At the start of the year, I launched a new portfolio of top stocks for the year, on a new site, in an attempt to help the average investor out on Main Street make money.

So far, the year is off to a rough start. Even after a huge rally today, the S&P 500 is down more than 1% this year. How are my top stocks doing?

Though three of the 10 are down, in aggregate they are up an astounding 9% since the beginning of the year.

Why? Yes, partly it is simply great stock picks.

Bare Escentuals (BARE), recommended in part as a takeover play, received a buyout offer shortly after the start of the year for a premium of 50% above my recommended price.

Rick's Cabaret (RICK) is up nearly 50% on strong sales and earnings growth. (You can get the entire list of stocks in this MainStreet Investor special report.)

But, it’s more than that. You won’t find any big banks, brokers or moribund blue chips on the list. After a decade of poor performance, two meltdowns and more, I think it’s time to look in some new places for good ideas.

For 2010 that means looking at smaller companies that can grow quickly. With an economy on the mend it is always smart to think small when a new business cycle begins.

These smaller companies can grow earnings in a very large way that often translates to significant stock gains. In some cases investors can acquire such growth at a cheap price. If so, big gains can be had as we are seeing with my recommendation of RICK.

For those skeptical of owning stocks I suggested another way to play a volatile market using an absolute return strategy. This approach uses hedging and shorts to decrease risk in a portfolio thereby minimizing losses during a market decline.

I offered up 5 pair trades that could be used by MainStreet Investors.

The idea was to match a buy of an undervalued stock with the short of an overvalued stock. Placing each of these trades would have resulted in a gain of 3% since the publication of the article in mid-January.

The most interesting trade was a long recommendation of Apple (AAPL) accompanied by a short of Palm (PALM). Both have struggled this year, but Palm is down big time.

Now, that’s how to beat the market.

Make sure you get your copy of our Top 10 Stocks for 2010.

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