Investor Glossary-greater fool theoryInvestor Glossary-greater fool theoryInvestor Glossary-greater fool theoryInvestor Glossary-greater fool theoryInsightful stock market charts - Click here
investor
Categories    # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Greater Fool Theory

The HTML to link to this page
 

The greater fool theory says there's always someone - an even greater fool - that will overpay for a stock that is already overpriced. The greater fool theory may be used as a general investment strategy during an overheated bull market. More frequently, the greater fool theory applies to highly speculative equities, with ritzy names but few earnings. While cynical, the greater fool theory contains some truth: Money managers who, based on the fundamentals, ignore the greater fool theory and refuse to buy highly speculative stocks - like Japanese bank equities in the 1980s or Internet stocks in the 1990s - can cost their clients billions. As the greater fool theory predicted, for years there was always some "fool" who paid even more for these overpriced investments. The major problem with the greater fool theory is the enormous downside risk: At some point, despite the greater fool theory, no one will buy such an overpriced stock and its price collapses.



Rate this greater fool theory definition...

Learn about investing with the Investor Glossary Term of the Day


Click here for insightful stock market charts. Where is the market headed? The answer may surprise you. Find out
with the exclusive & Barron's recommended charts of Chart of the Day.


Popular Terms: Key Rate Duration, EBITDA, phantom income, debt service coverage, inflation, liquidity ratio, wholly-owned subsidiary, limit order, Zero Cost Collar, FTSE, LIBOR, required rate of return, covered put, 401a, class C shares, diluted share, annual return, APR, stock market close, VIX, current ratio, labor relations, 144a, ex-dividend date, 1035 exchange, cancelled check, per diem, implied volatility, real GDP, minority interest, margin rate, command economy, ex-dividend, quality assurance, irrevocable trust, risk management, in escrow, reverse mortgage, retained earnings, deferred tax, dividends payable, average price per share, option premium, balance sheet, open position, 1031 exchange, stock split, FICO score, deferred revenue


Accounting | Banking | Bonds | Brokers | Economy | Futures | Mutual Funds | Options | Real Estate | Retirement | Stocks | Taxes | Technical Analysis
Home | Term of the Day | Suggest a Term | Chart of the Day | Dogs of the Dow
©2004-2015 Investor Glossary - All rights reserved - Terms of Use