The IPO of Facebook is the flavor of the month, and analysts are buzzing all over the place with questions such as “Who is getting rich?” and “How high will it go?”.
Charles Rotblut of the American Association of Individual Investors notes that investors always need to be mindful of the difference between an investment and a speculation, especially during frothy market cycles. Money quote:
This brings us back to the key difference between an investment and a speculative trade. An investment is a commitment to holding reasonably priced securities as long as their underlying fundamentals and business models remain attractive. A speculative trade is a short-term position designed to take advantage of expected price movements. A planned long-term investment can turn into a short-term trade if the price unexpectedly jumps, but a short-term trade should never turn into a long-term investment.
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