View source for Talk:Speculation

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== Dark side questions ==
The first paragraph of the section ''Some perverse effects'' reads:

:''Speculation does have its dark side though. It is said to divert resources away from those who are adding value to the economy. In the earlier example, producers and consumers are actually generating value for the economy and ideally, all the benefits from the transaction should accrue to both or either of them. However, once speculators join the transaction, a component of the gain generated by the transaction will accrue to the speculator, despite not generating any value for the economy in return.  The investor [[Warren Buffett]] is a vocal critic of speculation. A more explicit example is stock trade. Speculators gain (supposing they are successful) at the expense of investors who hold the stock for dividend and capital gain.''

This is mostly or entirely unsubstantiated here.  Who says it diverts resources?  We should avoid phrases such as "it is said...".  Which is the "earlier example"?  How does a consumer "generate value", surely only producers can do this?  If a speculator removes value when he gains on a transaction then surely he must provide value when he loses?  And, of course, often (s)he will lose.  If the producer chooses to sell to a speculator who are we to tell the producer he is not getting good value?  What has the opinion of one man to do with this?  What is "stock trade" and why is it a more "explicit example"?  How do those holding for "dividend and capital gain" lose out to speculators?

[[User:Psb777|Paul Beardsell]] 08:32, 21 Jan 2005 (UTC)

:I agree with you, this "diversion of resources" is pure mental ...speculation, and popular folklore, nothing substantiated. But how to fight prejudiced opinions? --[[User:Pgreenfinch|Pgreenfinch]] 09:25, 21 Jan 2005 (UTC)

::How?  Write an article in an encyclopedia!  I think I will cull the para quoted above from the article pending someone providing decent references.  What say you?  [[User:Psb777|Paul Beardsell]] 23:20, 21 Jan 2005 (UTC)

:::Do it!  [[User:-oo0(GoldTrader)0oo-|GT]] <!--Template:Undated--><small class="autosigned">—&nbsp;Preceding [[Wikipedia:Signatures|undated]] comment added 04:51, 23 January 2005 (UTC)</small>

Damn speculators running up crude oil prices. That hardly makes the market "more efficient."  <small>—Preceding [[Wikipedia:Signatures|unsigned]] comment added by [[Special:Contributions/72.146.209.110|72.146.209.110]] ([[User talk:72.146.209.110|talk]]) 03:01, 13 June 2008 (UTC)</small><!-- Template:UnsignedIP --> <!--Autosigned by SineBot-->

: Damned speculators running crude prices up?  
: Okay:  ''I give up''; precisely what evidence have you or anyone else to support that popular (but, I would suggest, quite ill-informed) speculation?  Those agencies exercising futures trading oversight in the USA weekly report precise numbers of obligations held by the commercial (both producing and processing) interests — as well as the long and short positions held by those filthy, evil speculators — to either make or take delivery under the terms of every federally licensed contract ("futures") market in America. In the last week of July, 2007, when the world-wide price of petroleum was $78.00 per 420 gallon barrel, the total net ownership of  ("long" positions in) crude oil futures contracts listed on the New York Mercantile Exchange by speculators so large as to require the reporting of one's position was 127,491 contracts (at a thousand barrels per contract). Small speculators were short 7,803 contracts. The commercial interests, who presumably know better, were on the other side (the "short" side) of that market, vis-a-vis the large speculators, to the tune of 119,688 crude oil contracts. The total obligations of large speculative interests in crude oil futures contracts on the NYMEX (precisely balanced by the commercial interests and the small speculators on the short side of the market as the "real" world price dragged everything higher) was roughly 1.6% of a single day's domestic consumption in the USA, roughly 1/6 of the Strategic Petroleum Reserve, but little more than one-half of one percent of worldwide annual production.
: ''Yet here's the telling fact, dear friends'':
: During the year in which the world-wide price had nearly doubled (and the futures prices had inexorably followed — not led, as is popularly but erroneously imagined), those filthy, evil speculators had driven the price to the moon, as the casual observers and the craven demagogues would have you believe, by — guess what! — ''selling, not buying'' more futures contracts in crude oil. Kindly explain to the masses how speculators drive the price ''higher'' by liquidating (''reducing'', which in this case means ''selling'') long positions in crude oil: the net long speculative position reported by the government on the occasion of the $147 price for crude oil had ''dropped'' by 99% to only 303 contracts (303,000 barrels) of crude ''at the peak'' as of 11 July of 2008. Speculators held 13,829 contracts, but 51% of the speculative position was long (obligated to take delivery, for having bought futures), while 49% of the speculative position was short (obligated to take delivery, for having sold futures), while the commercials were net short, but only 303,000 barrels, precisely offsetting the net long speculative position of 303 contracts at the peak in the second week of July, 2008. During that year of rising price, the net long position of the "large" speculators had dropped 95% to 7,066 contracts, while the net position of the commercials throughout had been ''short'', not long, the futures market, and that is quite characteristic (and rational) behavior of a commercial in the context of tightened and possibly scarce supplies, when every intelligent purchasing director builds an increased inventory in the face of the fear of a shortage, but sells futures contracts to neutralize the risk of loss in the value of that supply-requirement inventory, thereby reducing the premium values to which distant futures contracts normally rise to reflect the cost of carrying such an inventory when supplies are ample. Otherwise, as is true in a market (like gold), in which there is no likely or actual shortage, distant futures prices reflect today's cash price plus a premium that fully reflects the cost of financing the commodity, plus the cost of storage and insurance for the period until delivery.
: Everything about the internal condition of the futures market solidly supports the understanding that the rational commercial response to increasingly tight supplies ''and not speculation'' has driven the price of crude oil upward all this time.
:: ~~ [[User:Wortschätzer|Wortschätzer]] ([[User talk:Wortschätzer|talk]]) 16:28, 18 July 2008 (UTC)

:::There is nothing dark about speculators or speculation. This is all just fanciful conspiracy theory crap written by peasants who don't understand the workings of what goes on at the exchange. Do not listen to any of them. How could they possibly know what a speculator is when likely none of them are speculators. Only a speculator himself can tell you what the function and activity is. This is the same crap that got Cutten & Livermore banned from the exchange back in the day. Thankfully, as time has past, those in congress and Canada federal government understand that those who can't fathom what goes on behind the doors of the exchange, aren't qualified to pass judgement on the characters involved. Nothing but an old fashioned witchhunt.[[User:Danceking5|Danceking5]] ([[User talk:Danceking5|talk]]) 09:44, 24 June 2012 (UTC)

== Speculation ==
I came here for information about speculation as in "Reasoning based on inconclusive evidence; conjecture or supposition", not about speculation as it applies to the finance world.  How can we split this page into a separate page?  [[User:Mmj|mmj]] 08:42, 10 Feb 2005 (UTC)

:I personally think that speculation in finance or not is the same thing, you are "Speculating" about something with no evidence that your statement will be proven to be true. So I follow your suggestion but I would keep it all in the same page, explaining about the concept of "Speculation" in the other cases than finance as well."Speculation" is not a finance thing of it's own and does not imply anything different than other cases when one is "speculating" about a subject. I would just keep the additional information about financial speculation as being a form of speculation that is legally accepted and how it's used. Because for example "speculation" any other area like in judicial courts is rejected and cannot be used to reach any conclusions.--[[User:Slamcool|Slamcool]] 13:57, 5 November 2007 (UTC)

I found the last couple of lines in this section a little confusing and sounding a little contradictory - what do others think about this. Just something I noticed while reading this wiki entry.

P1
:''"...This is known as an economic bubble. Such a period of increasing speculative purchasing is typically followed by one of speculative selling in which the price falls significantly, in extreme cases this may lead to crashes."  -> It is strongly emphasised that speculation creates misspricings and bubbles."'' However the next paragraph then carries on saying:

P2
:''"Overall, the participation of speculators in financial markets tends to be accompanied by significant increase in short-term market volatility. This is not necessarily a bad thing, as heightened level of volatility implies that the market will be able to correct perceived mispricings more rapidly and in a more drastic manner."'' -> This in some respect is true, however it implies that speculation will correct mispricings more rapidly, which is quite clearly exact opposite of bubble and misspricings creation due to speculation. So the question comes up, what does speculation really side-effect?!  <small>—Preceding [[Wikipedia:Signatures|unsigned]] comment added by [[User:Martin.david.sykora|Martin.david.sykora]] ([[User talk:Martin.david.sykora|talk]] • [[Special:Contributions/Martin.david.sykora|contribs]]) 23:01, 8 July 2008 (UTC)</small><!-- Template:Unsigned --> <!--Autosigned by SineBot-->

==Scare quotes==
Why is "true worth" in scare quotes? - [[User:FrancisTyers|FrancisTyers]] 05:53, 14 February 2006 (UTC)

== Unsourced statements ==
The following are unsourced: "Virtually all long term investors, even those who buy and hold for decades, may be classified as speculators"  "A degree of speculation exists in every financial decision". They seem to use a definition of speculation that may not be universally accepted. [[User:Shawnc|Shawnc]] 10:24, 25 April 2006 (UTC)

:Seems to me that to speculate is to bet on the future. --[[User:Pgreenfinch|Pgreenfinch]] 13:38, 25 April 2006 (UTC)

::I (who accept the responsibility for most of that paragraph) agree with both points of view. The dictionary definition of speculator suggests "higher than average" risk is required. However, I was making the (hopefully) inarguable point that it is merely a matter of degree. All financial transactions with an uncertain outcome have a degree of speculation in them. To be pedantic, probably ''all'' stock investing is "higher than average risk" when you compare it to investment in bonds, savings, etc., which would make all stock investors speculators according to the dictionary definition. Should we demand that there is a clear dividing line between speculators and "normal investors", or should we emphasise that there is a continuum of speculation to different degrees. 
::Another related point is the the factor of time. A short term speculator may risk a ''smaller'' fraction of his capital on each transaction than many people who invest long term, but the transactions are far more frequent. Is this "higher than average risk" or is it just more frequent risk taking?
::I should mention that I am a speculator, by anyone's definition. [[User:Elroch|Elroch]] 23:57, 25 April 2006 (UTC)

::On further reflection, I'm half inclined to say it would be less confusing if the article concentrated only on speculation of the more extreme types. However, this would leave rather little of the current text. For example, where it discusses bubbles and crashes, it is widely accepted that these are to a large extent driven by the behaviour of non-professionals enthusiastically joining in a bull market, and getting out of their positions when it ends - extreme speculators don't create the bubble or cause crashes directly (there is some disagreement about this in the case of crashes, but my opinion is that they do little more than shake a tree with ripe apples on it in most cases). The article [[cornering the market]] explains what can happen when anyone tries to control the market, rather than taking advantage of what it is doing. Really, I suppose the best thing to improve the article would be to discuss the activities of high profile speculators, as that is of widest interest and clearly on topic. [[User:Elroch|Elroch]] 16:31, 26 April 2006 (UTC)

:::Several of the greatest investors in the U.S., including Warren Buffett, emphasize the difference between speculation and investing. 
:::Actually, I arrived at this article because my link to "land speculation" took me here. I do not feel that this article has much to do with land speculation. Unfortunately, Wikipedia does not appear to have an article on land speculation or land speculators, particularly as they relate to the 19th Century. [[User:Pooua|Pooua]] 09:33, 26 May 2007 (UTC)

: Classifying "virtually all" investors as speculators are silly, because if you define the word that widely, it has no meaning whatsoever. If buying *anything* for use in the future is speculation, what, then, is the difference to investing ? This conflicts with normal meaning of the word. I propose instead that *speculation* is investment-activity that intends to make a profit from short-term fluctuations in the market, as opposed to by long-term underlying profits. If I buy a stock, expecting the company will turn a profit and deliver a dividend for the next 20 years, that's investment. If I try to outguess the market and buy a stock with the intention of holding it a few hours and selling at profit, that's speculation. Yes, the two are overlapping, there'll always be grey areas. But that's not the same as claiming the two are the same. "tall" and "short" aren't the same just because some people have a heigth that is hard to classify into one of the two. --[[User:Eivind|Eivind Kjørstad]] 13:03, 24 August 2007 (UTC)

:: "Buying 'anything' for use" is not speculation at all. 
:: The purchasing manager carries no inventory in the face of an abundant supply of material required for production, whether it's copper for toasters, or petroleum for a plane-load of passengers. She purchases only that needed immediately. But in the face of the risk of uncertain supplies, she builds an inventory, not as speculation, but to guarantee a price or an ample supply for scheduled consumption. The futures market always tells us when commercial interests show by their actions they regard the supplies as potentially inadequate: the normal premium in the more distant futures contracts shrink (and under severe shortages fall from a premium to a discount) as a consequence of commercial sales to protect ("hedge") the value of an increased inventory. The normal premiums permit a purchasing director to earn a payment from the futures market that covers the cost of storage, but those discounts in the distant months when supplies are tight permits a purchasing director to build an inventory in the futures market, with a substantial reduction in the cost of storage (reduced premiums = lower storage costs).
:: An "investor" who purchases for profit almost always assumes some risk in the process, and to that extent does indeed engage in speculation, in effect, unless there is no possibility that a subsequent sale would produce a loss. A bond loses market value if interest rates rise above those prevalent at the time of the purchase. Unless one can say for certain that a bond will never be sold before its maturity, the purchaser of a bond assumes that market risk and hence that investment carries some speculative risk. (The flip side here is the "risk" that interest rates will ''fall'', providing the opportunity to sell the bond at a profit in a rising market for bonds.) Otherwise, holding a quality bond until maturity produces the expected, acceptable, and predetermined return of interest and principal, and involves, in effect, no speculation.
:: So whether one "invests" or "speculates" is a matter of intent, to a degree, but also a matter of effect. Look at all those  not-so-careful purchasers of a home under flagrantly over-leveraged conditions, who, like it or not, can only be described empirically as having engaged, in effect, in speculation, if the consequence is losing one's home. Here the speculation is not in the home or its purchase, but the financial conditions and the obligations assumed in the formation of the loan(s).
::: ~~ [[User:Wortschätzer|Wortschätzer]] ([[User talk:Wortschätzer|talk]]) 19:36, 27 July 2008 (UTC)

::::I understand what you guys are saying, but its not so scientific. The term speculation and speculator, in reference to this page, is an old capitalist system term. This is what this page is about. The term speculator is EXTREMELY old, like 1500s old. It specifically has to do with TRADING securities, for expectation of profit. I agree with the guy though who says alot of 'investors' are actually speculators. Many of them hide under the term 'investor', probably to sound less capitalist. It also has something to do with intent, but more the ACTION of what the trade is about. Speculation is all about price movement, THAT'S IT pretty much.[[User:Danceking5|Danceking5]] ([[User talk:Danceking5|talk]]) 09:52, 24 June 2012 (UTC)

==Needed==
* Sections or new pages are desired in terms of [[Land speculation]] or [[Land speculators]] or [[Real estate speculation]] in terms of public policy, pushes to sprawl and community interests.  [[User:Rauterkus|Rauterkus]] 11:59, 28 October 2006 (UTC)

== Number of market roles ==
Couldn't help but notice that the four market roles here earlier today were reduced to three by removing long- and short-term investing.  Perhaps someone could explain why this was done. [[User:Jnelsonleith|Jnelsonleith]] ([[User talk:Jnelsonleith|talk]]) 00:46, 7 October 2008 (UTC)

:That "4 market roles" is baloney, so it should be changed. There are not four market roles; not hedging, speculation, investing (long and short term), and arbitrage. Go read the wikipedia page on [[investing]]: that page doesn't say that investment is risk-free as this page falsely says, it says it is risk-y. So why has this speculation page been taken over by nonsense? Stop quoting Graham and Dodge that was written in 1934 in the middle of a depression that nobody knew how to get out of. A lot of Nobel Prizes have been given out since then as economics profs have learned about how markets work. [[Special:Contributions/74.68.152.245|74.68.152.245]] ([[User talk:74.68.152.245|talk]]) 17:07, 25 November 2008 (UTC)
:Markets have one role, 2 sides of 1 coin: to bring together people who have capital and people who need capital. There are two "investments" made through one "market investment": the capitalist investing in the company, and the company putting the capitalist's money to work by investing it in business activities, and the risk/reward of the underlying investment is shared with the capitalist in a combination of two ways: interest on debt investing, and capital gain (minus dividends) on equity investing. [[Special:Contributions/74.68.152.245|74.68.152.245]] ([[User talk:74.68.152.245|talk]]) 17:07, 25 November 2008 (UTC)
:Arbitrage is not a role, it is in a sense a "derivative", an investment opportunity that both "takes advantage of" and simultaneously "corrects" for market inefficiency. If you lived in a world where pizza was only available whole-pie, you could set up a business as a pizza slice arbitrageur without making your own pizza pies if you were simply willing to take the risk of buying a pizza and stepping out to the street to sell the slices. If you had a contract that lined up buyers and you sold your slices in advance, purchasing the pizza would be a riskless arbitrage. That is not a role of a market, it is an opportunity that market inefficiencies provide, and as we see in the slice market, that arbitrage opportunity can dry up pretty quickly, unless the inefficiency can be "enforced" as food opportunities are in the lobby of a movie theater are. [[Special:Contributions/74.68.152.245|74.68.152.245]] ([[User talk:74.68.152.245|talk]]) 17:07, 25 November 2008 (UTC)
:The other "roles" exist, but they are roles of portfolio management, not the roles of a market. You can speculate in your portfolio (increase risk), or you can hedge (decrease risk). 
:And finally, there is no real distinction between long and short term investing. Generally people seem to urge that "long term" is somehow more sound than "short term". Well, there are condominiums in NYC that are built on leased land. When the 100 year lease is up, the land goes back to the owner. The building, the condo... poof! The thing you bought is not yours anymore. How much is such an apartment worth in the long term? How much in the short term? The last year, it is worth one years rent for a lease that cannot be renewed. The second to last year, it's worth two years rent, paid in advance. Etc. The point of that little parable was simply to illustrate that we can put prices on future things, and if my neighbor discovers oil in his back yard, it might take 5 years to extract it, but the value of his property goes up today, and you should not imagine that you are going to get a bargain buying my house next door, till we discover that I have no oil and live next door to an oil field. Markets put prices on risky returns, and the prices change today on the basis of the information available. You could say that another role of financial markets is to decouple the long and short term nature of an underlying investment from the long and short term needs of the capitalist investors: markets provide a place that businesses can get capital on one time horizon, from investors with a different time horizon. (This is an interesting parallel to the role of accrual based accounting.) [[Special:Contributions/74.68.152.245|74.68.152.245]] ([[User talk:74.68.152.245|talk]]) 17:06, 25 November 2008 (UTC)

::This is the weirdest page ever. It's definition of "speculation" is entirely its own and its definition of "investment" is unrecognisable to anyone who invests. I think most people understand speculation as people simply throwing money into something in the hope a gains, motivated by greed and not understanding what they are doing. It isn't based on any great difference in principle and in many ways is just a perjorative term for an investor. [[User:Westmorlandia|Westmorlandia]] ([[User talk:Westmorlandia|talk]]) 13:40, 4 November 2011 (UTC)

:::Westmor, "most people" have little information to go by, except what cab drivers tell them a speculator is. Speculation is an activity conducted by professionals mostly, capitalists, participants of wall street. Many public retail speculators trade, but they often blow out their accounts. Speculation is different from investing, its not the same thing, and only those who actually do it every day would understand what I'm talking about.[[User:Danceking5|Danceking5]] ([[User talk:Danceking5|talk]]) 22:01, 24 June 2012 (UTC)

== example in first para ==
In the [http://en.wikipedia.org/w/index.php?title=Speculation&oldid=247047766 current version], the first paragraph contains an example (airlines and oil futures), together with a comment about why it may not in fact be applicable.  This suggests to me that it should be replaced with a better example.  &mdash;&nbsp;''[[User:Alan012|Alan]]''<sup>[[User talk:Alan012|✉]]</sup> 20:48, 24 October 2008 (UTC)

: well, instead it has been replaced by utter BS :) I wrote what you were commenting on: I agree that it was not that good, I simply put it in because it was vastly better than what came before. However, offering the example of why it may not be true I think is a good thing. There are a lot of investment noobs coming to wikipedia, and I think it is a good idea to illustrate for clarity, and then point out that things may not be as simple as they appear on the surface. People should not be taking investment advice from here, just learning. [[Special:Contributions/74.68.152.245|74.68.152.245]] ([[User talk:74.68.152.245|talk]]) 15:19, 15 November 2008 (UTC) And, it just occurred to me, the difference between an example that is always true and an example that may be true (in this context) is the difference between a perfect hedge, and the more ordinary variety, a hedge that entails risk.

== investment means "no risk"? total BS ==
The idea on this page, that speculation means taking risk, and investment entails no risk, is total BS. A better definition is that investment encompasses all exchange of cash for longer term assets, and that speculation entails increasing risk, and hedging means decreasing risk.   <span style="font-size: smaller;" class="autosigned">—Preceding [[Wikipedia:Signatures|unsigned]] comment added by [[Special:Contributions/74.68.152.245|74.68.152.245]] ([[User talk:74.68.152.245|talk]]) 15:16, 15 November 2008 (UTC)</span><!-- Template:UnsignedIP --> <!--Autosigned by SineBot-->

:I agree.  "Strictly speaking," that sentence is bogus.  I'm taking it out. [[User:Reddaly|Reddaly]] ([[User talk:Reddaly|talk]]) 02:02, 23 December 2008 (UTC)

::Since it was reverted, I adjusted it again today to reflect to avoid the implication that something is not an investment if it involves risk.  I use the phrase "pure investment" meaning it a little more in the economic sense of the term.  Speculation is a tough thing to define.  I am going to dig into the "Intelligent Investor" to get some of Ben Graham's infinite wisdom on the subject.[[User:NByz|NByz]] ([[User talk:NByz|talk]]) 00:40, 29 March 2009 (UTC)

:::I agree with this - its bogus. You guys have to understand that the media uses the word "investing" most of the time because its not scary or ridiculed, like the word speculator. Since the beginning of our markets on wall street, speculation has had a bad ring to it, and speculators even worse. This goes back to the NYSE and LaSalle Street games. During the great depression, many of the poor peasants in America blamed Speculators for CAUSING their starvation and homelessness, and for many years America has gone into and out of regulation (often wrongly) on speculators. Over the years, society has come to accept that speculation is necessary or our economy can't function, thus those 'ban the speculators' actions don't really happen anymore. But this is why people think the term INVESTING refers to not losing pricipal - which is a total crock of shit. Think of all the "House Flippers" who are actually speculators, they think that, 'buying houses is a safe investment' - yeah right. Only in a rising market :)[[User:Danceking5|Danceking5]] ([[User talk:Danceking5|talk]]) 09:33, 24 June 2012 (UTC)

:::: I agree, I also have a problem with him defining speculation as someone who trades price fluctuations rather than fundamentals. This is just plain in-accurate. In many ways it is safer to trade price fluctuations because it mitigates risk. Speculation to me in negative terms is an action which does not consider or appreciate the possible risks. These can include all types of investments. Two people could make the same investment, one could be speculating while the other is not. It is not about the investment, it is about the risk to that individual as a whole.  <small class="autosigned">—&nbsp;Preceding [[Wikipedia:Signatures|unsigned]] comment added by [[Special:Contributions/2601:681:4A03:6C22:FD88:5A77:2306:32C2|2601:681:4A03:6C22:FD88:5A77:2306:32C2]] ([[User talk:2601:681:4A03:6C22:FD88:5A77:2306:32C2|talk]]) 01:27, 30 January 2016 (UTC)</small><!-- Template:Unsigned IP --> <!--Autosigned by SineBot-->

== Re-organization ==
After adjusting the intro paragraph, I'm tempted to give this article a full re-organization.

Speculation is a difficult thing to define well.  I think this article should present that feeling.  Some of the best ways of defining it is by what it's not.  I want to derive much of the work from the first chapter of Ben Graham's "The Intelligent Investor." into the first section.  Judging from Amazon reviews, "Practical Speculation" isn't really worth buying if you have a financial background... [[User:NByz|NByz]] ([[User talk:NByz|talk]]) 03:20, 29 March 2009 (UTC)

Suggested sections.  Feel free to edit them directly with any ideas you might have.

'''Investment vs. Speculation'''

Actually the title of the first chapter in "The Intelligent Investor" it'll have some good discussion; A shorter version of the etymology section: it mostly lines up with a book called the "dictionary of word origins" that I have; Some examples that show the complexity of speculation vs. investing

:::::I was talking with an Investor friend of mine.  So I asked,
:::::"What's the difference between a Speculator and an Investor?"
:::::reply: "I don't know, let me think about it for a while . ."
:::::[[User:-oo0(GoldTrader)0oo-|-oo0(GoldTrader)0oo-]] ([[User talk:-oo0(GoldTrader)0oo-|talk]]) 22:00, 28 March 2010 (UTC)

'''Benefits of Speculation'''

Significant portions of "The economic benefits of speculation"; perhaps some specifics on techniques?

'''Pitfalls of Speculation'''

Significant portions of "Some side effects"; Need more information on "speculative bubbles" including examples from "Random Walk Down Wall Street" (like the tulip craze... I can't believe that isn't directly mentioned)

'''Government Policy''' <!-- Template:Unsigned --><small class="autosigned">—&nbsp;Preceding [[Wikipedia:Signatures|unsigned]] comment added by [[User:NByz|NByz]] ([[User talk:NByz#top|talk]] • [[Special:Contributions/NByz|contribs]]) 03:19, 29 March 2009 (UTC)</small>

== Move to [[financial speculation]]? ==
I wonder if this shouldn't be moved to [[financial speculation]], and the current [[Speculation (disambiguation)]] to [[speculation]]? Thoughts? --<sub style="border:1px solid #228B22;padding:1px;">[[User:Piotrus|Piotr Konieczny aka Prokonsul Piotrus]]&#124;[[User talk:Piotrus|<span style="color:#7CFC00; background:#006400;"> talk to me</span>]]</sub> 21:51, 3 November 2011 (UTC)

== Suggestions to improve this article ==
{{tld|request edit}}

Hi, I'd like to suggest some changes to this article to improve its content, particularly ensuring that it is factually correct and helps readers understand the topic better. While I'm not personally a financial expert, I have been working with and on behalf of the [http://www.managedfunds.org/ Managed Funds Association] to prepare changes for this article. Due to my work for the MFA, I won't make any edits to this article myself, so I hope that other editors here will review the suggestions and make them if they are reasonable.

To start, I'd like to focus on the ''[[Speculation#Regulating_speculation|Regulating speculation]]'' section. Currently this section is not well-developed and includes some information that does not really belong here:

*The "Tobin tax" mentioned in the section is a proposal that was put forward by [[James Tobin]] and is not existing regulation 
*Similarly, the 2008 plan by German leaders was just that, a plan, and is likewise not a current form of regulation
*The comments from Congressman DeFazio in 2009 are very vague and don't focus on any particular form of regulation, also he appears to be using "speculation" in a colloquial manner rather than specifically talking about how to regulate market speculation

I'd like to suggest removing this information, which I think detracts from providing a good background on regulation of this type of investment. In its place, I propose adding the following wording that I have prepared, focusing on the current regulation in place:

:{{xt|Following passage of the [[Dodd-Frank Wall Street Reform and Consumer Protection Act]], the U.S., Commodity Futures Trading Commission (CFTC) has proposed regulations aimed at limiting speculation in futures markets by instituting position limits. The CFTC offers three basic elements for their regulatory framework: "the size (or levels) of the limits themselves; the exemptions from the limits (for example, hedged positions) and; the policy on aggregating accounts for purposes of applying the limits."<ref name="CFTC Limits">{{cite web |url=http://www.cftc.gov/IndustryOversight/MarketSurveillance/SpeculativeLimits/index.htm#P6_864 |title=Speculative Limits |Publisher=U.S. Commodity Futures Trading Commission |accessdate=21 August 2012}}</ref> The proposed position limits apply to 28 physical commodities traded in various exchanges across the U.S.<ref name="CFTC Position Limits">{{cite web |url=http://www.cftc.gov/PressRoom/PressReleases/pr6260-12 |title=CFTC Approves Notice of Proposed Rulemaking Regarding Regulations on Aggregation for Position Limits for Futures and Swaps|Publisher=U.S. Commodity Futures Trading Commission |accessdate=21 August 2012}}</ref>}}

{{reflist-talk|close=1}}

{{Collapse|1=

<nowiki>Following passage of the [[Dodd-Frank Wall Street Reform and Consumer Protection Act]], the U.S., Commodity Futures Trading Commission (CFTC) has proposed regulations aimed at limiting speculation in futures markets by instituting position limits. The CFTC offers three basic elements for their regulatory framework: "the size (or levels) of the limits themselves; the exemptions from the limits (for example, hedged positions) and; the policy on aggregating accounts for purposes of applying the limits."<ref name="CFTC Limits">{{cite web |url=http://www.cftc.gov/IndustryOversight/MarketSurveillance/SpeculativeLimits/index.htm#P6_864 |title=Speculative Limits |Publisher=U.S. Commodity Futures Trading Commission |accessdate=21 August 2012}}</ref> The proposed position limits apply to 28 physical commodities traded in various exchanges across the U.S.<ref name="CFTC Position Limits">{{cite web |url=http://www.cftc.gov/PressRoom/PressReleases/pr6260-12 |title=CFTC Approves Notice of Proposed Rulemaking Regarding Regulations on Aggregation for Position Limits for Futures and Swaps|Publisher=U.S. Commodity Futures Trading Commission |accessdate=21 August 2012}}</ref></nowiki>

|2=Full <nowiki><nowiki></nowiki> version of the above}}

If these changes seem neutral and acceptable to other editors, I hope you will make them. I have this page watchlisted so please feel free to reply here with any questions. Cheers, [[User:WWB_Too|WWB Too]] ([[User talk:WWB_Too|Talk]] &middot; [[User:WWB_Too|COI]]) 17:30, 22 August 2012 (UTC)

::I think the changes are reasonable and have include them, however I do think there is room for both and so have included your text and reorganised the sections so that the we can keep the tobin tax proposal etc. text but more in context, I have also took the opportunity to add a little bit of historical context. [[User:Sargdub|Sargdub]] ([[User talk:Sargdub|talk]]) 03:07, 5 September 2012 (UTC)

:::Hi there Sargdub, thanks for adding in the Dodd-Frank wording. I think the other changes that you've made have definitely improved the organization and content of this article. I do have one suggestion with regard to the new ''[[Speculation#Proposals|Proposals]]'' section: the wording of the proposal by Peter DeFazio currently includes two quotes, which puts his viewpoint ahead of simply stating what the proposal was—the effect is POV and a bit sensational. How about this as a replacement:

::::On December 3, 2009, U.S. Congressman [[Peter DeFazio]], who blamed "reckless speculation" for the 2008 financial crisis, proposed the introduction of a [[Let Wall Street Pay for the Restoration of Main Street Bill|financial transaction tax]], which would specifically target speculators by taxing financial market [[Security (finance)|securities transactions]]. 

:::What do you think—more neutral and encyclopedic? I’ve also got a few additional suggestions for the article that I plan to introduce later, in case you might have time to consider them when the time comes. Cheers, [[User:WWB_Too|WWB Too]] ([[User talk:WWB_Too|Talk]] &middot; [[User:WWB_Too|COI]]) 14:46, 6 September 2012 (UTC)

::::Agreed, changes have been made [[User:Sargdub|Sargdub]] ([[User talk:Sargdub|talk]]) 22:35, 10 September 2012 (UTC)

== Further suggestions ==
{{tld|request edit}}
Following my suggestions above, I have 4 related changes to propose to improve this article. Some of the current language in the ''[[Speculation#Investment_vs._speculation|Investment vs. speculation]]'' section is misleading. Specifically, the following:

:{{!xt|Identifying speculation can be best done by distinguishing it from investment.}}

This wording is inaccurate, because although speculation is a distinct type of investment, it is still an investment. The way the current wording attempts to draw a contrast between the two concepts is misleading, and is contradicted by the following claim in the section that many long-term investors are in fact speculators:

:{{xt|Thus, many long-term investors, even those who buy and hold for decades, may be classified as speculators, excepting only the rare few who are primarily motivated by income or safety of principal and not eventually selling at a profit.}}

What's more, the U.S. Commodity Futures Trading Commission [http://www.cftc.gov/consumerprotection/educationcenter/cftcglossary/glossary_s defines a speculator] as a particular type of investor or trader: "a trader who does not hedge, but who trades with the objective of achieving profits through the successful anticipation of price movements". Based on this quote and sources including [http://www.iijournals.com/doi/abs/10.3905/jai.2011.14.1.075 this journal article], as I understand it, speculation should be viewed as an investment strategy, not something that can be identified by comparing with investment.

For this reason I'd like to suggest the 4 related changes as described:

*'''Update''' the section title from ''Investment vs. speculation'' to ''Speculation and investment''
*'''Add''' the following paragraph to the beginning of the section, to explain the relation of speculation to investment:

::{{xt|The view of what distinguishes investment from speculation and speculation from excessive speculation varies widely among pundits, legislators and academics. Some sources note that speculation is simply a higher risk form of investment. Others define speculation more narrowly as positions not characterized as hedging.<ref name=Szado>{{cite web |url=http://www.iijournals.com/doi/abs/10.3905/jai.2011.14.1.075 |title=Defining Speculation: The First Step toward a Rational Dialogue |last=Szado |first=Edward |year=2011 | work=The Journal of Alternative Investments |publisher=CAIA Association}}</ref> The U.S. Commodity Futures Trading Commission defines a speculator as "a trader who does not hedge, but who trades with the objective of achieving profits through the successful anticipation of price movements."<ref name=CFTC>{{cite web |url=http://www.cftc.gov/consumerprotection/educationcenter/cftcglossary/glossary_s |title=CFTC Glossary: A guide to the language of the futures industry |work=cftc.gov |publisher=Commodity Futures Trading Commission |accessdate=28 August 2012}}</ref> The agency emphasizes that speculators serve important market functions, but defines excessive speculation as harmful to the proper functioning of futures markets.<ref name=Staffreport>{{cite web |url=http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/cftcstaffreportonswapdealers09.pdf |title=Staff Report on Commodity Swap Dealers & Index Traders with Commission Recommendations |date=2008 |Publisher=U.S. Commodity Futures Trading Commission |accessdate=27 August 2012}}</ref>}}

{{reflist-talk|close=1}}

{{Collapse|1=<nowiki>The view of what distinguishes investment from speculation and speculation from excessive speculation varies widely among pundits, legislators and academics. Some sources note that speculation is simply a higher risk form of investment. Others define speculation more narrowly as positions not characterized as hedging.<ref name=Szado>{{cite web |url=http://www.iijournals.com/doi/abs/10.3905/jai.2011.14.1.075 |title=Defining Speculation: The First Step toward a Rational Dialogue |last=Szado |first=Edward |year=2011 | work=The Journal of Alternative Investments |publisher=CAIA Association}}</ref> The U.S. Commodity Futures Trading Commission defines a speculator as "a trader who does not hedge, but who trades with the objective of achieving profits through the successful anticipation of price movements."<ref name=CFTC>{{cite web |url=http://www.cftc.gov/consumerprotection/educationcenter/cftcglossary/glossary_s |title=CFTC Glossary: A guide to the language of the futures industry |work=cftc.gov |publisher=Commodity Futures Trading Commission |accessdate=28 August 2012}}</ref> The agency emphasizes that speculators serve important market functions, but defines excessive speculation as harmful to the proper functioning of futures markets.<ref name=Staffreport>{{cite web |url=http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/cftcstaffreportonswapdealers09.pdf |title=Staff Report on Commodity Swap Dealers & Index Traders with Commission Recommendations |date=2008 |Publisher=U.S. Commodity Futures Trading Commission |accessdate=27 August 2012}}</ref></nowiki>|2=Nowiki version of proposed}}

*'''Remove''' the following wording from the section, since it lacks support from citations and tries to create a false contrast between "speculation" and "investment":

::{{!xt|Identifying speculation can be best done by distinguishing it from investment.}}

*'''Remove''' the following, as it is confusingly worded, again provides an incorrect view about speculation being distinct from investment and is not supported by citations:

::{{!xt|Speculating is the assumption of risk in anticipation of gain but recognizing a higher than average possibility of loss. The term speculation implies that a business or investment risk can be analyzed and measured, and its distinction from the term Investment is one of degree of risk.  It differs from gambling, which is based on random outcomes.<ref>Barron's {{ISBN|0-8120-4631-3}}{{Please check ISBN|reason=Check digit (3) does not correspond to calculated figure.}}</ref> There is nothing in the act of speculating or investing that suggests holding times have anything to do with the difference in the degree of risk separating speculation from investing.{{Citation needed|date=May 2010}}}}

If these seem like neutral and reasonable edits, I would appreciate if someone could make these for me. Cheers, [[User:WWB_Too|WWB Too]] ([[User talk:WWB_Too|Talk]] &middot; [[User:WWB_Too|COI]]) 22:34, 12 September 2012 (UTC)

::: Having reviewed the content I agree with WW_Too and so have made the changes suggested, [[User:Sargdub|Sargdub]] ([[User talk:Sargdub|talk]]) 06:44, 13 September 2012 (UTC)

== One more suggestion ==
{{tld|edit request}}
I have just one more suggestion to make to improve this article. The first paragraph of the ''[[Speculation#Economic_Bubbles|Economic bubbles]]'' subsection is poorly structured and entirely uncited, with multiple <nowiki>{{cite needed}}</nowiki> tags. Here's what it says now:

:{{!xt|Speculation can also cause prices to deviate from their intrinsic value if speculators trade on misinformation, or if they are just plain wrong.{{fact|date=April 2012}} This creates a [[positive feedback]] loop in which prices rise dramatically above the underlying value or worth of the items.{{fact|date=April 2012}}  This is known as an [[economic bubble]].{{fact|date=April 2012}}  Such a period of increasing speculative purchasing is typically followed by one of speculative selling in which the price falls significantly, in extreme cases this may lead to [[stock market crash|crashes]].{{fact|date=April 2012}}}}

The information this paragraph presents is not wrong, but its wording is slightly misleading and could be significantly improved through careful editing and better attribution. I'd like to suggest replacing this with the following language, which is clearer and supported by reliable sources: 

:{{xt|Speculation is often associated with [[economic bubble]]s, which occur when the price for an asset exceeds its intrinsic value by a significant margin.<ref name=Fleischer>{{cite web |url=http://books.google.com/books?id=1ZASrmGg6uIC&pg=PA40&lpg=PA40&dq=speculative+speculation+bubbles&source=bl&ots=Rb804w8L8x&sig=KfnsUXvuPcYgxBEAyDtbpDFBV8k&hl=en&sa=X&ei=yzI-ULyBGufE0AGDgAE&ved=0CDcQ6AEwAQ#v=onepage&q=speculative%20speculation%20bubbles&f=false |title=Booms, Bubbles, & Busts (The Global Marketplace) |last=Hollander |first=Barbara Gottfried |year=2011 |publisher=Heinemann Library |pages=40-41 |isbn=1432954776}}</ref>  Not all bubbles occur because of speculation.<ref name="Lei">{{cite journal |doi=10.1111/1468-0262.00222 |last=Lei |first=Vivian |coauthors=Noussair, Charles N.; Plott, Charles R. |year=2001 |month=July|title=Nonspeculative Bubbles in Experimental Asset Markets: Lack of Common Knowledge of Rationality Vs. Actual Irrationality |journal=Econometrica |volume=69 |issue=4 |pages=831-859 |url=http://www.jstor.org/discover/10.2307/2692246?uid=3739256&uid=2129&uid=2&uid=70&uid=4&sid=21101009895483 |accessdate=29 August 2012 |quote=In a setting in which speculation is not possible, bubbles and crashes are observed. The results suggest that the departures from fundamental values are not caused by the lack of common knowledge of rationality leading to speculation, but rather by behavior that itself exhibits elements of irrationality.}}</ref> Speculative bubbles are characterized by rapid market expansion driven by word-of-mouth [[feedback loop]]s as initial rises in asset price attract new buyers and generate further inflation.<ref name=Rosser>{{cite web |url=http://books.google.com/books?id=mIluNwn5K8IC&printsec=frontcover&dq=From+Catastrophe+to+Chaos:+a+General+Theory+of+Economic+Discontinuities&source=bl&ots=sffi6g77RM&sig=ZfkG-r3F26azqUGzNkWznJRy_mc&hl=en&sa=X&ei=dEs-UJClHeP46QGGuYG4Cg&ved=0CC8Q6AEwAA#v=onepage&q&f=false |title=From Catastrophe to Chaos: A General Theory of Economic Discontinuities: Mathematics, Microeconomics, Macroeconomics, and Finance |last=Rosser |first=J. Barkley  |year=2000 |page=107}}</ref> The creation of the bubble is followed by a precipitous collapse fueled by the same phenomenon.<ref name=Fleischer/><ref name=Shiller>{{cite web |url=http://www.project-syndicate.org/commentary/bubbles-without-markets |title=Bubbles without Markets |last=Shiller |first=Robert J. |date=23 July 2012 |access date=29 August 2012}}</ref> Speculative bubbles are essentially social epidemics whose contagion is mediated by the structure of the market.<ref name=Shiller/> Some economists link asset price movements within a bubble to fundamental economic factors such as cash flows and discount rates.<ref name=Siegel>{{cite journal |url=http://www.blackwellpublishing.com/pdf/EUFM_Siegel.pdf |title=What Is an Asset Price Bubble? An Operation Definition|last=Siegel|first=Journal |journal=European Financial Management |volume=9 | issue=1 |year=2003 |pages=11-24}}</ref>}}

{{reflist-talk|close=1}}

{{Collapse|1=<nowiki>Speculation is often associated with [[economic bubble]]s. A bubble occurs when the price for an asset exceeds its intrinsic value by a significant margin.<ref name=Fleischer>{{cite web |url=http://books.google.com/books?id=1ZASrmGg6uIC&pg=PA40&lpg=PA40&dq=speculative+speculation+bubbles&source=bl&ots=Rb804w8L8x&sig=KfnsUXvuPcYgxBEAyDtbpDFBV8k&hl=en&sa=X&ei=yzI-ULyBGufE0AGDgAE&ved=0CDcQ6AEwAQ#v=onepage&q=speculative%20speculation%20bubbles&f=false |title=Booms, Bubbles, & Busts (The Global Marketplace) |last=Hollander |first=Barbara Gottfried |year=2011 |publisher=Heinemann Library |pages=40-41 |isbn=1432954776}}</ref>  Not all bubbles occur because of speculation.<ref name="Lei">{{cite journal |doi=10.1111/1468-0262.00222 |last=Lei |first=Vivian |coauthors=Noussair, Charles N.; Plott, Charles R. |year=2001 |month=July|title=Nonspeculative Bubbles in Experimental Asset Markets: Lack of Common Knowledge of Rationality Vs. Actual Irrationality |journal=Econometrica |volume=69 |issue=4 |pages=831-859 |url=http://www.jstor.org/discover/10.2307/2692246?uid=3739256&uid=2129&uid=2&uid=70&uid=4&sid=21101009895483 |accessdate=29 August 2012 |quote=In a setting in which speculation is not possible, bubbles and crashes are observed. The results suggest that the departures from fundamental values are not caused by the lack of common knowledge of rationality leading to speculation, but rather by behavior that itself exhibits elements of irrationality.}}</ref> Speculative bubbles are characterized by rapid market expansion driven by word-of-mouth [[feedback loop]]s as initial rises in asset price attract new buyers and generate further inflation.<ref name=Rosser>{{cite web |url=http://books.google.com/books?id=mIluNwn5K8IC&printsec=frontcover&dq=From+Catastrophe+to+Chaos:+a+General+Theory+of+Economic+Discontinuities&source=bl&ots=sffi6g77RM&sig=ZfkG-r3F26azqUGzNkWznJRy_mc&hl=en&sa=X&ei=dEs-UJClHeP46QGGuYG4Cg&ved=0CC8Q6AEwAA#v=onepage&q&f=false |title=From Catastrophe to Chaos: A General Theory of Economic Discontinuities: Mathematics, Microeconomics, Macroeconomics, and Finance |last=Rosser |first=J. Barkley  |year=2000 |page=107}}</ref> The creation of the bubble is followed by a precipitous collapse fueled by the same phenomenon.<ref name=Fleischer/><ref name=Shiller>{{cite web |url=http://www.project-syndicate.org/commentary/bubbles-without-markets |title=Bubbles without Markets |last=Shiller |first=Robert J. |date=23 July 2012 |access date=29 August 2012}}</ref> Speculative bubbles are essentially social epidemics whose contagion is mediated by the structure of the market.<ref name=Shiller/> Some economists link asset price movements within a bubble to fundamental economic factors such as cash flows and discount rates.<ref name=Siegel>{{cite journal |url=http://www.blackwellpublishing.com/pdf/EUFM_Siegel.pdf |title=What Is an Asset Price Bubble? An Operation Definition|last=Siegel|first=Journal |journal=European Financial Management |volume=9 | issue=1 |year=2003 |pages=11-24}}</ref></nowiki>|2=Nowiki version of proposed}}

If these changes seem neutral and acceptable, I hope someone else will make them.  Cheers, [[User:WWB_Too|WWB Too]] ([[User talk:WWB_Too|Talk]] &middot; [[User:WWB_Too|COI]]) 22:15, 13 September 2012 (UTC)

::Agreed I feel these changes improve the content and so have applied them.[[User:Sargdub|Sargdub]] ([[User talk:Sargdub|talk]]) 05:47, 18 September 2012 (UTC)

:::Thanks for making the update. Page could still use a lot of work, but that's all I have for the moment. Cheers, [[User:WWB_Too|WWB Too]] ([[User talk:WWB_Too|Talk]] &middot; [[User:WWB_Too|COI]]) 12:52, 18 September 2012 (UTC)

== Separate article on land speculation? ==
There is a type of land speculation that I think does not fit into this article and probably deserves its own article.  I am thinking of the type in unsettled areas, such as along the frontier of the United States that was practiced by such companies as the [[Ohio Company]] and such individuals a [[William Penn]].  Buying unsettled land, developing it, sub-dividing it, advertising it, and selling off plots is not the same as speculating in oil in the 21st century. Good idea? What should it include? --[[User:Bruce Hall|Bruce Hall]] ([[User talk:Bruce Hall|talk]]) 03:14, 24 September 2012 (UTC)

== Links ==
[http://www.bloomberg.com/news/2013-11-26/speed-traders-meet-nightmare-on-elm-street-with-nanex.html speed trading][http://www.bloomberg.com/news/2013-11-26/gold-fix-drawing-scrutiny-amid-knowledge-tied-to-eruption.html >> Gold Fix Drawing Scrutiny Amid Knowledge Tied to Eruption][http://www.bloomberg.com/news/2013-12-19/how-secret-currency-traders-club-devised-biggest-market-s-rates.html >> Secret Currency Traders’ Club Devised Biggest Market’s Rates ]([[User:Lihaas|Lihaas]] ([[User talk:Lihaas|talk]]) 15:19, 26 November 2013 (UTC)).

== California City, CA ==
California City should be added to the "see also" section. Around 1958, people were buying and buying lots of this city in the Mojave Desert in California. This represents a form of speculation.  <small><span class="autosigned">—&nbsp;Preceding [[Wikipedia:Signatures|unsigned]] comment added by [[User:Hot Wheels 516|Hot Wheels 516]] ([[User talk:Hot Wheels 516|talk]] • [[Special:Contributions/Hot Wheels 516|contribs]]) 20:42, 10 June 2015 (UTC)</span></small><!-- Template:Unsigned --> <!--Autosigned by SineBot-->

== There is only one rational definition ==
"speculation is any investment that increases the risk of your portfolio; hedging is any investment that decreases the risk of your portfolio". The problem with any other definition is that it will fail in some cases. For example, is selling calls on a high beta stock or commodity speculative? It is if you don't own the underlying asset; it is not if you do own the underlying asset. It's the rest of your portfolio that makes the difference, not the investment itself. Saying "covered call" does not describe the investment, it describes your portfolio. Now, I'm sure you'll immediately cite WP:SHITDONTNEEDTOMAKESENSEHERE I get it, I just thought I'd edumacate you so you have a chance of evaluating the language of the article on your own. (oh, and an asset is defined as something which will return value in the future, so it's silly to talk about speculation as an investment that hopes to return value, that's the definition of investment; investment is buying assets; anything else is expense.) [[Special:Contributions/66.65.118.87|66.65.118.87]] ([[User talk:66.65.118.87|talk]]) 16:39, 12 June 2020 (UTC)

== It feels like this article downplays the downsides of speculation ==

It seems as though when I look at other places such as [https://www.investopedia.com/terms/s/speculation.asp Investopedia], speculation is framed in a way that makes you consider it to be a high-risk, high-reward activity. Whereas this article doesn't really seem to associate it with high-risk at all. It even downplays it's potential at volatility. Like the second half of the economic disadvantages section is devoted to how Keynes loved speculation and how his investment funds did really well even during the Great Depression mostly due to diversification and shorting...which makes since when the whole world is going through a depression people who short the market are going to be doing pretty well. It doesn't really have alot to do with the economic bubbles that speculation may bring about.

I just walk away from this article feeling like speculation has mostly just rewards with only moderate risk when I believe the common use of the phrase definitely implies that it is a high-risk, high-reward activity. Which is something i think people in finance and even outside of finance would agree with. [[User:Bigbrainactivities|Bigbrainactivities]] ([[User talk:Bigbrainactivities|talk]]) 14:07, 22 March 2025 (UTC)