Thursday, March 30, 2006

Greater Fool Theory

Oh yes, there is a "theory" in stock market called the greater fools theory where people buy at new highs just hoping that a greater fool will buy at higher price so they can get a profit from it.

There are a few historical example of greater fools theory at work, the Tulip Mania of 1635, the Missisipi Scheme of 1719, speculative investment bubble involving the East India Company in 1672. You can find these stories in "A Random Walk Down Wall Streets" or Charles Mackay's Extraordinary Popular Delusions and Madness of Crowd written in 1841 (very old book).

So you think man have learn their mistake after so many examples? No, the greatest of all was the internet bubble in 2000.


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