When you have scant data and stacked odds, we call it speculation. There is simply not a strong rational basis to value the company this way. As a discipline, investing is based on the intent to avoid downside risk. If you apply that standard, putting money into Facebook is highly speculative. If you can afford to lose your wager, you are at liberty to speculate. If you can’t — if you’re like the Nicklebys — manage your risk to preserve your capital.
Always remember that the sheep-like behavior of so-called investors is a given in a capitalistic society. And the sheep are prone to mania and panic.
Unlike Mr. and Mrs. Nickleby, may we teach our children to make wise investments and avoid unwise speculation.
Timothy R. Clark is the founder of TRClark LLC, a management consulting and leadership development organization. His new book, "The Employee Engagement Mindset" was recently released from McGraw-Hill. Email: email@example.com.
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