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Thursday
Oct152009

Collective intelligence at the Motley Fool to evaluate stocks

The Motley Fool, a financial services company and online investment community has a new service, CAPS, to find and evaluate the next big stocks. The site automatically screens for promising small-cap stocks and then publishes them on the site:

We'll tap the collective intelligence of our CAPS members to see whether these companies present real opportunities -- or whether the numbers fail to tell the true story.

CAPS members can then give the stock a 1 to 5 star rating based on their personal evaluations, presumably with the goal of sinking obvious-yet-less-promising companies and raising hidden gems. Here is the interface:

This service seems a bit superfluous. Since these are all publicly traded companies, I would think that the stock market is already pricing them to reflect their future value [and since real money is on the line, I would expect the real market to be more accurate and reliable than a 5 tier starring system]. But I will take the Hansonian* point of view that traders in this marketplace enjoy affiliating with the Motley Fool and trust that segment of the population to be wiser than the broader investing population.

*A philosophy, espoused by our friend Robin Hanson, that explains much of human behavior in terms of signaling and affiliation. See here.

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