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


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