greater fool theory

Greater Fool Theory

A theory that 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 fool) who is willing to pay the higher price.

Notes:

When acting in accordance with the greater fool theory, an investor buys questionable securities not with 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 it quickly. Unfortunately, speculative bubbles always burst eventually, leading to a rapid depreciation in share price due to the selloff.

See also: Flipper, Fully Valued, Overbought, Overvalued, Speculative Bubble

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Greater fool theory

An investment notion that even when a stock is fully valued by conventional standards, there is room for upward movement because there are enough buyers to push prices farther upward purely on speculation or hype.

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greater fool theory

The theory that no matter what price an investor pays for a security, someone else with less sense will be willing to buy it later. The greater fool theory reaches its height of popularity near the end of a bull market when speculation is high.