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July, 2009


The Motley Fool CAPS stock rating system was developed to give the professional stock analysts a run for their money. Members of Motley Fool, mostly amateurs like me, are given the opportunity to rate stocks on a one- to five-star scale, five being the most attractive ones. In determining the final stock rating, Motley Fool gives greater weight to its members who perform best in their ratings. Thus if a whiz-kid is proven right 90% of the time (i.e. her or his five-star stocks generally go up better than the average while the person's worst stocks [one-star equities] tend to go down a lot), that individual's star ratings by Motley Fool will count a lot more than if Homer Simpson submits the same number of ratings but is right only 10% of the time.

Anyway, with millions of stock rankings now being done by Motley Fool members, there is some evidence that the system works. While I have not yet heard the record since the fall 2008 meltdown, in early 2008 the overall performance since Motley Fool CAPS began, in 2004, showed a 24% spread between the positive average performance of five-star CAPS picks and the one-star CAPS picks' negative average record.

Though this is not an endorsement, the theory behind the success of the Motley Fool CAPS rating system seems to make sense too. I have not seen all the stats. Yet it seems logical to me that when so many with an informed interest in particular stocks are rating them and higher weight is given in the system to those with the better records, the results should be superior to those of the markets in general. That being said, I do not believe anyone else's rating system should take the place of doing one's own research. Thus, any stocks mentioned here are also just a starting point for the individual investor's necessary due diligence.

Nonetheless, it may be of interest what some of the current top-rated Motley Fool CAPS selections might be.

Here, then, are my own top 20 picks among Motley Fool's recently five-star CAPS rated stocks:

3M Co.MMM$62.92
Berkshire Hathaway, Class A
(or Berkshire Hathaway, Class B)
Burlington Northern Santa Fe Corp.BNI$74.80
Cemex ADR Repstg. Ten Ord
Participation Share Certificates
Ceradyne, Inc.CRDN$17.95
China 3C GroupCHCG$0.83
Iteris, Inc.ITI$1.26
Johnson & JohnsonJNJ$59.23
Miller Industries, Inc. (Georgia)MLR$8.68
National Oilwell Varco, Inc.NOV$34.16
Petroleo Brasileiro ADR Reptg. 2 Ord. Shs.PBR$40.02
Proctor & Gamble Co.PG$55.92
Shoe Carnival, Inc.SCVL$12.50
SL Industries, Inc.SLI$5.55
SORL Auto Parts, Inc.SORL$3.73
T3 Energy Services, Inc.TTES$12.01
TechTeam Global, Inc.TEAM$6.06
Teck Resources, Ltd.TCK$21.06
Universal Stainless & Alloy Products, Inc.USAP$16.58
Waste ManagementWMI$28.09

A profitable move forward in one's investing arrangements might be to: determine one's own selection criteria, buy when assets meeting this discipline also have a five-star Motley Fool CAPS rating, and sell once they no longer meet one's preferred guidelines, if they then also have less than a five-star rating from Motley Fool. During turbulent market conditions, this has been useful for us with low price to value equities, appearing to boost performance while lowering risks. I cannot guarantee such an approach would improve on the results from merely following a strategy with which one is already familiar and comfortable, but, based on our limited results so far, it appears to be a promising one.


Larry is not a professional. Don't take him seriously!

Actually, the investment article provided here is for general information only and should not be considered as professional advice, a solicitation to buy or sell any security, or the Word of God. Investors are encouraged to do their own research while considering their personal goals and circumstances, or consult their own professional financial advisors, before making investment decisions. Neither Larry nor LARVALBUG will be liable for any losses sustained by any visitor to this site.

(Disclosure statement: Larry and Val have holdings in some of the suggested assets but do not "make a market" in any of them and do not derive any direct benefit from recommending them, except perhaps for a bit of smug self-satisfaction.)

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