The Greater Fool Theory is an investment concept suggesting that one can make money by buying overvalued assets because there will always be someone else (the “greater fool”) willing to pay an even higher price for them later. The theory operates on the assumption that the price of an asset is not determined by its intrinsic value but rather by irrational buyers and sellers in the market.
In essence, according to the Greater Fool Theory:
Investors purchase overvalued assets with the expectation that they can sell them to someone else for a profit.
The “greater fool” is the person who buys the asset at the inflated price, believing that they can also sell it at an even higher price.
The cycle continues until there are no more “greater fools” willing to buy at a higher price, at which point the bubble bursts, and prices crash.
This theory is often cited as a criticism of speculative bubbles in markets, where asset prices are driven up not by fundamentals but by the expectation of future price increases.
