Wellfleet Partners, inc.

Dear Friends:

In our last communication dated November 4th, we discussed the opportunities afforded by the small cap marketplace. Since October 8th, the Russell 2000 index of small caps have surged 25%. Since the small caps were beaten down the same if not more during the recent summer meltdown and a dollar earned at a small company is the same as that of a large company, it was an obviously attractive sector to look into.

Before we allow our eternal optimism and enthusiasm to drive us back whole heartily into the market, a word of caution. Wall Street is about ebbs and tides, peaks and valleys. Human nature dictates great optimism when stocks go up and utter pessimism when they fall. We become vulnerable when we allow our emotions to rule, when we misinterpret information or distort the truth. The emotionally driven, non-rational recent appreciation of Internet related stocks is all about collective and unbridled enthusiasm. Investors are now connected through a vast array of telephones, chat rooms, airwaves, cable lines…, and are bombarded by a wide assortment of potentially relevant and often irrelevant information about their investments. With novices trading their own accounts and widly disseminated upbeat information about their investments. With novices trading their own accounts and wildly disseminated upbeat information on the home front, it was not surprising that so many investors were blind sided by the economic disasters in Asia, Russia and Brazil. When news of the world financial markets turned negative coupled by the escapades in the White House, human nature dictated panic and massive pessimism. I too was guilty tolling all who would listen that the market was extremely dicey and that "cash is king".

As a professional, I yearn for a return to the days that a company's inherent value of its business and assets took precedence over its Internet related potential. Be wary of the collective enthusiasm, be your own best investor. Research your choices, stay in fields that are enjoying wide spread growth. Maintain your discipline especially when it comes to diversification in the small cap arena. Buy experienced management and read everything you can get your hands on. Even though much of what you will read will be conjecture and rumor, at least you can make an informed decision.

The JANUARY EFFECT

As we get close to the end of 1998, there are certain historical advantages available to investors you should be aware of. One common anomaly is the "JANUARY EFFECT", the excess return of small, capitalized stocks during the first month of the year. It is a seasonal broad market during the month of December, traditionally investors sell stocks that have losses to reduce the capital gains of other stocks sold during the year at a profit. An informed investor has the opportunity of purchasing these stocks that are seasonally out of favor and then watch as the January effect takes place when abnormally high returns occur. In particular, the micro-caps perform the best during this period and often receive the majority of its yearly appreciation during this month. The average returns for micro-cap in January is 8.6% compared to small caps 4.8% and only 1.9% for the market as a whole and micro-caps have outperformed the other markets 89% of all January's since 1926 (Bloomberg Press).

Recently, the January Effect has been shifting to December as well as institutional investors and mutual funds, whose tax year generally ends in October or November, take their capital losses during those months and make purchases in December. Individual investors, many of whom are becoming increasingly sophisticated with the advent of online trading, are following suite and using their year-end bonuses to influx capital into the marketplace. Finally, money managers whose performance is marked to the market at year-end, often buy their particular chosen stocks to push up the prices used to value their portfolios.

Several factors are common in stocks that perform the best during the aforementioned December-January periods: Low priced securities produce greater excess returns; Stocks that have lagged during the year and/or trading close to its yearly lows; Value -oriented stocks with low price to book ratios; Stocks with high or growing liquidity; and Stocks in the fields of health care, telecommunications, retail and technology. Surprisingly, companies in the financial sector and utilities do not seem to be candidates for the January Effect nor does growth over the past year have a substantial
bearing.

Although there are numerous candidates, I have purchased Response USA, Inc. (NASDAQ Symbol "RSPN"), Concurrent Computer, Inc. (NASDAQ Symbol "CCUR"), Synergy Brands, Inc. (NASDAQ Symbol "SYBR"), Eateries, Inc. (NASDAQ Symbol "EATS") and All American Semi-Conductor, Inc. (NASDAQ Symbol "SEMI"). Each in my opinion, is both fundamentally sound and could take advantage of the aforementioned "January Effect".

My associates and I at Wellfleet Partners, Inc. wish you and your family a very happy and healthy holiday season and G-d Bless. I hope to hear from you soon.