Greater fool theory

Discussion in 'Chit Chat' started by nugundam, Oct 11, 2008.

  1. nugundam


    Looks like this theory is starting to prove itself now after all these years:)

    Value investors such as Warren Buffett believe that it is corporate profits which are the normal returns from stock investments, and any higher return is only possible due to the bigger fool theory.

  2. When the bubble pop, yes, the person who did not sell during the bubble is the fool. But people make money with bubbles. Those people know it is a bubble, so they buy and sell, not buy and hold. So Buffet is right about true value is revealed when a bubble burst, but money is made in bubbles too. It is just who is the last person to sell...bagholder. Not an honest game.
  3. its honest.

    fools lose, smart folk like me win.

    until the whole enchalada collapses and then everyone loses.
  4. nugundam


    Yes, and i'll always feel that the stock market is just one big ponzi scheme waiting to collapse hence the periodic crashes we've had until you can do value investing all over again until the cycle repeats itself.

    The way I see it this bear market won't be over until we've seen all bankruptcies/bailouts that should take place happen. Only then will people feel safe to re-enter the market. IMHO we won't know when that will happen until we have 6 mo. of no news = good news hence the protracted bear market i feel we will be experiencing. Obviously the current watch list now are the automakers and a few more financial institutions. Until the fate of these companies are determined there will always be fear in the market because people will be asking the question who is next (and obviously no one trusts what they hear anymore because of all the lies that have taken place).

    Its no surprise we're in the brink of financial meltdown considering all the major bankruptcies/failures that have taken place almost SIMULTANEOUSLY (just think about LEH, AIG, FNM, FRE, and the future ones that we don't know of yet not to even count the small bankruptcies that don't get much media attention) I think its perfectly normal and one can even argue that its somewhat predictable that the markets would crash considering all this took place in such a short time frame. In fact, i'd be extremely worried if all these failures occurred and the market was still bullish. Now that would be totally out of whack. Let's face it, the financials have reached their peak in a long long time in the same manner the tech stocks reached their peak in 2000. I say our problem is a lack of confidence which leads to a lack of liquidity in the system which in turn may lead to a solvency problem for some companies. Hmm, did that just make sense or am just talking out of my @$$ or watching too much SW:)

    Anyway, another nice article I came across recently that i'd like to share :

    Main points:

    "It's in people's minds," Shiller explains. "We're just recording a measure of what people think the stock market is worth. What the people who are willing to trade today — who are very, very few people — are actually trading at. So we're just extrapolating that and thinking, well, maybe that's what everyone thinks it's worth."

    But that collective confidence, Jorgenson says, is gone. And when confidence is drained out of a financial system, a lot of investors will decide to sell at any price, and a big chunk of that money you thought your investments were worth simply goes away.