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Faith And The Markets

HAROLD CAMPING, the radio preacher who inaccurately forecast that the Apocalypse would begin on May 21st, made a rookie’s mistake. Any pundit could have told him that when you forecast an event, you should not name a date. But if you are forced into doing so, choose a date so far in the future that you will not be around to be proved wrong.

Religion is largely a matter of faith, rather than scientifically testable propositions. But even in the financial markets, where participants worship Mammon rather than God, faith plays a larger role than its hard-headed participants would like to admit.

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When it comes to assessing the prospects of a company like LinkedIn, a newly floated online business-networking firm, investors rely entirely on the assumption that the company’s future growth can justify the stratospheric level of its current valuation. They have to assess the management’s strategy, the level of competition, changes in customer habits, the economic outlook and many other factors that are extremely difficult to forecast. Buying shares in such a company is a leap of faith by any standard.

http://www.economist.com/node/18744391

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