Business - Written Monday, December 11, 2006 by Don Tapscott - 0 Comments

A “foolish” investing site opens up

Whether you believe in the collective wisdom or madness of crowds in the stock market, Motley Fool’s Beta product called “Caps” provides valuable insights for you. Launched in the Spring of 2006, the site enables anyone to register and place fictional bets on the performance of almost any major stock. The predictions are then aggregated and compared against the market’s overall performance, and each player is given a score based on their relative success.

High scores lead to groupies, recommendations, and other “trust” metrics – and can even give rise to new superstar stock advisers. Many participants are now likely using TMFEldrehead (the leading scorer in the game by a wide margin) as their stock market guru. Overall recommendations on the site are also aggregated, so you an easily see which stocks are the most popular and/or gaining momentum across the community.

What makes this development so interesting is that Motley Fool’s legacy business model is getting individual investors to subscribe to their stock recommendation newsletters, written by Motley Fool staff. The important lesson here, as we see elsewhere, is that the development of open source communities and proprietary product offerings do not have to be mutually exclusive – in fact, they can help each other out.

The Caps offering is a case in point. It not only creates a community of do-it-yourself investors on the Motley Fool site (an attractive audience for advertisers), their collective suggestions can stimulate ideas for the newsletters, and many people that enter the community may grow weary of tracking everything themselves and the demand for the newsletters could go up. Of course, there are likely some further challenges to deal with in the future – if TMFEldrehead continues to have success and grow a following by making excellent stock recommendations, how long will he do it for free? Could “Caps Funds” be on the horizon someday, to the benefit of Motley Fool, investors and the top Caps contributors alike?