The Big Picture for The Week Of May 29, 2005

The market has had a nice lift. But think about what has gone on. Has it been a stock picker's market? I don't think so. Just about every stock I have in client portfolios has been working to some degree.

I would expect any diversified portfolio to have at least a couple of names really moving. It kind of makes sense that in a stretch where the market moves 5% there would be plenty of stocks moving noticeably more than that.

With so many things working I think that makes the theme even bigger than a sector pickers market (a saying I have written on this site quite often). The first part of top down analysis is deciding whether to be invested in stocks or not. There are multiple studies that show 70% of your return is attributed to getting that one question right. I think that applies to the last few weeks. A proper amount of exposure allowed investors to capture most of the effect.

I continue to believe stock pickers market is a wildly empty comment.

To continue on that theme; Tobin Smith had a stock pick on Bulls & Bears that is relevant to this post. He picked NS Group (NSS). NSS makes steel tubes for energy companies. It is a small cap stock and the stats look good. Maybe this stock should be thought of as a materials company or maybe it should be thought of as an energy stock, you could argue either way.

NSS out performed XLB and XLE on the way up late last year and early this year and NSS lagged badly over the last three months as both groups corrected. For all I know NSS could skyrocket from here. The point though is that the market has not really rewarded stocks. In fact over the last month, as the market has rallied, NSS is down 5% while XLE and XLB are both up about 2% or 3%.

Part of top down analysis is having a feel for when to ramp up risk and volatility and when to ease up. Despite the move in the broad market, riskier stocks that come out with bad news are getting crushed. Owning NSS, and names like it, is kind of swimming up stream in this market.