Gasping For Breadth

Picture a TV shot of the control room at NASA: banks of computers facing men in white shirts with the sleeves rolled up and bland ties.

The space shuttle is on a special mission, loaded with swamp rats. It soars into the heavens. A flawless launch.

All of sudden, right in front of the TV cameras, one of the computer guys stands up, slaps his forehead and says, "Oh my goodness. I forgot to load the oxygen tanks."

The swamp rats get no breath. And even though the shuttle keeps going higher, the rodents perish, and the mission is a bust.

The moral of this story, other than that there is no such thing as honor among rats or a strained metaphor among newspaper columnists, is (take a deep breath) ...

Breadth.

It's a stock market thing. And what I hope to explain in this column is why, when Peter Jennings looks at you and says, "The Dow Jones Industrial Average rose 95 points today," he's not always giving you the whole story.

He holds back on the breadth.

In simple terms, breadth measures how much of the stock market is going in the same direction.

And breadth is a lot like breath. Without it, a market rally has about as much staying power as I would in the Boston Marathon.

I might be able to sprint the first 100 yards faster than the crowd from Kenya (make that 50, um, 25 yards), but then I'd run out of breath and get run over by the crowd.

Same with the stock market, and as you consider how to adjust your portfolio, breadth is worth knowing about.

A couple of weeks ago, for example, the Dow popped up 95 points, but there were twice as many stocks (on the New York Stock Exchange) declining as advancing.

That's bad breadth.

And it means that just about the only rally on that day was in the stocks of a few, large companies - notably those among the 30 companies that make up the Dow Jones Industrial Average.

It's one of the confounding elements of this stock market. Big companies - Microsoft, IBM, Coca-Cola, and General Electric - keep going up, but they increasingly fail to pull other companies along to the finish line.

For example, a measure of the stocks of smaller companies - an index called the Russell 2000 - looks like a battle zone. While the Dow has been setting new highs this year, the Russell has been wheezing, gasping, and falling on its face (again, just picture me in a marathon).

The Dow is up about 13 percent this year, where the Russell is off about 4 percent. Yet the indexes share identical environments - a booming US economy, low interest rates, etc.

One is simply more popular.

This could mean that successful investing is incredibly simple. If just the big companies are going up, just invest in the big companies. Right?

That strategy - albeit with considerable refinement - has worked extraordinarily well for Jeff Poppenhagen, a mutual fund manager profiled on Page B7. His Pioneer Growth Shares fund is way ahead of the market averages.

What's troubling to many market analysts is that investing should be harder than that. It's kind of like asking: "Who's going to win the race?" and giving a gold star to the person who says, "The one who runs fastest." Duh.

The right answer should involve strategy, perception, and a comprehensive knowledge of all the elements - breadth.