Greater Fool Theory
Did you know that there’s something called the “Greater Fool Theory”? It’s an investment theory that banks on the belief that a foolish investor will be able to find someone who’s a bigger fool than himself!
But of course, the idea behind understanding the Greater Fool Theory is to not be the first fool yourself. Because what if you’re not able to find a fool greater than yourself? You would be the greatest fool then. And you don’t want to be that, right?
Under the Greater Fool theory, there are two people. The first one is the one who makes a questionable investment. He does so knowing he’s being foolish but also believing that he’ll be able to sell that investment at a higher price to someone else. The first person will make money on his questionable investment if he can find a buyer who is the “greater fool”.
But instead of assuming you’d be able to find a greater fool, it’s best to not be the smaller fool yourself. Why make a questionable investment in the first place, one that you could end up being stuck with?
Makes sense to ask the right questions and make an investment that properly answers those questions.
- Is this investment right for my profile?
- Will this investment help me fulfil my goals?
- Do I understand this investment well enough?
- Is this investment liquid enough for me to get my money when I need it?
Just a few simple questions that you can get easy answers to and stop yourself from making a questionable investment. Leave aside assuming that there will be a greater fool; just believe that there are no fools at all.