The idea behind the StockRanks is that, in general, a portfolio built of high ranking stocks would be expected to outperform a portfolio of low ranking stocks over the longer term.
In practice, stocks have idiosyncratic risk by their very nature and a very wide variability of returns. So, of course, a lower ranking stock may outperform a higher ranking stock, especially over shorter timeframes. For example, it might be that a stock with a StockRank of 95 might tank because of some unforeseen/unforeseeable event (think BP and the Macondo scandal), or that a lowly StockRank stock might explode upwards because of a change in sentiment or company-specific newsflow (think Rockhopper). As ever, it's important to DYOR and diversification is key. Picking one stock with a rank of 90+ might be foolhardy (it's important to remember that we apply no qualitative filters), but picking 25 such stocks instead is more likely to be successful over the longer term.
This is because decades of academic research into what actually works in the stock market has shown that portfolios of good, cheap, improving stocks have a tendency to beat the market. Risky, expensive, deteriorating stocks have a tendency to lag.
This is what underlies the entire Stockopedia Quality/Value/Momentum Ranking system. Our systems stand on the shoulders of giants incorporating the research of academics like Eugene Fama, Josef Lakonishok, Robert Novy Marx and Joseph Piotroski, to popular practitioner authors like Joel Greenblatt and James O'Shaughnessy. You can read up on the whole ethos in this set of help articles -http://help.stockopedia.com/knowledgebase/articles/184381. A great book on this whole ideology of cheap/good beating expensive/junk is Joel Greenblatt's "Little Book that Beats the Market". It's only 150 pages long and a terrific read.
The way we like to think of it is that one should focus one's portfolio on higher scoring stocks across the Quality, Value, Momentum axes. The top bulletin board stocks in the UK are generally pretty poor scoring as they are so speculative and tend to eat capital rather than generate it. The idea in that bubble chart is that cheap and good outperforms expensive junk, so focusing on stocks in the top right quadrant makes sense. e.g. in the Screen of Screens.
Of course, there's nothing wrong with having a flutter on a few story-based, low scoring stocks in one's portfolio but it's all a matter of balance. The stock market is a game of odds and we think it's generally better to fish in a pool with higher probability of success. As Benjamin Graham once said: __"In the short run, the market is a voting machine but in the long run it is a weighing machine". Over shorter timeframes, the market tallies up which firms are popular and unpopular, but what matters in the long run is a company's actual underlying business performance, not the investing public's sentiment or opinion about its prospects.