Recent financial news has been dominated by the initial public offering of Facebook.  Morgan Stanley underwrote the initial offering last week of 400 million shares at an initial price of $38 per share.  This served as one of the most publicized IPO’s in the history of the stock market.  At $38 per share, this created an implicit market capitalization of $104B for Facebook.
This level of valuation is approximately 107 times earnings.  For comparison, Apple’s P/E is approximately 13, and the S&P 500 index is valued at roughly 15 times earnings.  …

One of the factors that are important to investment, but are frequently overlooked by market forecasters is the psychology or ‘hedonics’ of investing.  The thing that makes hedonics so important is the fact that our financial decisions tend to be made emotionally, even though they ‘should’ be made with calculating logic and reason.  Because of this, many people have much more emotional difficulty making investments in volatile assets even if the average rate of return is higher.
To demonstrate why this is the case, consider a person whose investments have resulted …