There’s a sucker born everyday and that’s the basis for the greater fool theory. When enough fools jump on an asset bandwagon, it can look like an unstoppable force and a bubble is born.
The greater fool theory was in place and going strong during the internet boom. It worked wonders until the housing market went bust. It might even be alive and well in the gold market, with some gold bug holding the bag in the end. At some point, it will even strike Apple’s stock.
The theory thrives as long as someone, somewhere will pay more. It works until it doesn’t. Then it collapses like a giant house of cards.
The Greater Fool Theory
The greater fool theory states that it is possible to make money buying assets only to sell them later for a profit because there will always be someone (a greater fool) willing to pay a higher price. Continue Reading…