moneyballing the Financial World," published in late December. At Fool.com, we are accustomed to and desirous of hearing from the bulls and the bears, the pros and the cons. We call that "motley," and we celebrate it. In this case, my essay's urge to bring baseball-like scoring and accountability to the field of financial predictions saw virtually all bulls and no bears, all pros and no cons. That may partly explain why it was then picked up on Dec. 30 by RealClearMarkets as a top nationwide read. If you haven't read that first article, shift-click this link and take a look-see (including all the excellent comments), because it provides context to today's Part 2.
Part 1 closed out with a promise to:
...reveal how we Fools are going to work together to bring Moneyball to the world of finance in 2012 and beyond. And as a consequence, we will truly fashion out of that accountability a better, smarter, truer, and richer world of tomorrow.
Let's do it.
1. Ask and insist ("We have met the enemy, and he is us")
As implied by my subhead's quote (credited to Pogo creator Walt Kelly), I believe the primary reason we have allowed the world of financial performance records to evolve into this opaque, benighted state is indeed because we have allowed the world of financial performance records to evolve into this opaque, benighted state.
If you are looking for who's at fault here, as the wag says, pick up a mirror. We are, all of us, feeding an anti-Moneyball financial culture whenever we do not constantly frequently insistently ask of any featured financial source the critical question: "What's his (or her) record?"
Imagine watching a baseball playoff game on Fox and the network not ever sharing any player stats during the telecast. As I said in Part 1, in baseball that would be outrageous; in finance, somehow we passively accept this status quo!
In such circumstances, most of us consequently have no intelligent sense of whom to follow; as 1wayout wrote in a comment on my first article, "It's like swinging in the dark... with your eyes closed and helmet on backwards." I believe that financial broadcasters and publishers who do not make an effort to present performance information when introducing guests or opinionated viewpoints disrespect us all.
With publication of this essay, I am formally asking you as a reader, if you care and if you want to see a "better, smarter, truer, and richer world of tomorrow" please ask, "What's his record?" anytime you are face-to-face with a source of financial advice. "Source" here and throughout this article series is meant broadly. Might be a CNBC show. Might be your broker. Might be a Motley Fool writer. Might be a frequent Yahoo! poster haunting a discussion board on a given ticker. Might be whoever is in the next Barron's roundtable.
"What's his (or her) record?"
2. Build your own statistical record ("There's this thing called the Internet...")
In our office, I was asked last week, "What is the best way to teach your kids about investing?" Easy answer: Get 'em swinging, and help 'em score it. In both baseball and investing there is no substitute for taking real swings that matter.
I got my own kids started picking stocks on an open platform our company launched in 2006 called Motley Fool CAPS. CAPS enables any person or source to self-score -- to keep and share investing stats on yourself at whatever age. You take the actions; CAPS does all the hard work of logging a complete record of every stock market prediction or call or hunch you have. On CAPS, many, many Motley Fool members have for one or more stocks indicated whether they think that stock will beat or lose to the market, over a specific time period of their choosing, providing their reasoning in as few or as many words as they like. Every such swing taken on CAPS -- and every player making one -- is scored, rated, and ranked. Part of the full historical record. (Just like every swing in Major League Baseball.)
If this sounds like product placement, that is not my intent. I am here working every day to help the world invest better; I will be the first to shine a light on any tools or sources that do just that, on our site or anyone else's. So if you know of any platforms, tools, or systems that do what CAPS does better than CAPS, use them! (And share them in the comments box below.)
The more than 100,000 members who've taken one or more swings on CAPS are doing something that most Wall Street professionals and financial media companies are not doing. We -- even my kids -- have scorecards. (Here's mine.) Nothing exclusive about this -- the opportunity to perform in this stock-picking arena in front of the world, and have the game keep score for you, is freely accessible to anyone who invites it today. Everyone who does is creating a smarter, richer, and more accountable world, and further showing up every professional source that resists this kind of scrutiny.
Which financial source in the future are you more likely to select, one that has a transparent, voluminous, winning, and publicly available statistical record... or one that does not?
3. Study, and help us keep stats on, the players you know ("Track yer broker!")
First, we covered asking and insisting that any serious source that wants to be relevant and consulted should show a transparent record. Second, we covered how easy and enriching it is for you -- and really anyone -- to build your own such performance record. Third, I want to key into another reader comment included below my previous installment, namely from wintrwman, who wrote, "Since the SEC is sketchy in its oversight perhaps we can all do that ourselves." Exactly.
What's to stop you and me from typing in Wall Street's upgrades and downgrades that investors constantly hear about ("Credit Suisse downgrades XYZ to sell, citing valuation concerns," etc.?) Guess what? That's exactly what we have been doing on CAPS since 2006. Ever wondered whether you should listen to UBS more than Rodman Renshaw? How about Barclay's Capital versus Goldman Sachs? There are huge differences in the performance between these sources -- you have to click those hyperlinks to find out. At a lower level, what about Tobin Smith on Fox News vs. Jim Cramer's Mad Money calls on CNBC? We have those, too. (For more on how CAPS works, read its help section.)
But it's a great big world out there, and despite tracking hundreds of sources, we don't have them all. We don't have every person quoted in The Wall Street Journal, and we don't have your personal broker. We also don't have your Uncle Larry, who was always full of stock picks but you were too young to tell if he knew what he was talking about. Well, going forward, now you can know all these kinds of things. Create additional scorecards: Track the sources you care about. I suspect even more people would walk away from mediocre brokers if they only had a CAPS scorecard tracking the performance of their picks...
We dream of a day when every financial source tracks itself publicly and transparently, self-administered. With publication of this essay, I formally invite any source to use CAPS (or any other tool of choice) to track its performance for public edification and benefit; take over the CAPS scorecards we're paying to maintain for you!
Till next week
Do you believe our world and its financial advice will be strengthened with greater awareness of the actual performance records of everyone from Wall Street banks to acclaimed economists to talking heads in suits? Do you want to help us make that happen? Great! I've highlighted three steps to get you started:
- Ask, "What's his record?" constantly, and ignore advice from sources that don't provide them.
- Be self-accountable and learn about investing by building your own track record -- you'll get smarter, and you'll show up all those professionals who are avoiding doing this.
- Help us build our ratings database by adding your own sources (you can even volunteer to help us, if you like).
I'm not content to end this series after Part 2. In Part 3 next week, I will introduce, highlight, and explain a new editorial feature that The Motley Fool is pioneering here in 2012 that brings a lot of the points above together into real-time Moneyball present on our site. See you next week.
Read the rest of the "Moneyballing the Financial World" essay here:
The article Moneyballing the Financial World, Part 2 originally appeared on Fool.com.David Gardner is the co-founder and co-chairman of The Motley Fool. You can see David's CAPS score and his Fool profile.
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