VOLUME 01: ISSUE 03 For info, visit access.smallcapnetwork.com Dow Jones 9068.88  - 62.90 NASDAQ 1597.52  + 16.71 S & P 500 1070.85   -  1.43 Russell 2000 416.02     + 2.80 October 3rd, 2001 Dear SmallCap Network Member, Where's the Beef? We aren't talking about a Wendy's hamburger or a sizzling filet mignon. We're talking about factual "beef." Here are some hard facts to sink your teeth into at a time when everyone is "hungry" for answers about where the market is headed. In our last issue, we compared recent market conditions to those at the time of the Cuban missile crisis in 1962. Many Members wrote in wanting the straight facts, the "beef" if you will, of exactly what happened to the market in those days. More importantly, Members are also asking: "What do we do now?" We'll get to the second question in a moment. Let's start with this. The time for crying over the bear market is over. Recent events, market activity, and economic conditions are all closely mirroring what transpired 39 years ago. Here is a quick review of the facts to provide an accurate historical perspective and lend support our claim that history appears ready to repeat itself.   The Dow Jones Industrial Average reached a peak on March 15, 1962 at 723.50. Three days before the "final" showdown the DJIA hit a low on Friday, October 26, 1962 at 569. This completed a 21.3% decline in just six months! One year later the Dow rebounded, posting a 33.4% gain and hit a high of 759.40 on October 28, 1963. Technology bellwether IBM rose from a split adjusted price of $4.39 to $6.58--a 50% gain over the same time period. The immediate threat of war between the superpowers and potential nuclear destruction was avoided on that fateful October day in 1962. The fear of mass destruction that first eminated from that event has risen and fallen over time, but has never been totally eliminated. This year, the Dow peaked on February 12 at 10,946.77 before beginning a three step tumble that led to a spike out bottom at 8,235.81 on September 21. This period marked a 24.7% drop in seven months! A year end retest of that low is still possible and would provide SmallCap Network Members with an excellent "second chance" to buy low if we get it. It could happen, but don't count on it. Record amounts of cash have flowed out of U.S. equities in recent months. Money market mutual funds took in $1 billion in July, $5 billion in August, and nearly $14 billion in September. There is now OVER $2 TRILLION in money market funds PARKED ON THE SIDELINES. The 30-day average yield on a Merrill Lynch Ready Asset Money Market Fund now stands at 3.13%. U.S. corporations have cut costs and laid off thousands of workers in an attempt to stop the flow of "red" ink they've been awash in for the better part of the past few quarters. As a result of this and the recent crisis, American consumers have tightened belts and battened down the hatches. This week, the Bush administration is brokering a massive economic stimulus package to kick start an economic recovery. Ironically, with nine rate cuts this year, the Federal Reserve has reduced short term interest rates to levels not seen since...when? You guessed it, 1962! Investors who saw beyond the fears of the near term horizon, summoned up the courage and bought stocks in October of 1962 realized outstanding returns within twelve months.  To be removed, please click here. Let's get back to that second question. What should be done now? If you've taken the following steps, you're probably already well-positioned to take advantage of new opportunities with the portion of your funds dedicated to micro and small cap investments. FIVE THINGS INVESTORS SHOULD DO TODAY TO PREPARE FOR THE NEXT BULL MARKET. 1) REVIEW THE FUNDAMENTALS. of each and every investment in your portfolio and take a hard look. Often times, the factors that lead to the decision to purchase a common stock or mutual fund change. Sometimes, they no longer even exist. If the reason you made an investment changes or no longer exists, GET OUT. Two expressions that aptly apply here: "When in doubt...get out." and "Don't get caught holding the bag!" 2) LET WINNERS RUN. The biggest mistake an investor can make is selling a stock or fund that is performing well. The main concept to building a successful investment portfolio is the ACCUMULATION OF UNREALIZED CAPITAL GAINS. This turns any realized losses into a valuable tool for effectively managing the long term performance of the portfolio. Cut your losses, let your winners run. 3) SELL LOSERS INTO STRENGTH. When markets rally off a low (as we've observed this week) investors have an excellent opportunity to reduce losses in holdings that have been identified as "sale" candidates. Any investment down more than 8% is a potential candidate to be reduced or eliminated altogether. ESPECIALLY those positions that DON'T participate when the market rallies. These are the investments that should be reduced or eliminated FIRST. 4) DON'T IGNORE THE MARKET. This sounds too simple, but the reality is many investors, both novice and professional, "shut down" when faced with uncertainty, crisis, or loss. If the market rallies and the portfolio doesn't, there is a message between the lines. Take the necessary steps to reposition into stronger issues and don't avoid what the market is telling you about what you hold. 5) STAY POSITIVE! Don't allow yourself to be put into a state of apathy or depression by the constant barrage of the Wall Street media when times are tough. That only makes things WORSE. Be proactive. Take a deep breath and do what needs to get done. (Once you do, you'll probably sleep better, too.) If you haven't taken action and your portfolio is lagging behind when the market rallies, it's never too late to make a change. Remember, we offer our insights to Members as guidelines only. Everyone's situation is different. If you're having trouble deciding what to do or aren't sure about something, seek the advice of an investment professional. Restructuring ANY portfolio that is mired with losses isn't an easy task, but is a necessary FIRST STEP. Don't fall into the false hope that your portfolio will come back all by itself without appropriate adjustments. That rarely happens. The toughest part about accepting a loss is realizing it. Managing losses is the toughest part of investing and one of the most important factors in achieving long term investment success. It is tough to overcome the overwhelming pessimism that runs rampant when the market is putting in a major bottom. The "fiber" of the stock market depends on the business activities of thousands of companies that continue to function through times of "thick and thin." The SmallCap Digest is committed to helping Members through these tough times. We look forward to presenting new ideas every interested Member will want to consider.   * * * * * * * * * * * * * * * * * If you'd like to update, change, or add a new email address please click here.   D I S C L A I M E R : The SmallCap Digest is an independent electronic publication committed to providing our readers with factual information on selected  publicly traded companies. SmallCap Digest is not a registered investment advisor or broker-dealer. 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