The Bigger fool Theory

[Xipe Totec]

A theory that states it is possible to make money by buying securities, whether overvalued or not, and later selling them at a profit because there will always be someone (a bigger or greater fool) who is willing to pay the higher price.

When acting in accordance with the greater fool theory, an investor buys questionable securities without any regard to their quality, but with the hope of quickly selling them off to another investor (the greater fool), who might also be hoping to flip it quickly. Unfortunately, speculative bubbles always burst eventually, leading to a rapid depreciation in share price due to the selloff.

http://www.investopedia.com/terms/g/greaterfooltheory.asp

The bigger fool theory is one of the oldest theories in the stock market. The basic premise/assumption of this theory is that even though you might not believe in the valuations of a particular company, you believe that there will always be a bigger fool in the market who will be willing to buy the company at a higher price than you paid. This bigger fool theory seems to be the basic underpinning tenet of Venture Capital (VC) funding.

http://www.valuenotes.com/nrao/Thebiggerfooltheory.asp?ArtCd=3184&pf=true


And now, this...



White House considers ownership stakes in banks



WASHINGTON - The Bush administration is considering taking ownership stakes in certain U.S. banks as an option for dealing with a severe global credit crisis.

An administration official, who spoke on condition of anonymity because no decision has been made, said the $700 billion rescue package passed by Congress last week allows the Treasury Department to inject fresh capital into financial institutions and get ownership shares in return.

This official said all the new powers granted in the legislation were being considered as the administration seeks to deal with a serious credit crisis that has caused the biggest upheavals on Wall Street in seven decades and continues to roil global markets.

http://news.yahoo.com/s/ap/20081009/ap_on_bi_ge/meltdown_paulson_24

[zeemike]

1. And I guess the biggest fool will be the one left holding the bag

In our case the tax payers.