Greater Fool Theory
The idea that an overpriced asset can still be bought profitably if someone else will pay more for it.
How it is identified
Test: the purchase is justified by an expected resale price rather than by the asset's own cash flows or utility
Unit
qualitative
In depth
The theory is not wrong in the short run — many people have sold overpriced assets to someone willing to pay more — and it fails in a specific and predictable way, since the supply of buyers willing to pay ever-higher prices is finite. It is the explicit reasoning behind late-stage bubbles, where participants acknowledge an asset is expensive and buy it anyway. Its defining feature is that the return depends entirely on other people's behaviour rather than on anything the asset does. The uncomfortable question it raises is who the last buyer will be, and everyone assumes it is someone else.
Worked example
An asset generating no cash flow rises 300% in six months. Every buyer's return depends on a subsequent buyer paying more, and the chain ends when the next buyer declines rather than when any fact changes.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Greater Fool Theory” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.