Most of my picks improved. Last month's three winners stayed on track with continued higher energy and commodity prices along with the war. Raytheon Co. (NYSE: RTN), the high tech defense contractor, Reliance Steel & Aluminum (NYSE: RS) and Anglo American plc (ADR) (NASDAQ: AAUK) do not show any signs of wavering. All three continue to be mentioned in M&A conversations with RTN on the buying side, AAUK on the selling side and RS on both.

In January, I added Newcastle Investment Corp. (NYSE: NCT) and Huaneng Power (NYSE: HNP) to my holdings. In April, as HNP hit new lows, I acquired more stock, happy to collect the 5.6% dividend yield. I did not add anything in May.

Through May, the average return for the eight picks amounted to a loss of -3.36%; a major improvement from last month's -8.96% or March's -15.96% depressing lows. This outperformed the average return of the indices: -5.47%. This year's stalking horse, Berkshire Hathaway (NYSE: BRK.B), while gaining a little during May and still besting all the indices, is down -4% for the first five months. I can't remember the last time I was ahead of 'my pal Warren' -- oooh, maybe I'm learning something!

I am Including dividends for my picks, that averaged an overall 3.91% yield through the first quarter. However, this is being adjusted because of NCT's reduced dividend to 2.99% going forward. Therefore, I will be adding 0.978% for the first three months and 0.249% (2.99% / 12) for each additional month. Through May, the loss was -3.36 + 0.978 + 0.498 = -1.88%. Using 1.8% for the average dividend of the indices times 5/12 adds 0.75%, and reduces the loss to -4.72%.

After five months I have overtaken all of the indices and BRK.B, to my surprise, even without the help of the dividends . BRK.B does not pay a dividend.

I continue to hope that 2008 does not end up being about who loses the least. The following are my eight picks with the starting share price as of December 28, 2007:

• Anglo American plc (ADR) (NASDAQ: AAUK) from $30.79 is Up to $34.28 for a gain of 11.33%.
• Bunge Limited (NYSE: BG) from $119.03 is Up to $119.37 for a gain of 0.29%.
• Huaneng Power International (ADR) (NYSE: HNP) from $41.75 is down to $33.74 for a loss of -19.19%.
• Loews Corporation (NYSE: LTR) from $49.35 is Up to $49.57 for a gain of 0.45%.
• Newcastle Investment Corp. (NYSE: NCT) from $13.08 is down to $9.92 for a loss of -24.16%.
• Raytheon Company (NYSE: RTN) from$61.51 is UP to $63.86 for a gain of +3.82%.
• Reliance Steel & Aluminum (NYSE: RS) from $54.32 is Up to $67.97 for a gain of +25.13%.
• Valero Energy Corporation (NYSE: VLO) from $70.55 is down to $50.84 for a loss of -27.94%.

The Indices:

• Dow Jones Industrial Average: 13,365.87 dropped to 12,638.32 for a loss -5.44%
• NASDAQ Composite Index: 2,674.46 dropped to 2,674.46 for a loss -5.68%
• Standard & Poor's 500 Index: 1,478.49 dropped to 1,400.38 for a loss -5.28%

This year's "stalking horse" Berkshire Hathaway (NYSE: BRK.B) (I am tracking the 'B' shares, not the more expensive 'A' shares) saw its B shares down from $4,685 to $4,498 for a loss of -4.0%.

After our Federal Reserve Chairman Ben Bernanke announced a cut in the discount rate of a quarter point to 2% last month, he changed his stance and intimated it would probably be the last cut. Now we are hearing noise there actually could be a raise in the rate depending on inflation fears. The market seems to believe that story in the long term, but not the short term one.

I still think investors should be looking at the defense sector Chasing Value: General Dynamics & Raytheon: The defense does not rest.

May Recap:

• 2008 picks: -1.88%
• BRK.B: -4.0%
• Major Indices: -4.72%

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. DISCLOSURE: I currently own shares of AAUK, BRK.B, HNP, NCT, and VLO.