What Is the “Bigger Fool Theory”?

Although many things have changed from past to present, people desire to be rich it hasn’t changed at all. Centuries ago, we see that people have been living their lives for the purpose of making more money, sometimes by establishing a business, sometimes by investing in various assets. Of course, as every game has a winner. there is also a loser. In other words, not all of these people who set out with the desire to become rich and make various investments are successful in this journey.

Burton Malkiel put forward by to the bigger fool theory These unfortunate individuals who fail as a result of their investments are called “bigger idiots,” according to the papers. In this context, although the theory in question will be explained through the stock market, the bigger idiot theory is not only for financial markets, but for the purpose of making money in it. for every situation where a financial exchange is made can be handled.

The theory is that when people buy an asset for investment purposes, they aim to sell it at a higher price.

When people make investment decisions not behaving rationally It’s a scientifically proven fact.

From this point of view, investors try to make money by trying to sell them at a higher price than they bought, not by focusing on its real value when investing in an asset, that is, they speculate, especially in financial markets. a common occurrence appears as.

This is exactly the logic underlying this situation, put forward by Burton Malkiel. bigger fool theory explained with.

Every investor aims to find someone willing to pay more than himself, a bigger idiot than himself!

Illustration: Hemanth

To give an example on the financial markets, an investor buys a stock for 10 TL with the aim of selling it for 13 TL in the future. That is, this investor buys the stock from himself. higher price he intends to sell it to someone who agrees to pay, in other words, to an idiot bigger than himself.

What about the person who buys the stock at 13 TL? The same is true for him. Again, this investor intends to sell the share he bought for 15 TL. a bigger fool waiting to buy the stock.

In other words, the one who buys a share at the lowest price and the highest price willing to pay more He will be after that person.

But is it always possible to find a bigger idiot?

The fact that the investors can sell the stocks they bought by finding bigger idiots than themselves for a certain period of time is a sign in the market that the stock in question will rise. wave of optimism if possible.

In simpler terms, if investors if they think they will rise Whatever the price, they will buy it. But what if the market is now negative?

That’s when the nightmare of all investors begins and a panic atmosphere prevails in the markets.

people holding shares “biggest idiot” they try to sell the shares by looking for bigger idiots so as not to be.

As we said before, every game has a There is a loser as well as a winner. and while some investors gain from this game, some investors become the losers of this game. Those losers are called bigger idiots.