Every new year, a lot of us reflect on the successes and drawbacks of the past year and what our resolutions for the upcoming year will be.  For my list, I like to include both short-term and long-term goals.  The short-term goals are easily achievable within the span of one year and ensure that I will accomplish something.  For example, a short-term goal might be to cut living expenses by 10 percent, to save another three months of expenses in the emergency fund, or to increase net worth by 15 percent.  The long-term goals are more of a work-in-progress, such as starting and growing your own business.  Being an entrepreneur is a years-long process, of which I am at the initial stage.  Coming up with viable business ideas that you are passionate about may take the entire year or more.  Now I am not saying that one should procrastinate over these long-term goals.  But as long as you are working actively and deliberately towards your goal, you should not feel frustrated when January 1, 2009, rolls around, and you feel that you haven’t gotten as close as you have towards achieving what you wanted.  You are already ahead of the game.   

As we approached the end of 2007, I spent some time reviewing my stock portfolio.  It’s part of my holiday tradition.  Over the years, I have made a habit of doing this to see if there are any tax losses that I can take to minimize that year’s tax bill.  One stock in particular was giving me a bit of heartburn.  I had bought U.S. Steel (NYSE: X) in early November of this year after doing some research on steel stocks.  U.S. Steel seemed like a good bet because, unlike foreign competitors, it was relatively insulated from recent increases in raw material prices due to the fact that it has its own iron-ore and coke supplies for its U.S. plants.  U.S. inventory levels were at historic lows and U.S. steel prices were lower than comparable products in Europe and China. There was also talk of consolidation in the U.S. steel industry, which might make U.S. Steel a takeover target, and it was trading at a discount compared to steel companies in China. 

 I purchased the stock at $102.00 a share, only to watch it plummet to $87.00 a share in the next couple of weeks.  Needless to say, the drop was severely distressing, and I began second-guessing myself about the reasons why I purchased the stock in the first place.  I started mentally beating myself up for not doing more research, and thought, this $1500.00 loss is going to hurt.  My anxiety levels rising, I seriously contemplated dumping the stock and cutting my losses.  But I ultimately held off, deciding that I hadn’t actually lost the money yet and wouldn’t do so until I sold the stock.  Thankfully, in the last month, the stock has rallied, climbing back to $119.00, as of last Friday.  I am breathing a sigh of relief, not only for the fact that the stock has come back, but also that I didn’t succumb to my emotions.  Ironically, giving in to worry and anxiety would have caused me more worry and anxiety if I had seen the stock recover, after having sold it at $87.00.  Of course, sometimes your instincts are right, as in the case of another stock that I purchased but promptly sold at a small profit because I ultimately didn’t feel good about the long term fundamentals.  However, in this case, I had done the research, and nothing had changed with respect to those facts.  Rather, it was just the market moving up and down as it does from day to day, many times without any particular reason specific to your stocks.  I was just in a tizzy because I thought I had lost $1500.00, something like what a gambler feels after a bad night at the blackjack table.  Warren Buffet’s brilliant success in the stock market is largely due to the fact that he doesn’t watch stocks go up and down on a daily basis; he buys based on good fundamentals in the stock and the industry.  This episode taught me to work on my stock-picking and stock holding skills.  Both really go hand in hand for successful stock investing.

I borrowed “The Magic of Thinking Big” by David J. Schwartz, Ph.D (1959, 1965, Prentice Hall) from the library a couple of weeks ago.   Once I started reading it, I could not put it down.  Although the book contains some dated references (Edward R. Murrow, anyone?) due to the fact it came out over 40 years ago, it otherwise reads as though it was published now.  This says a lot about the content of this book - a motivational tool for anyone trying to make the most of herself and achieve personal success.  A couple of the more compelling chapters in the book include:

-Cure Yourself of Excusitis, The Failure Disease.  In this chapter, Schwartz describes how certain people suffer from “Excusitis,” claiming that such things as health, intelligence, luck, and age prevent them from taking action and achieving success.  Schwartz goes through each of these excuse categories, with anecdotes about real people, to show how these excuses are really smoke screens in people’s own heads that hold them back.  Schwartz notes that people at the top of their respective fields have superior attitudes and the drive to succeed.  Reading this chapter, I thought of at least a dozen friends and acquaintances who have the disease ”Excusitis.”  These people talk frequently about wanting to be their own boss, make more money, lose weight, get a girlfriend, etc., but they have a thousand and one excuses for not making the leap to achieve.  One friend claims that he wants to become a real estate investor, but says that he has no time to do any research or locate properties.  I know for a fact that this friend watches movies on DVD nonstop when he is not working at his regular 9-5 job.

 -Get the Action Habit.  In this chapter, Schwartz discusses how people who take action on their ideas achieve are far more successful than the passive people that talk a good game about their ideas but never implement them.  Schwartz points out one very insightful characteristic about passive people - that many of them postpone doing things because they want to wait until conditions are perfect to act.  Usually what happens is that the”perfect time” never comes or some other event occurs that makes the opportunity too late to act upon for these passivisits.  Schwartz profiles one person, Mr. C.D., a civil servant at the Customs Service who had become dissatisfied with the regular hours, confining work, low pay, and little opportunity for advancement.  Mr. C.D. realized he could use his customs expertise to start an importing business, but 10 years after he came up with the idea, was still working at the Customs Service.  According to Mr. C.D., he had to postpone his plans because of a new baby, recession, little capital, trade restrictions, etc.  As Schwartz points out in his book, there will never be a perfect time to act on an idea, and people like Mr. C.D. have to expect that obstacles and difficulties will happen with any venture.  Again, I can tick off a list of acquaintances who have never acted on their desires and wishes because they suffer from “analysis paralysis,”  analyzing an idea to death until they convince themselves that they shouldn’t act.  One friend is a yoga instructor who wants to start a yoga studio, but has yet to take any action, 15 years after she began dreaming about the idea. 

There are numerous other chapters that I will not summarize here, but suffice it to say that the book as a whole is not only sharp and insightful in its content, but also an entertaining read.  Schwartz peppers the book with anecdotes about his own experiences to prove his principles.  With the start of 2008 approaching, this might be a good source of new year resolutions.

The country’s biggest banks - Bank of America, Citibank, and Wells Fargo - to name a few, are suffering the severe financial fallout of bad subprime loans.  As profiled in today’s “Power Lunch” program on CNBC, it has gotten so bad that Bank of America has announced to its employees that it will no longer be supplying hand soap, sugar-free hot chocolate, flavored teas, and crackers, among other amenities.  What’s next, toilet paper?  These dire financial straits suggest that banks are going to be even more aggressive about pursuing other sources of revenue, including the much hated, but extremely profitable bank fees that they levy on unsuspecting consumers.  A couple of months ago, I was shocked to discover a $10.00 inactivity fee on a secondary checking account that my husband and I maintain at Chevy Chase Bank.   I spent about 20 minutes on the phone disputing the fee until they finally removed it.  What really upset me was that this fee was never disclosed to us when we opened the account.  I’ve also successfully disputed a $9.00 service fee levied on my Bank of America account.  However, Citibank declined to remove a 3% foreign currency conversion fee on my Mastercard, even though I pointed out to them that other credit cards did not charge such a steep fee.

Next time you get a bank statement or credit card statement in the mail, make sure to watch out for any inexplicable fees that have been deducted from your account.  Banks are looking for any source of revenue that they can find, and existing customers are usually the low-hanging fruit.  Any mistakes or new fees that they levy, they are betting that you won’t call to dispute the fee, and cha-ching$, they have a few more bucks in the till.  This cash goes a long way in the executive boardroom.  Take a look at Bank of America CEO Kenneth Lewis’ compensation package, which, with restricted stock, totalled over $22 million in 2006 (Feb. 16, 2006 Reuters).

President Bush’s recent plan to bail out hundreds of thousands of subprime borrowers facing steep upward adjustments in their mortgage interest rates raised blood-boiling ire across the country.  Many responsible homeowners who exercised fiscal restraint during the recent real estate bubble felt that the government’s plan was an unfair handout to reckless homeowners.  Since the plan was announced, print and television media has aired all kinds of stories about subprime borrowers that tug at the heartstrings, especially around this holiday time.  Now I have to say upfront that any subprime transaction that involved outright fraud should not be tolerated.  But that is not the situation for a lot of these subprime borrowers.  Instead, their problems arise from dumb decisions.

Take the recent article in the Wall Street Journal, “Mortgage-Relief Divides Neighbors,” December 17, 2007.  The article discusses the plight facing a community in California, where numerous houses on a local street are in foreclosure.  The story profiles the Oropezas, a dual-income family with two kids.  After buying a home in 2004, the Oropezas refinanced several times, pushing their mortgage obligation up to over $800,000, even though the initial purchase price was only $550,000.  They used the money to pay off credit card debt and to finance home improvements like a backyard waterfall.  The family tried to sell in 2006 for a price that would pay off their mortgage, but to no avail.  With mortgage payments mounting, the family lived off of credit cards, but eventually stopped paying altogether.  They moved to Texas, abandoning the California home, but not before taking a Caribbean vacation and buying a Lexus and Suburban SUV with no money down.  The article quotes Mrs. Oropeza as saying that “we are sad because people think we are a bunch of flakes who walked away from this house and tried to make money.”  It also notes that Mr. Oropeza called the toll-free number for the government mortgage relief plan and left a message.  What is telling here is that the Oropezas didn’t face a medical emergency, loss of a job or spouse, or even a reset in their mortgage interest rate.  The Oropezas’ situation unfortunately embodies the attitude of entitlement that our consumer-driven culture fuels.  For entrepreneurs, this kind of attitude in the busines world is a death wish, but not as rare as you might think.  I’ve seen business owners who have insisted on handmade teak furniture for their offices and country club memberships, even as the business is bleeding red ink.  One business owner that I knew some years ago readily took money from her 70 year old mother when she ran out of cash to operate her law practice, even while she squandered office funds on a Mercedes and several assistants that did non-office tasks such as taking her clothes to the dry cleaners.   Homeowners like the Oropezas who mismanaged their finances would be lucky to get any financial relief from the government.  In the business world, however, it is truly sink or swim.  So, before you decide to stretch the business line of credit to lease a new car or buy brand-new furniture for the office, remember that the calvary will likely not be coming to rescue you.

I was reading Emotional Intelligence, Bantam Dell Publ., 1995, by Daniel Goleman, a groundbreaking book about psychology and business, published a little over a decade ago.  One of the book’s chapters was particularly interesting.  It discussed an experiment involving marshmallows and four year old children.  The experiment was like this:  the children were given the option of having one marshmallow immediately, or waiting 20 minutes for two marshmallows.  Of course some children grabbed one marshmallow right away while other children waited patiently for 20 minutes to score the two marshmallows.  The researchers tracked these children down years later and discovered that the kids who had resisted temptation were superior students in school, more socially outgoing, and better-equipped to deal with life’s frustrations than the kids who wanted the instant gratification of one marshmallow.  Although the children in this experiment were only four years old, the author concluded that this ability to control impulses can be learned.  So, even if you aren’t sure, like me, that you would have waited an interminable 20 minutes for that second marshmallow, have faith that now, in your adulthood as a budding entrepreneur, you see the light.  Delaying gratification and resisting temptation is one of the core tenets of building a business.  As you toil to cultivate your business like a wilting flower that constantly needs more soil, (expensive) plant food, and endless amounts of water, you have to keep the endgoal in mind.  I live in an area where yuppies roam free, monster-sized SUVs abound, and Nordstroms is only a five minute drive away, but I’ve resisted the desire to upgrade my home, car, and wardrobe, to pursue the dream of building a business.  Admittedly, it can be very difficult to resist impulse, as I eyed the new leather furniture and remodeled party room at my friend’s holiday party last night.  But I bring myself out of green-eyed envy mode, and back to the endgoal, building capital and my business.  The second marshmallow, I think, is going to taste pretty good.

A recent article in the New York Times, “The Many Errors in Thinking About Mistakes,” by Alina Tugend, Nov. 24, 2007, explored a topic that we can all relate to - the fear of making mistakes.  Tugend said “[w]e grow up with a mixed message: making mistakes is a necessary learning tool, but we should avoid them.”  She described a behavioral experiment put on by Carol Dweck, a professor at Stanford, where kids were randomly praised as smart or for their efforts.  Astonishingly, when given the choice of an easy or difficult task, most of the kids that were lauded for their smarts chose the easy one, while the kids praised for their efforts went with the challenging task.  The overall conclusion of the article: that our desire and associated behaviors in trying be mistake-free has robbed us of something greater, learning from experience and our mistakes.

 This article really struck a personal cord with me.  A friend of mine who is a lawyer constantly complains about the risk-averse nature of her profession.  She is a free-spirit by heart, but according to her, is surrounded by colleagues who took the “safe” path through life, going from college to law school, then a large law firm, or government/public interest work.  My friend laments that this structured path of academia and work leads to a culture where minor mistakes are ridiculed, leading attorneys to cover up or blame others.  My friend’s experience may be an overgeneralization of the legal profession as a whole, but it does highlight a stark difference in the legal verses business professions.  In business, trying new things is almost expected, and as long as you don’t lose the business or a large sack of cash, you move on to the next plan with few repercussions.  Ironically, if you don’t try new things and dare to make mistakes as an entrepreneur, you may risk the biggest thing of all, failing to move anywhere at all.  Although my friend enjoys some prestige and a moticum of financial security in her legal position, I would not trade my dreams to build a business for a risk-averse, staid, strict environment where mistakes are not tolerated.  As the NY Times article pointed out, people who shun mistake-making give up the ultimate - the opportunity to grow and learn.