This “Greater Fool” Market Will End Badly

In the old days, we called it a “pump and dump.”

They were low-priced stocks with lousy fundamentals. They often traded for pennies, if they even traded.

They sat at low prices for months. Then, suddenly, the price jumped. Just as quickly, the price fell.

The pump was easy to find. It was a bullish story.

Maybe about a mining company about to find gold. Or the rumor of a big deal for a tech company.

Stock promoters or scam artists wrote the stories. They bought the stock, then pumped the price with their story. Finally, they dumped the stock.

Pump and dump works because the “greater fool theory” of investing works.

Looking at these stocks, you could say the buyers were fools for believing the story. But the buyers believed they were rational.

They planned to sell at a profit when other investors heard the news. In other words, if they were fools, they expected to sell to greater fools.

This strategy is foolish … but sometimes profitable with the right game plan.

But there are too many fools in the market right now.

And that means things could end badly very soon.

Fools Flocked to Hertz’s Bankruptcy

We saw the greater fool theory in action last week in shares of Hertz Global Holdings Inc. (NYSE: HTZ).

The stock price soared even as the company was in bankruptcy:

Speculative Traders Bought up Shares of HTZ

The problem with markets trading under the greater fool theory is that we eventually run out of fools.

After bankruptcy, shares will probably be worthless. That’s why the company’s largest investor, Carl Icahn, sold his shares.

Icahn is a takeover specialist. He’s an expert in bankruptcy. Yet, after he sold, the stock soared.

The only explanation is the greater fool theory.

Day traders, many of them using the Robinhood app, were buying the stock. They planned to sell quickly to other day traders.

In other words, buyers of HTZ expected a greater fool to give them a profit.

Every Bubble Is Fueled by Fools

The Economist John Maynard Keynes explained how this kind of market works. He compared it to the card game Old Maid.

In Old Maid, every card except one can be matched. The goal is to discard cards that are matched to their pair.

Eventually, just one player is holding a card — the Old Maid — and they lose the game.

He didn’t call this the “greater fool theory of markets.” But that term came into popular use for some reason.

The reason is probably because it’s an accurate way to describe some markets.

Greater fools fueled internet stocks in 1999.

Everyone knew these stocks were overvalued. So, they invented the price-to-eyeballs ratio to replace the price-to-earnings ratio that was no longer relevant.

The stock market surged before crashing more than 76%.

When that bubble burst, investors sought safety in real estate. They began buying homes, and then flipped homes.

Banks gave mortgages for more than the value of the home because everyone knew home prices always go up. Anyone could profit by selling to a greater fool.

Home prices spiked before plummeting more than 33% by 2009.

The problem with markets trading under the greater fool theory is that we eventually run out of fools.

My colleague Ted Bauman recently summarized the evidence that the stock market succumbed to the greater fool theory. You can watch his presentation here.

Your No. 1 Strategy for a Foolish Market

It’s Ok to trade in a market like this if you understand the game will end.

Short-term trading with options could be the best strategy under the greater fool theory. That way your gains can be large while your risks are limited.

For more on short-term options trading, check out this new presentation about my unique strategy.

Regards,

Michael Carr, CMT, CFTe

Editor, Peak Velocity Trader

Previous Post
Next Post

Comments

storno brzinol

I simply could not depart your web site prior to suggesting that I actually enjoyed the standard info a person provide on your guests? Is going to be back incessantly in order to check out new posts

hair loss propecia

Propecia E Inseminacion Artificial

Bougwouff

https://buypropeciaon.com/ – will propecia work on hairline

Stromectol

cialis dolor de piernas

Viagra

Foro Cialis Online

cheapest cialis 20mg

Comprar Cialis Bilbao

zithromax z pack for sale mastercard

Generica Cialis

crypoma

https://buyplaquenilcv.com/ – hydroxychloroquine purchase online

Amyson

[url=http://ivermectintbs.com/]purchase stromectol[/url]

Apelppiob

https://buyzithromaxinf.com/ – order zithromax online

Maryson

[url=https://cialisxforce.com/]cialis black[/url]

Markson

[url=https://tadalafilgenericpill.com/]tadalafil paypal[/url]

Plaquenil

Cheap Generic Bentyl Need In Internet

furosemide side effects

Cephalexin 250 Mg Price

where to buy prednisone 5mg

Propecia Dosage Hair Loss Androgenetic Alopecia

slot online daftar

I genuinely treasure your piece of work, Great post.

https://europa-road.eu/

Merely wanna input on few general things, The website pattern is perfect, the content is very good. “The reason there are two senators for each state is so that one can be the designated driver.” by Jay Leno.

Monique Arano

Woah! I’m really digging the template/theme of this blog. It’s simple, yet effective. A lot of times it’s very difficult to get that “perfect balance” between user friendliness and visual appearance. I must say that you’ve done a fantastic job with this. Also, the blog loads extremely quick for me on Opera. Exceptional Blog!|

Delfina Burkley

I’m gone to say to my little brother, that he should also visit this website on regular basis to get updated from most up-to-date reports.|

Johnson Papageorge

Hi this is somewhat of off topic but I was wanting to know if blogs use WYSIWYG editors or if you have to manually code with HTML. I’m starting a blog soon but have no coding experience so I wanted to get advice from someone with experience. Any help would be enormously appreciated!|

physical therapy ramsey nj

138780 393903Also, weblog frequently and with intriguing material to keep individuals interested in coming back and checking for updates. 200981

viagra uk tesco

Can Keflex Cause Thrush

buy cheap propecia uk

Itch Reaction To Amoxicillin

cialis comparison levitra viagra

Buy Valtrex Online No Prescription

Dwight Wubbel

I was suggested this web site through my cousin. I am no longer certain whether this publish is written by way of him as nobody else recognize such special approximately my trouble. You’re incredible! Thank you!|

Stromectol

Cialis A Marseille

Cialis

Propecia Rogaine Dosage

lasix iv push

Acheter Viagra En Espagne

situs mejaqq

404138 245864The book is wonderful, but this review is not exactly spot-on. Being a Superhero is more about selecting foods that heal your body, not just eating meat/dairy-free. Processed foods like those mentioned in this review arent what Alicia is trying to promote. In case you arent open to sea vegetables (and yes, Im talking sea weed), just stop at vegan. 789565

Prednisone

Singapore Online Store Drug

neurontin for depression

Discount Levaquin Sinusitis Buy Now On Line Without Dr Approval

sex story games

sister video games sex https://cybersexgames.net/

can you buy plaquenil over the counter

Levitra Dosierung Erfahrung

Alfredgen

xvideos sex games
[url=”https://sexgamesx.net/?”]threesome sex games[/url]
swinger sex games

online real casino

raging bull online casino https://casinoonlinek.com/

Chrisboype

wife sex party games
[url=”https://sexygamess.com/?”]sex games no flash[/url]
lol sex games

best online casino no deposit bonus

nj casino online https://onlinecasinoad.com/

MichaelgEN

dangerous sex games
[url=”https://winsexgames.com/?”]adult sex games for couples[/url]
sex games to spice up relationship

caesars online casino bonus code

was bedeutetwaygern online casino https://casinogamesmachines.com/

foxwoods online casino

no min deposit online casino https://conline-casinos-hub.com/

RonaldVep

couples plays strip poker and sex games
[url=”https://sex4games.com/?”]adult sex games android[/url]
virtule sex games

Critical Essay Writing Help

786223 433575I recognize there is a great deal of spam on this internet site. Do you need to have aid cleaning them up? I could support in between courses! 364094

dover downs online casino

best online casino bonuses https://online2casino.com/

reddit online casino

live online casino pa https://casinosonlinex.com/

DavidTOK

outdoor sex fun and porn games
[url=”https://sexgameszone.com/?”]impregnation sex games[/url]
text based sex games

keto lemon bars

keto coffee recipe https://ketogendiet.net/

Shauna Presutti

It’s a pity you don’t have a donate button! I’d without a doubt donate to this brilliant blog! I guess for now i’ll settle for bookmarking and adding your RSS feed to my Google account. I look forward to fresh updates and will talk about this website with my Facebook group. Talk soon!|

Deweycex

japanses sex ed, games uncenored
[url=”https://sexygamess.com/?”]sex games rape[/url]
2b sex games

keto friendly restaurants
my essay writing

write an argumentative essay https://anenglishessay.com/

DavidKig

write a essay about yourself
[url=”https://buy1essay.com/?”]when writing an essay[/url]
writing essay online

where can i buy an essay

i need help writing an essay https://howtowriteessaytips.com/

Quintondaubs

my essay writing
[url=”https://student-essay.com/?”]writing experience essay[/url]
help writing essays

online gay dating sites free

gay herpes dating https://gayprideusa.com/

best cities for gay dating
Jae Ribas

Do you have any video of that? I’d want to find out some additional information.|

Lupe Dennard

Amazing issues here. I’m very glad to see your post. Thank you a lot and I am taking a look forward to touch you. Will you kindly drop me a e-mail?|

RichardFam

persuasive writing essays
[url=”https://multiessay.com/?”]writing a biographical essay[/url]
pay someone to write my essay

critical thinking involves

what’s critical thinking https://criticalthinkingbasics.com/

what are the 5 critical thinking skills

critical thinking assessments https://criticalthinkinginstitute.com/

critical thinking examples in the workplace

critical thinking nursing interview questions https://criticalthinking2020.net/

critical thinking math problems

watson glaser critical thinking tests https://uncriticalthinking.com/

essay help

what is a personal essay https://thebestvpnpro.com/

leadership essay

community service essay https://vpn4home.com/

multi paragraph essay

spongebob the essay https://vpnshroud.com/

Davidflato

writing a biography essay
[url=”https://casinoonlinet.com/?”]essay writing online[/url]
writing literary analysis essay

cause and effect essay

essay paraphraser https://vpnsrank.com/

Kendall Dolecki

Can I simply say what a relief to uncover a person that really knows what they are talking about on the internet. You actually know how to bring an issue to light and make it important. A lot more people need to read this and understand this side of your story. I was surprised you’re not more popular given that you most certainly possess the gift.|

Nilda Wesch

Hey! I’m at work browsing your blog from my new iphone 3gs! Just wanted to say I love reading through your blog and look forward to all your posts! Keep up the excellent work!|

Jeremy Damiani

Wonderful blog! Do you have any hints for aspiring writers? I’m planning to start my own blog soon but I’m a little lost on everything. Would you advise starting with a free platform like WordPress or go for a paid option? There are so many options out there that I’m completely confused .. Any recommendations? Appreciate it!|

Franklin Donar

Hey there, You’ve done an excellent job. I’ll certainly digg it and personally suggest to my friends. I’m sure they’ll be benefited from this website.|

Williamgeasy

writing college essay
[url=”https://checkyouressay.com/?”]what an essay looks like[/url]
college essay

Henrypat

mcdonald’s history essay
[url=”https://essayprepworkshop.com/?”]writing a literature essay[/url]
write my essay 4 me

Guns For Sale Online

928674 767006Great internet site you got here! Please keep updating, I will def read far more. Itll be in my bookmarks so better update! 816688

ChrisMub

sample suny college essay
[url=”https://dollaressays.com/?”]writing an expository essay[/url]
help with essay writing

1advertisers

3capuchin

WalterHaupe

roommate essay
[url=”https://essaytodo.com/?”]improving essay writing[/url]
what makes a hero essay

best gay dating sites usa

dating site for gay men over 50 https://gaysugardaddydatingsites.com

https://g.page/dr-goz-peter-ugyved-debrecen

you’re really a good webmaster. The site loading speed is incredible. It seems that you are doing any unique trick. In addition, The contents are masterpiece. you’ve done a great job on this topic!

steetfqws

where to get tadalafil https://cialisvet.com/

tadalafil

generic tadalafil from uk cialis without prescription

dating guys wen 18 gay

gay dating site free https://gaypridee.com/

gay chat cam

gay sex massachusetts chat https://gaytgpost.com/

gay chat rooms

rastaboy gay chat https://gay-buddies.com/

whats the best sith for findina a gay dating site

young gay dating https://speedgaydate.com/

side effects for tadalafil

https://cialistrxy.com/ tadalafil online with out prescription

100 free vpn i

x-vpn
[url=”https://addonsvpn.com”]vpn youtube free[/url]
vpn free download windows 10

example of a narrative essay u

what’s a narrative essay
[url=”https://anenglishessay.com”]how to write an essay[/url]
essay genorator

gay chat rooms z

free gay sex chat fcn
[url=”https://bjsgaychatroom.info”]gay+chat[/url]
gay men chat cam

what is the best free vpn z

best buy vpn
[url=”https://choosevpn.net”]best vpn for firestick 2022[/url]
free japan vpn

kardinal stick

347924 390640Its rare knowledgeable folks within this topic, nevertheless, you seem like theres more you are talking about! Thanks 136350

Leave a Reply

Your email address will not be published.