By
Andrew Sullivan, CFA
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More Articles
October 8, 2008
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Want to know one secret to high returns in the stock market? It's not about picking stocks that go up; it's really about picking stocks that don't go down, and picking stocks that don't go down big-time.
Avoiding big losses will dramatically increase your returns, and may be easier than finding big winners. All well and good, you say, but how do I know which companies are the next Principal Financial Group (NYSE: PFG ) or JA Solar Holdings (Nasdaq: JASO ) ?
One way is to piggyback off of other smart investors, such as the All-Star investors in CAPS, The Motley Fool's interactive stock-rating database.
All-Stars have a ranking of 80 or more out of 100, meaning their picks are outperforming 80% of the more than 60,000 rated CAPS members. The top players have accuracy levels of well over 60% and are so good, they have drawn attention, so it pays to follow what they do.
We can easily search for their least favorite picks using the handy CAPS screener. For example, the following names came from a search for stocks with:
- At least 200 All-Star underperform picks.
- A rating of one star (the lowest) out of five stars.
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Company Name
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CAPS Rating
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All Star Underperform Picks
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All-Star Outperform Picks
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Raser Technologies (NYSE: RZ )
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*
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205
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24
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SulphCo (AMEX: SUF )
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*
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192
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11
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Centex (NYSE: CTX )
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*
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285
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59
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Overstock.com (Nasdaq: OSTK )
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*
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278
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41
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NVR (NYSE: NVR )
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*
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153
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41
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Source: Motley Fool CAPS; data as of Oct. 8, 2008.
It's probably a good idea to stay away from these stocks. I'm all for being a contrarian, but the All-Stars include the savviest members in all of CAPS.
See if any of your stocks are rated underperform by CAPS All-Stars by heading over to the CAPS site yourself.
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