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


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
©2004-2016 Investor Glossary - All rights reserved - Terms of Use