This is version 1.0 of the CAPS Uk FAQ.

So what is CAPS?

Motley Fool CAPS operates from a simple premise: Working together, we can improve our investing results. This revolutionary new service pools the resources of the Motley Fool Community to help you identify the best stocks at the best times to buy them -- and which stocks to avoid, too!

We launched CAPS on our US site a few years ago (see caps.Fool.com) and in July 2010 we launched a beta version of CAPS UK at www.Fool.co.uk/caps.

Step 1. Members rate stocks

At the heart of CAPS are thousands of predictions. Members predict whether stocks will outperform or underperform the FTSE All-Share 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 members' predictions. Members receive an accuracy percentage, indicating how often they make correct predictions and a score, which is the percentage by which their picks beat the FTSE All-Share.

Step 3. Members receive CAPS ratings

Based on the performance of their picks, CAPS members receive a percentile rating (from 1 to 100). This rating indicates the percentage of people that member 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 members think that stock will outperform the FTSE All-Share.

Important concept to follow... pay attention!! Here it is:

Members 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 members will have less impact.

And then the cycle repeats. Members make more predictions, which affect their member 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.


Why don't I have a rating?

To receive a CAPS rating, you must maintain seven active picks. Picks that you have ended do not count towards this minimum.


How is my rating calculated?

Here's how it all works. A member's rating reflects how often a member makes correct predictions (accuracy) and the percentage return of these picks (score). To compute member ratings we first give each member a percentile rank on score and a separate rank on accuracy.

Let's assume CAPS has only five members. First, we sort these members based on score and give them percentile ranks.

Member	         Score  Percentile Rank
AndreaBocelli	 154    100
JuiceNewton	 134    80
PatBenatar	 69     60
Yanni	         50     40
VanillaIce	-180	20

Then, we do the same with accuracy with one major tweak. Members are ranked on accuracy based on the PROBABILITY of achieving that accuracy and not the actual accuracy. For example, a member who makes 99 out of 100 correct predictions will be ranked ahead of a member who makes 7 out of 7 correct because it is much more difficult to be correct 99 times out of 100.

Member          Picks   Accurate Picks  Accuracy    Percentile Rank
JuiceNewton     100     70              70%         100
PatBenatar      20      16              80%         80
Yanni           7       4               55%         60
AndreaBocelli   9       4               44%         40
VanillaIce      72      12              17%         20

The formula we use is

Raw rating = (2/3 * score rank) + (1/3 * accuracy rank).

Member          Score Rank      Accuracy Rank    Raw Rating
AndreaBocelli   100             40               80
JuiceNewton     80              100              86.67
PatBenatar      60              80               66.67
Yanni           40              60               46.67
VanillaIce      20              20               20

Finally, we sort these members and give them ratings! Note that member ratings are always percentiles, ranging from 100 (highest) to 1 (lowest).

Member          Raw Rating      Member Rating
JuiceNewton     86.67           100
AndreaBocelli   80              80
PatBenatar      66.67           60
Yanni           46.67           40
VanillaIce      20              20

What is my score?

Your score for a stock is the stock's percentage return minus the return of the FTSE All-Share. This score is adjusted to reflect whether or not you picked the stock to outperform or underperform the market.

For example, suppose you picked ticker FOOL to outperform the market. If the return on FOOL is 10% while the return of the FTSE All-Share is 4% over the same period, then your score will be 6. However, if you picked FOOL to underperform, your score will be -6. In CAPS, scores are always displayed as decimal numbers even though technically they are percentages.

Your member score is simply the sum of the scores of all your active and ended picks. Member score counts for 2/3 of your member rating.


What is my accuracy?

Your accuracy is a measure of how often you make correct predictions.

To calculate accuracy we take the number of accurate picks divided by your total number of picks.

What constitutes an accurate pick depends upon the status of your pick.

- Active picks with positive scores are accurate picks.
- Active picks with negative scores are inaccurate picks.
- Ended picks with scores of 5 or higher are accurate picks.
- Ended picks with scores below 0 are inaccurate picks
- Ended picks with scores between 0 and 5 do not affect your accuracy rating.

Hey, we realize this is a little strange. But, we treat ended picks differently because we don't want people ending picks simply to "lock in" a small, but successful prediction. We want to track meaningful accuracy, which is why we ignore any picks that fall between the 0 and 5 threshold. Think of it as a hefty transaction cost or capital gains tax that you have to overcome

As discussed in "How is my rating calculated?" we look at the PROBABILITY of achieving your accuracy percentage and rank you against all other members accordingly. It's easier to be highly accurate with a small number of picks than with hundreds, so weighting by probability allows us to fairly compare members with different size pick lists.

To prevent our CAPS servers from catching on fire while doing this calculation, any member with more than 100 total picks is ratioed down to 100 picks. So, a member with 140 out of 200 correct will be treated the same as a member with 70 out of 100 correct. After 100 picks, we feel that we have a large enough sample size to no longer need the probability calculation.


What is my average score per pick?

Your "Average Score" is simply your total score divided by your total number of picks (active and closed). This number
represents the amount which your average pick is beating/losing to the market.


What is average pick rating?

Average pick rating is the average stock rating of a member's active picks. Underperform picks are flip-flopped, so a underperform call on a one-star stock is treated like an outperform call on a five-star stock. This rating reflects how closely your picks are aligned with CAPS ratings.


What's that cool-looking cap on My CAPS page?

You receive a different type of Fool cap depending on your member rating. As your rating changes, so does your cap.


When can I make a pick?

You may make a pick anytime you wish. Picks made during market close will be pending until the next market open.


How many times may I rate a stock?

You may have only one active pick per stock. You may have as many ended picks per stock as you like.


Is the time frame for my pick important?

The time frame for your pick DOES NOT affect your score for that pick. If a member selects a five-year time frame but gets a massive gain in the first year, we don't think it's fair to penalize that member for making a great prediction. In real life, most investments are time-independent, and we feel the same should apply for CAPS.

We capture time frame as a guideline for other members to see whether your thinking is short or long-term. Time frame is also used to calculate the stock ratings.


What happens if my time frame expires?

Don't worry, your pick will remain active and will still count towards your score. However, if your time frame has expired, your pick will no longer affect the stock's CAPS rating.


Can I change my time frame?

Yes! You may click on the time frame in your member scorecard and select a new time frame. This will not affect your score but will be reflected in the stock's CAPS rating. Your start date will be changed to show that you've updated the time frame for your pick.


What is a "pitch?"

Whenever you rate a stock, you will be given the opportunity to make your pitch for your prediction. While optional, this is your chance to offer more detailed thoughts, analysis, concerns, or the rationale behind your decision to rate a given stock as either "outperform" or "underperform."

Pitches show up in several places:

- Your CAPS page
- Other members' pages
- Stock pages

You can reply to pitches and recommend them.


What is the starting price for my pick?

- If the market is open, the starting price will be the price of the stock approximately 20 minutes after the time you make the pick. Since CAPS uses 20-minute delayed stock quotes, this rule prevents members from using real-time quotes to get an unfair advantage. By waiting 20 minutes to grab a start price, CAPS is, in effect, "catching up" with the real-time quote of the stock. (Warning: the surgeon general has determined that thinking about this too hard may cause your head to explode.)

- If the market is closed, the starting price will be the next market open price of the stock.
Picks that are delayed 20 minutes or until the next market open will appear in the "Pending" section of your scorecard. When picks becomes active, they will migrate from "Pending" to "Active."


When can I end a pick?

You may not end a pick until it has been active for seven days. After the initial seven day period, you may end a pick at any time.


What is the ending price for my pick?

If you end a pick, you must wait to receive an end price. Until then, the pick will appear in the pending section of your scorecard.

- If the market is open, the end price will be the price of the stock approximately 20 minutes after the time you end the pick. Since CAPS uses 20-minute delayed stock quotes, this rule prevents members from using real-time quotes to get an unfair advantage. By waiting 20 minutes to end your pick, CAPS is, in effect, "catching up" with the real-time quote of the stock. (Warning: various doctors have determined that thinking about this too hard may cause your head to explode.)

- If the market is closed, the pick will end when the market reopens. The ending price will be the next market open price of the stock.

When picks end, they will migrate from "Pending" to "Ended" on your scorecard.


What does it mean if my pick is "pending?"

Picks may appear in your "Pending" filter for many reasons. Initially, any pick you make in CAPS remains pending for 20 minutes so that CAPS can catch up with real-time quotes. Picks will also stay pending if the market is closed, but will become active when the market opens.

In other cases, your pick may remain in pending if the stock rarely trades or if the quote information from our feed only comes across after market close (this is the case for many pink sheet stocks). We will activate your pick as soon as we receive an up-to-date price.
If you have a pending pick for longer than a couple days, please let us know through the "Report Bugs/Feedback" menu option and we'll try to figure out what's going on.


Can I change my mind on a pending pick?

As long as a pick is "pending" (i.e. you're waiting for the market to close or open for your action to be finalized), you may change your mind and return the pick to its original status. To do this, click on "Cancel" in the pending view of your scorecard. You may also change your mind on the company's CAPS page. Once your action is resolved, you may not change it.


What is a stock's CAPS rating?

A stock's CAPS rating indicates the stock's potential to outperform the FTSE All-Share as decided by the community.

Five-star stocks are the highest-rated stocks in CAPS. Most CAPS members feel that these stocks will outperform the FTSE All-Share in the future.

One-star stocks are the lowest-rated stocks in CAPS. Most CAPS members feel that these stocks will underperform the FTSE All-Share in the future.

All stocks in CAPS are ranked against one another. So, you may see some stocks with a large bullish sentiment that are only three-star stocks. What this means is simply that there are many stocks that the CAPS community is even more bullish about.


How are the stock ratings calculated?

The actual formula for our company ratings are locked away deep in a vault about six miles underground and guarded by that rabbit from Monty Python And The Holy Grail.

Generally speaking though, we take all the picks for a given stock and use three main factors:

- The calls for the picks (e.g. outperform or underperform)
- The time frames for those picks
- The ratings of the members making the picks

Look at that last line again. If you remember nothing else from this section, remember this:

Members with higher ratings have more influence on a stock's CAPS rating.

Our proprietary rating system is designed so that the most successful investors are given the greatest weight and influence on our ratings. Titles don't matter that much in CAPS. It's the track record that counts.


When does a stock receive a CAPS rating?

You may have noticed that some stocks have "No rating" by their name. For a stock to receive a CAPS rating, it must have 10 active picks, including at least one pick from an all-star (a member rated 80 or higher). At that point the stock will receive a CAPS rating from one to five stars. If a stock drops below this requirement, it will lose its rating.


How often are CAPS ratings calculated?

Member and stock ratings are calculated and updated every 10-20 minutes. In contrast, our stock quote information comes straight from our data feed and is updated every time you refresh the page.

Because of this, you will often see slight inconsistencies in your scorecard. For example, if you continually refresh your CAPS page, the "Today (Change)" column continually updates from our feed, while the Stock Gain, FTSE All-Share Gain, and Score Columns will not update until a new calc cycle occurs.

Other CAPS features such as charms may be calculated less frequently, so you may also see some discrepancies there. However, if you wait until an hour or so after market close, all the numbers should be synchronized.


How does CAPS account for dividends?

CAPS doesn't account for dividends at the moment but we hope to add this feature later on.


How does CAPS handle mergers or acquisitions?

First of all, keep in mind that CAPS is not a portfolio game and members don't own shares.

Because of this we have decided that if a company merges with (or is acquired by) another and becomes a new entity with a different ticker symbol, we will close all members out of that company at the last trading price for that stock. We will not convert members into the new company because doing so would require a share-based calculation (which CAPS doesn't support).

CAPS is a stock-rating service, and if a stock no longer exists, then we feel that it wouldn't make sense to convert members into a different company which they may or may not endorse.


Why aren't there any links to CAPS from the main Fool site?

We've launched CAPS as a beta so that we can test out the functionality and gradually add new features before opening it to the entire Fool userbase. If you like what you've seen so far, you might want to add www.Fool.co.uk/caps as a favourite on your browser or on the 'My Links' section of My Fool. You can also add this discussion board as a favourite board by clicking on the heart icon.


What if I have a question not answered here?

Either post a message on this board or use the email feedback link on the main CAPS page. We'll update this FAQ periodically as well - you will be able to find a link to the latest version in the 'Announcements' section displayed to the right of each message on this board.

You may also find the answer on the Help page of the US version of CAPS - http://caps.Fool.com/Help.aspx


Fool On!

Team Fool UK