Greater Fool Theory
Definition of 'Greater Fool Theory'A theory that states it is possible to make money by buying securities, whether overvalued or not, and later selling them at a profit because there will always be someone (a bigger or greater fool) who is willing to pay the higher price. |
|
Investopedia explains 'Greater Fool Theory'When acting in accordance with the greater fool theory, an investor buys questionable securities without any regard to their quality, but with the hope of quickly selling them off to another investor (the greater fool), who might also be hoping to flip them quickly. Unfortunately, speculative bubbles always burst eventually, leading to a rapid depreciation in share price due to the selloff. |
Related Definitions
Articles Of Interest
-
7 Controversial Investing Theories
We take a closer look at the theories that attempt to explain and influence the market. -
5 Steps Of A Bubble
Bubbles are deceptive and unpredictable, but by studying their history we can prepare to our best ability. -
Market Problems? Blame Investors
Investors are only human, and their irrational behavior can often move the market. -
The Greatest Market Crashes
From a tulip craze to a dotcom bubble, read the cautionary tales of the stock market's greatest disasters. -
Follow The Herd In Trading The Capital Market
If you have ever heard "the trend is your friend" and believed it, you may be a fan of herd instinct mentality. This is an environment where, just like with fashion, masses of people follow a ... -
Weighted Average Cost Of Capital (WACC)
Weighted average cost of capital may be hard to calculate, but it's a solid way to measure investment quality -
Exploring The Current Account In The Balance Of Payments
Learn how a country's current account balance reflects the country's economic health. -
Investing In Property Tax Liens
Property tax liens can be a viable investment alternative for experienced investors that are familiar with the real estate market. -
Taking Shots At CAPM
Find out why many investors think the capital asset pricing model is full of holes. -
George Soros: The Philosophy Of An Elite Investor
George Soros spent decades as one of the world's elite investors, and even he didn't always come out on top. But when he did, it was spectacular.
Free Annual Reports