What is greater fool theory?

Investors employing this theory may even think assets that they are purchasing are overvalued based on fundamentals or long-term performance outlooks, but they still expect to make a profit because another investor (the "greater fool") will be willing to pay even more. Greater fool theory is typically a short-term approach to investing.

Is the greater fool theory a Ponzi scheme?

But the whole mechanism is a kind of Ponzi scheme where more and more credulous investors must be found to buy the stock from the earlier investors. Eventually, one runs out of greater fools. In real estate, the greater fool theory can drive investment through the expectation that prices always rise.

What is greater fool investing?

Greater fool investing relies on the assumption that someone else will be left stuck with an investment when the speculative bubble finally bursts, as people begin to realize the price attached to an investment is just unrealistically high. The key to successful greater fool investing is just making sure that the greater fool isn’t you.

Are speculative bubbles based on a greater fool theory?

Critics contend their value is only based on the ability to sell to a greater fool until there are no fools left. This is known as the greater fool theory, which may help explain various speculative bubbles in the past, present, and future. William Bernstein is the author of The Delusions of Crowds.