cynical, adj.

  1. Negative or pessimistic, as from world-weariness: a cynical view of the average voter's intelligence.
  2. Expressing jaded or scornful skepticism or negativity: cynical laughter.

Over the last couple of weeks, I've begun writing a recurring column entitled "Before the Call." There, I survey investors' opinions of high-profile stocks in the days just prior to their reporting earnings -- and after penning just a dozen or so of these articles, I've come to a conclusion:

Investors expect too much.

Lake Wobegon dreams
Time and again, I see stocks on Motley Fool CAPS being rated "outperform" rather than "underperform" by vast margins. But every stock cannot outperform the average of all stocks. Not all children are above average, nor can all of our favorite stocks outperform the S&P 500. It's a mathematical impossibility.

How bad is our collective delirium? Take a look at just a few of the companies I've profiled in recent columns:

Outperform ratings

Underperform ratings

Trailing-12-months out (under) performance*





General Electric (NYSE:GE)












Caterpillar (NYSE:CAT)




Motorola (NYSE:MOT)













Average out-/under- ratio:

Average underperformance:

More than 4-to-1


*Relative to the S&P 500.

If wishes were fishes, all cats would be fat
To readers who wonder: "How can a stock have thousands more outperform ratings than underperforms, yet still merit only three stars on CAPS?", I respond: "Look at the numbers!"

Just because a stock receives numerous outperform ratings, does not mean it will indeed outperform the market. This is a key reason why we weight CAPS players' votes according to their records of success. If we ran CAPS like a popularity contest, I suspect every stock would score five stars, with the possible exceptions of Northwest Airlines, Delphi, and New Century Financial.

Harvest profits. Go against the grain
Perpetual CAPS score leader TMFEldrehad writes in a CAPS blog entitled "How to Become Top Fool" that, "The key to the strategy is to remember this-player rankings are relative... You'll never catch the people ahead of you by copying them... the fastest way to catch them is to bet against them... and be right."

In other words, you don't attain a high CAPS score -- or a high net worth -- by piling into popular, or piling on to unpopular, stocks. In "virtual investing," as in real life, investors harvest the greatest rewards when they go against the grain. And so I urge, if you're tempted to rate a stock an outperformer on CAPS, or to buy a stock because a lot of people like it: Be more cynical.

Ready to get started? Then click on over to CAPS, and start making waves.

Yahoo and eBay are Motley Fool Stock Advisor picks.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked 137 out of nearly 28,000 raters. The Fool has a disclosure policy.