Why Do People Buy Overpriced Stocks?

Ever seen a stock price go up a lot even though the company doesn’t seem to be doing well? You might wonder why people are buying it.

The answer could be the “Greater Fool” theory.

What’s this theory about?

Like, comment and share to know more about it.

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The Greater Fool Theory says that people buy assets not because they think they’re worth a lot, but because they believe they can sell them to someone else for a higher price.

They’re hoping to find a "greater fool" who will pay even more.

Let’s say you buy shares of a new tech company, “TechGenius Inc.,” at ₹500 each. The company isn’t making much profit, but everyone is hopeful the price will rise. You buy the shares with the plan to sell them later for more.

Here’s what happens: You buy at ₹500, and after a few weeks, the price jumps to ₹700 because people are excited about a new product. You decide to sell at ₹700, happy you made a profit.

But later, the price drops to ₹300 because the product didn’t do well. The person who bought from you at ₹700 ends up losing money.

A real-world example is the housing bubble from the mid-2000s. People bought houses at high prices, hoping to sell them for a profit. Many weren’t interested in the true value of the homes but were just trying to find someone who would pay more.

When the bubble burst, house prices dropped, and many investors lost money.

This is why it's important to look beyond the hype. Don’t just buy something because you think you can sell it for more later.

Instead, invest in things that have real value and potential.

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