Blumenthal relates her experience with Beanie Babies to several bubbles and a little about how the hype builds.  A lot of things are like that.  One thing that comes to mind for me are sports cards.  I remember collecting baseball and hockey cards thinking that someday my collection would be worth a lot of money.  Unfortunately, cards don’t hold their value very well, speaking generally.  Rookie cards tend to be the prized possession, but those aren’t even a guarantee.  In 1991/2 I purchased an Ed Belfour* rookie card for $8.00.  Apparently If I’d waited almost 20 years, I could get the card for $1.25** at Check Out My Cards.  I can now pay for .5 nano-seconds of my kids college education.  Even if I could sell the card for $8.00 today, I’d still technically be losing money because inflation.***   That’s not the only card that hasn’t turned out to be the gold mine I expected (I’ll touch on some of my other sports card investment fantasies in a future post).  Granted, there are cards that hold their value and are worth the money, but they are rare and generally are at least 40 years old (They tend to have names like Mantle on them).

It all goes back to the quote above that short-term investors are the only ones to make the money.  There’s no way to predict when a bubble will burst.  Even when an expert nails it, it’s still just a guess, educated and informed as it may be and s/he may be wrong the next time around.  I’m not saying you need to avoid the bubble entirely, just know that you need to get in and get out quick.  My problem was I bought the hockey card at it’s peak.  I don’t think the price went up much past $8.00.  That’s why you need to know what you’re in for, because you may be left holding the bag (you’re lucky if that’s all you’re holding).  That being said there may be instances that holding on may be worth it for the extreme long hual, but you still want to get in low.  Once the real hype has already begun, it’s probably too late.  You need to be able to hold on longer than the crash.  Beanie Babies may be valuable again someday, along with my hockey card, but that may not be for another 100 years.  Then there’s always inflation.

The key to not falling victim is to avoid the emotional rush.  It’s not unlike the emotions that gamblers feel in the casino when they think they might just hit the big one.  Honestly, I find it hard to feel completely sorry for people who lost in the housing bubble or a Madoff scheme.  So many went in thinking they would make a killing and they should have known the risks (Those who returned money after making a killing with Madoff honestly deserve the Medal of Freedom).  On top of that, they should have been aware that things were too good to be true.  It’s that rush or emotional signal saying “you’re gonna make a killing” that hijacks the sensible center.  BUYER BEWARE is the single greatest advice for anything.  But I digress.  I’ll close with another Blumenthal quote “If your investing horizon is too short to take the chance, you should avoid taking the risk.”

*At the time Belfour was a standout rookie goaltender for the Chicago Blackhawks.  Many thought he would be the Wayne Gretzky of goal-tending.

**That’s 50% of the regular price even.  The worst is I ended up with the very same card a week or two later in a pack.

***Today I’d have to sell the card for $12.65 to make a profit.

I was surprised to realize that many businesses, especially in the tech sector, learned from the mistakes of their ancestors. It has been this resilience that prompted me to put together a short list of ways small businesses can survive the current crisis – and even come out on top at the end.

1. Cash is King – Regardless of the size of your businesses, cash is going to be king over the next 18-36 months. Up to even a few weeks ago you could pretty much count on your local bank giving you a small business loan or being approved for a business-use credit card. Unfortunately, the liquidity of the market has “thickened” dramatically and has made those opportunities shrink to almost nothing. You’ll no longer be able to rely on loans and credit to get you through the month. From now on… cash should be your #1 priority.

2. Don’t Focus on Growth – This sounds like bad advice for any small business owner, but the truth is that many businesses are going to continue along the same growth pattern as before and find themselves beat to hell by the time they emerge from this crisis. This is the time when you need to hunker down and just wait out the storm. This will benefit you not only in the short term by ensuring you don’t go bankrupt, but will also put you in the perfect position to make strategic growth decisions after the crisis is over. For example, by keeping you expenses down and your cash account padded, you will be in a position to spend quickly right out of the gate – purchasing your competition or just beating them to key customers – because you have saved for what I like to call the “sunny” day.

3. Focus on Value – Since you’ll be cutting back on expenses, spend time on the things that don’t cost that much money but add value to your business. Instead of spending $10k replacing an old machine, spend $100 in phone charges to re-connect with your customers, or improve customer service. Invent new ways to add value to current products without spending a ton of money. That investment of time and energy will pay for itself 10x.

4. Collect – One of the things you can do to add value to your business and increase cash flow is by collecting on your accounts receivable. If there was ever a time to go after those delinquent customers… now is the time. If you don’t have an invoicing system in place there are tons of free and fee-based services out there – from PayPal to FreshBooks. You can even use Excel as long as you are actively trying to collect that cash.

5. Don’t Give in to Hoarding – During this time when “cash is king” you should avoid buying in bulk or otherwise stockpiling supplies or inventories. Although the parable of the ant and grasshopper might come to mind, now is not the time to be hoarding. That extra spending drives expenses up, depletes your cash reserve, and at the end of the day might be worth nothing. What good is a pallet of copy paper at a discount if you don’t have a business capable of using it. You will always be able to buy these items later even if you pass up a small discount now. That “savings” could prove disastrous to your cash flows.

6. Leverage Technology – There are tons of websites, web services, and other technologies that can help save you money. For example, trade in your $600 flight and $400 hotel for that sales trip to Chicago for an online meeting service instead. These days you can share a presentation, hold a conference call, or even converse via webcam – with nothing but a DSL modem and $50 a month for the services. You can also step up efforts to find better prices on products or services you normally use – by simply performing a simple Google search. Buying you your widgets from ABC Company for the past 5 years shouldn’t prevent you from searching for XYZ Corp who is offering the same widgets at 50% off.

How many deductions should you make on your W-4? My HR person suggested that I only take 1 deduction because I “would get a bigger refund.” Just looking it over though, I didn’t seem to get that huge of a refund this year (about $600) to merit having so much taken from each paycheck. I could take at least 4 deductions now with the family and could have up to 7 by the time I start my full-time job after pharmacy school. Of course, I will be making a lot more then so would it come back to bite me come April 15? These are the things I ask myself during a boring lecture.

AJ’s question is one a lot of my friends and family ask, but they always seem to get a different answer depending on who they ask. A lot of people say, like AJ’s HR person, that by taking the least amount of deductions you can “get a bigger refund” come tax time. The bigger refund, however, is only the result of Uncle Sam taking too much from your paycheck each month and then being forced to hand you the excess in April.

There are a few things wrong with this way of thinking.

The first (and biggest) problem is that this method gives Uncle Sam an interest-free loan throughout the year. Banks don’t seem to do this, so why should you?

The second biggest problem is that instead of giving away free money, you could actually be earning money on that amount. Imagine, for instance, that Uncle Sam was taking $100 too much from each paycheck of yours. After 24 paychecks or so you will have given the Government $2,400. When tax season arrives, the Government will give you your $2,400 back, but not a cent more. However, if you had filled out your W-4 correctly and invested that $100 in just an online savings account earning about 5.25% you could earn yourself a cool $60. It doesn’t seem like a lot, but it’s better than giving it to Uncle Sam – which is what you are effectively doing by giving HIM the free loan.

So how should you fill out your W-4? My advice is to work backwards.

Step 1: Look at last year’s tax return, use a simple online calculator, or even your favorite tax program to estimate what your taxes are going to be for the year.

Step 2: Using that amount, you’ll want to choose the amount of deductions that will (honestly) allow your employer to withhold enough taxes so that by the end of the year you’ll owe $0 in taxes, and Uncle Sam won’t owe you a dime either. You can use a simple W-4 calculator like this one, or go for something fancy like this one. Whichever one you choose, you can tweak the amount of deductions made and see what the final deduction amount will be after one year. Remember, your goal is for your withholdings to match your estimated tax bill.

That’s it! Only two steps.

Now of course your situation will change. You’ll earn a little more, or be able to deduct a little less in April, but hopefully by the time taxes are due, you’ll only owe a small amount. And if you’ve been saving that extra amount that would have normally been deducted, you can even pay that small amount due with your earned interest!