Time to Short These Stocks?

"The smart money always wins."

That's a mantra of contrarian investors -- those who bet against popular opinion to make money. Popular opinion, in their view, equates to amateur opinion and, well, amateurs are amateurs for a reason.

The contrarian philosophy begins to sound appealing when you consider the recent performance of some of the market's more popular stocks. For instance, Take-Two Interactive (NASDAQ:TTWO), the maker of the hit Grand Theft Auto video-game series, was 36% off of its 52-week high in July, following a string of earnings misses and a scandal involving hidden scenes with explicit material in one of its games.

Then, in August, with Take-Two's stock price reaching its nadir, billionaire Carl Icahn, who has also recently made large purchases of out-of-favor companies such as Symantec (NASDAQ:SYMC) and Cigna (NYSE:CI), bought a 1.1% stake -- precisely when the investors who had buoyed the stock for so long seemed to be abandoning ship.

Obviously, Icahn saw Take-Two as undervalued (otherwise, he wouldn't have thrown $8 million at it), even though the masses saw difficulty on the horizon. And who was right? Icahn, the contrarian. Take-Two is up nearly 30% since his buy.

Now, that's smart money doing what it does best. (Incidentally, Symantec and Cigna are up 27%, and 17%, respectively, for Icahn as well.)

How can I do that?
One of the tools contrarian investors use to gauge the popular sentiment of a stock is the level of odd-lot trades being placed for it. In theory at least, the odd-lot level measures the number of small investors (those who can't afford full 100-share lots) currently backing a stock. If the level gets too high, a contrarian will view it as a sign that the stock price has been inflated by amateur investors.

But if you want to be a contrarian investor, I have a better way.

Have you met CAPS?
Although our new Motley Fool CAPS service is still in beta-testing, it's already proving itself to be a revolutionary way to measure investors' sentiment on specific stocks. That's because the thousands of investors who are participating are rating stocks every day, revealing top picks in every area of the market simply by calling "outperform" or "underperform" on any ticker over any time frame they choose.

The question is this: Are highly rated stocks really good investments, or are CAPS investors contrary indicators? I'll leave that for you to decide. In the meantime, however, here are a few stocks whose ratings may be buoyed by some good old-fashioned "irrational exuberance":

Think the CAPS investors are wrong about these stocks? Or maybe you think their rankings aren't high enough? In either case, get in the game and make your voice heard.

Are you smart money?
Inherent in smart-money investing is the ability to know when a stock's current price has become completely out of touch with its intrinsic value. Whether the stock has become overvalued or undervalued, the problem usually stems from irrational investor behavior. Smart-money investors will always recognize the opportunity and profit from it.

If, in fact, you turn out to be "smart money," you might just become a CAPS All-Star someday. Sound good? Just follow this link for more information.

Fool contributor Todd Wenning does not own shares of any of the companies mentioned in this article, but he has rated Blackboard on CAPS. Symantec is an Inside Value choice. Blackboard is a Hidden Gems selection. Exelixis is a Rule Breakers pick. The Motley Fool has a disclosure policy.