Friday's Biggest Stock Stars

We at the Fool usually don't pay attention to day-to-day price gyrations. But some moves are just so big that investors should at least take notice -- especially when we could have seen them coming.

The big winners  
With that in mind, I've summoned our Motley Fool CAPS community to highlight yesterday's biggest gainers among the stocks with a top rating of five stars.

Without further ado:

The reason I selected the largest five-star gainers, as opposed to other big-name winners making news on Friday -- such as Overstock (NASDAQ:OSTK) and Google (NASDAQ:GOOG) -- is simple. Stocks go up all the time, but unless you were able predict the pop, what does it matter?  

Our community of more than 70,000 Fools in CAPS considers its five-star stocks the most likely to outperform the market. By reverse-engineering some of the arguments they've made for these picks, we improve our odds of finding the next big winner.

Did CAPS predict the pop?
For example, nearly 500 CAPS All-Stars have given California-based Atheros Communications an outperform rating, while just four have been bearish. To be sure, the semiconductor provider is a formal pick of our Motley Fool Hidden Gems small-cap service, so the overwhelming support is understandable. But the stock's 220% return over the past two years speaks volumes on its own.

This outperform pitch -- pulled from Atheros' CAPS page -- gives us an idea of what's been fueling the fire:

I firmly believe in more and more integration of wireless devices in the home appliances like MP3 players, PCs, HiFi, Video and TV systems, so I decided to buy a little bit. I've done away with ethernet cables years ago as WiFi makes life so much easier.

Since CAPS All-Star DutchMark made that call last year -- at around the same time Tom Gardner recommended it to Hidden Gems subscribers -- ATHR has returned an awesome 52%.

The bullish takeaway? Try to be in tune with the important trends that affect your own daily life. Getting in on great stocks often starts with simple observation, intuition, and good old-fashioned Foolish common sense. Though it's never wise to blindly "buy what you know," researching businesses that you're familiar with is a good way to gain an insightful edge.

Now for the losers
Of course, winning isn't everything in the stock market. Stocks go down, too -- and often very, very quickly.

Here are yesterday's biggest one-star decliners:  

One-star stocks inspire the least confidence among the members of our CAPS community. By investigating a few of the bearish arguments they've made for these losers, we'll have a better chance of averting portfolio disaster in the future.  

Did CAPS call the fall?
Take, for instance, this Heelys underperform pitch from CAPS player ANALYST24 last April:

As noted by many, the Roller-Shoe FAD will soon come to an end, as ALL fads do. At the same time, with the onset of the summer, further banning of the shoe @ indoor facilities will follow, along with costly liability suits. Last but not least, kids (as the primary target audience) have already lost interest in this ONE-product company's offering.

The Texas-based purveyor of wheeled footwear is down a whopping 74% since our CAPS player made that call -- and it's a downhill roll that several Fools figured was inevitable.

The bearish lesson? The main priority is: Never lose money. There's no doubt that a faddish, single-product growth story can provide tremendous returns -- no matter how slim its chances. But the possibility of a permanent loss of capital (or P-LOC) is far too great for a fad to be mistaken as a "smart" investment.

As Warren Buffett said, when describing the approach of legendary Ben Graham:

Ben Graham wasn't about brilliant investments, and he wasn't about fads of fashion. He was about sound investing, and I think sound investing can make you very wealthy if you're not in too big of a hurry. And it never makes you poor, which is even better.

The final Foolish move
Investors often focus strictly on stock price movements (or the results), 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. It's absolutely free -- and a lot of fun!