It’s OK to be a Fool but not a Greater Fool

I have a relative who will buy anything in stock market. Sometimes sound businesses and many times risky junk stocks.

He gives me example of ‘raddiwala’.

In Hindi or Gujarati we call junk as ‘raddi’. I am sure all the old newspapers and magazines from your house goes to some local raddiwala.

greater-fool-theory-diamondbhai

greater-fool-theory-diamondbhai

Why do you think your raddiwala buys your old newspapers every month?
Because he knows that someone else is waiting to buy same junk paper for higher price.

Who are fools?
People who buy something not because they believe that it is worth it, but rather because they believe that they will be able to sell it to someone else at an even higher price.

(fool is really not a fool but a smart guy, however ‘greater fool’ is realy a fool. Confused? Keep reading)

Most of the people believe – it is valid way to make money by participating in momentum or flow. “it doesnt matter how good or bad the product is, all I care about is rising price and buyer who will take it from me”.

Price continues to rise and one day market participants realize that the price level is too high and the speculative bubble pops.

Fools are happy till they find greater fool who will help them to get reed of the product.

Fools will find some greater fool till the time there is optimism in market and flow in market.

Who is greater fool?
greater fool is the fool who tried to behave like all other fools but couldn’t find a fool who would give higher price.

Greater fool is all over the place. When we partcipate in markets looking at optimism and momentum, make sure you are not the last person in the chain.

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