Wednesday's Biggest Stock Stars

Hey there, Fools. I've summoned our Motley Fool CAPS community once again to highlight a few of Wednesday's biggest winners among the stocks with top ratings of four or five stars:

There's a reason I selected those notable gainers, as opposed to other winners making noise on Wednesday, like one-star stock AIG (NYSE:AIG): Stocks go up all the time, but unless you were able to predict the pop, what does it matter?

Our community of more than 140,000 CAPS Fools considers its high-star stocks the most likely to outperform the market.

Written in the (five) stars?
For example, 94% of the 329 members who've rated Delta Petroleum have a bullish opinion of the stock. Last month, one of those top Fools, welshes1999, explained why the stock seemed like a natural selection:

I like [natural gas] as an investment for the long term (2-4 yrs) ... Large number of proven reserves and an expansive number of prospective drilling assets in development. By nature I'm a value investor, I think this is a winner in the long term, especially at the current price.

Shares of Delta are already up an amazing 65% since that pitch. Of course, over half of that gain came yesterday on news that the company received drilling approval for four more natural gas wells in Washington state -- consistent with welshes1999's bull call.

The bullish lesson?
Learn to be long-term greedy when others are short-term fearful. Going against the herd is never easy, but if you truly believe in a company's long-run potential, major downturns can offer the very best buying opportunities. As Warren Buffett reminds us, "Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices."

And now for the losers ...
Of course, winning isn't everything in the stock market.

Here are five of Wednesday's biggest decliners with one- or two-star ratings:

While yesterday's drop in highly rated Yamana Gold (NYSE:AUY) may have caught our community off guard, low-ranked stocks are fully expected to fall hard.

Did CAPS call the fall?
In late June, for instance, CAPS member cauthenc explained why Palm seemed to sprinting backwards:

Palm has history of putting out decent product and then failing to support it well. Another example -- going with Sprint (NYSE:S). As go the wireless carrier, so goes the phone maker (provided they are exclusive to each other). ... Wireless companies are consolidating, with Sprint fading fast -- and so will Palm.

Shares of the smartphone specialist are lagging the market by more than 16 percentage points since that bear call. In fact, yesterday's loss came after a Wall Street analyst downgraded the stock on worries that Palm's selection of Sprint as the carrier for its new Pixi phone could hurt revenue.

The bearish takeaway?
Always pay attention to risk and effect in its totality. One of the biggest mistakes we make as investors is failing to consider second, third, and higher-order effects when analyzing a company's risk exposures. As Charlie Munger once wrote, "This defect is quite understandable, because the consequences have consequences, and the consequences of the consequences have consequences, and so on."

The final Foolish move
Investors often focus strictly on stock price movements, without realizing that developing a proper stock-picking process counts most.

Over at Motley Fool CAPS, thousands of investors are Foolishly sharing insightful investment tips to help identify tomorrow's big movers. Over time, consistently reverse-engineering winning -- and losing -- stocks will help you become a more Foolish investor.

Log in to CAPS today and start participating. It's absolutely free -- and a lot of fun.