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Harry Newton's In Search of The Perfect Investment Newton's In Search Of The Perfect Investment. Technology Investor.

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8:30 AM EST, Monday, November 26, 2007: Wonderful weekend. Family, friends, exercise, eating and some accomplishments (like getting the ping pong table delivered and assembled). Hence nice euphoria to begin the week on. Today's best idea is NOT to read the financial press. It's full of gloom and doom.

The Wall Street Journal leads off today's news with "Recession Fears Weigh on Markets -- Sinking stocks and rising bonds are signaling a recession may be near..." And I read that Goldman Sachs is forecasting a
$2 trillion price tag on the ultimate economic cost of the credit crunch, including $400 billion in losses directly tied to mortgages--well north of recent estimates by economists, including those at the Federal Reserve.

In Friday's column, I had a piece saying that "Losses in the distressed mortgage sector of the United States could reach $300 billion, only a portion of which has so far been accounted for by write-offs at major banks, according to a study released on Thursday by the Organization for Economic Cooperation and Development. Major financial institutions, including Citigroup, Merrill Lynch and Swiss Re, have estimated losses of about $50 billion, but the O.E.C.D. cautioned that a rougher period may yet await financial markets, which have swooned in recent days as traders try to calculate the impact of mortgage-sector losses on the overall economy."

I repeat my previous warnings: Avoid financial stocks. They smell too much like cockroaches.

Stay loose with cash.

For me. I'm playing things very very gingerly, looking slowly for opportunities.

One positive story in the financial press (finally):

Small-Caps Lure Buyers as Stocks Tumble This Month (Update1)

Nov. 26 (Bloomberg) -- The cheapest small-cap stocks in four years are luring equity investors battered by the biggest monthly losses since 2002.

Money managers from Raiffeisen Capital Management in Vienna to Highmark Capital Management in San Francisco are snapping up shares of companies with market values below $2.5 billion. The lowest prices compared with earnings in Europe and cash flow in the U.S. have made bargains out of Trinity Mirror Plc, the London publisher of the Daily Mirror, Arques Industries AG, a Starnberg, Germany-based investment company, and Labor Ready Inc., a Tacoma, Washington-based supplier of temporary workers.

Investors are seeking refuge after seven of the 23 national markets in the MSCI World Index tumbled at least 10 percent in November and the benchmark lost 6.9 percent through last week, the biggest monthly decline since the bull market began in October 2002. U.S. small-caps trade at the widest discount to stocks in the Standard & Poor's 500 Index in four years.

"We are finding more and more small-caps that are well managed and very cheap,'' said Herbert Perus, head of equities at Raiffeisen, which oversees $62 billion. ``You have to take the pain and have cool nerves in the current market and buy whatever is out of favor.''

Perus bought Trinity Mirror shares, expecting a rebound from this year's 27 percent decline. The company traded at 1.4 times book value, or assets minus liabilities, this month, the lowest since December 2003. He also owns Arques, which gained 46 percent in 2007 and announced last week that third-quarter profits almost tripled.

Companies with lower market values lagged behind larger shares since the collapse of subprime mortgages contaminated capital markets in July. Through last week, the MSCI World Small Cap Index had lost 0.9 percent in 2007, heading for its first decline in five years, compared with a 5.6 percent gain for the MSCI World Index.

The MSCI World climbed 0.8 percent as of 10:30 a.m. today in London after gains in U.S. retail sales showed consumer demand remains resilient in the world's largest economy. The MSCI Asia Pacific Index rose 2.7 percent and Europe's Dow Jones Stoxx 600 Index added 0.9 percent.

The Dow Jones Stoxx Small Index, a benchmark for the smallest European stocks, increased 1.6 percent today.

The Russell 2000 Index, a gauge for U.S. small-cap stocks, is set to underperform the S&P 500 for the first time since 1998, as the worst housing slump in 16 years weighs on the nation's economy.

The Federal Reserve cut its 2008 growth forecast last week and expects the economy to expand 1.8 percent to 2.5 percent. The median estimate in a Bloomberg survey of economists from Nov. 1 to Nov. 8 predicted 2.1 percent growth this year, and 2.4 percent in 2008.

Smaller was better during three of the last four recessions as defined by the National Bureau of Economic Research. When the economy was shrinking from January to July of 1980, the Russell 2000 rose 5.5 percent compared with the S&P 500's 6.6 percent gain.

From July 1981 to November 1982, the small-cap index advanced 9.4 percent, while the S&P 500 gained 5.8 percent. The Russell 2000 returned 5.9 percent from July 1990 through March 1991 as the benchmark for larger stocks rose 5.4 percent. During the last recession, from March through November 2001, smaller companies added 2.3 percent while the S&P 500 fell 1.8 percent. ...

I caught a virus on my computer: I had dumbly turned off my permanent virus checker. I don't know how I caught it. I didn't open any attachments. I cleaned the virus off my main computer. But I gave it to another machine I was setting up. That basically destroyed that machine, requiring me to format its hard drive and load all the software -- a total pain. There are three lessons:

First, never run your machine without some virus checker working in the background checking everything that comes into your machine.

Second, make sure that your checker is up to date. There are a zillion virus checkers. Here's one my IT friends like: CA Anti-Virus r8.1. Here is the free
Evaluation Download.

Third, always keep one clone of your hard disk that you're sure is clean. That will be an old clone, left in a drawer for total emergenices. That should be loaded with the important software you use every day. When you clone your present working disk, do it to a second clone. You don't want to clone a disk with a virus. But it happens. Hence the need for the old clone in the drawer. Some viruses are so "subtle" they can hang round -- even if you've "removed" them.

If you're curious, Symantec has a writeup on "What is the difference between viruses, worms, and Trojans?" Click here. Suffice they're all nasty in different ways. You don't want any. Trust me.

My dog has a problem:
Morty visits the veterinarian in Boca Raton and says, 'My dog has a problem.'

The doctor replies, 'So tell me about the dog's problem.'

'First you should know, he's a Jewish dog. His name is Irving and he can talk,' says Morty.

'He can talk?', the doubtful doctor asks.

'Watch this!' Morty points to the dog and commands: 'Irving, Fetch!'

Irving, the dog, begins to walk toward the door, then turns around and demands, 'So why are you talking to me like that? You order me around like I'm nothing. And you only call me when you want something. And then you make me sleep on the floor, with my arthritis. You give me this fahkahkta food with all the salt and fat, and you tell me it's a special diet. It tastes like dreck! YOU should eat it yourself! And do you ever take me for a decent walk? NO, it's out of the house, a short pish, and right back home. Maybe if I could stretch out a little, the sciatica wouldn't kill me so much! I should roll over and play dead for real for all you care!'

The Doctor is amazed. 'This is remarkable! What could be the problem?'

Morty says, 'Obviously, he has a hearing problem! I said 'Fetch', not 'Kvetch'.'

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads on this site. Thus I cannot endorse, though some look interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Michael's business school tuition. Read more about Google AdSense, click here and here.

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