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The greater fool theory: https://en.m.wikipedia.org/wiki/Greater_fool_theory https://en.m.wikipedia.org/wiki/Greater_fool_theory Essentially, investors buy as

The greater fool theory: https://en.m.wikipedia.org/wiki/Greater_fool_theory https://en.m.wikipedia.org/wiki/Greater_fool_theory Essentially, investors buy as long as they think they will be able to sell at a higher price in the future, regardless of economic fundamentals.

chii 2y ago
> regardless of economic fundamentals. not regardless, but only if. The future is unknown, so their bet is also based on that unknown. Is it foolish? Who knows. Did nvidia seem foolish if somebody made that bet before their ai boom?
throwaway7ahgb 2y ago
You can also just say things you don't understand are always created by fools. Now, there are some fools buying these stocks. But to say that each one of these has a high P/E because every shareholder is a fool is very reductionary.
- adwn 2y ago
  > You can also just say things you don't understand are always created by fools. Do you have a better hypothesis that would explain the extreme valuations of those stocks? > But to say that each one of these has a high P/E because every shareholder is a fool is very reductionary. That's not what "greater fool theory" means.
  - wordpad25 2y ago
    > Do you have a better hypothesis that would explain the extreme valuations of those stocks? This isn't crypto, these are real, well run companies with good fundamentals. The trade may be a bet that they are able to corner the market and extract more value. Maybe, it's wrong, but doesn't mean it's just empty hype.
    - adwn 2y ago
      > these are real, well run companies with good fundamentals I'm not disputing that. But even "real" companies don't warrant P/E multiples in the three-digit range, unless there's a very good reason to expect them to grow their profits by 10x or more in the foreseeable future – and that has to be the expected value of earnings growth (roughly, the average growth over all possible futures), discounted by the time value of the investment. P/E multiples over 100 are practically never justifiable, except as "someone else will come along and pay even more" – i.e., the greater fool theory.

chii 2y ago

> regardless of economic fundamentals. not regardless, but only if. The future is unknown, so their bet is also based on that unknown. Is it foolish? Who knows. Did nvidia seem foolish if somebody made that bet before their ai boom?

throwaway7ahgb 2y ago

You can also just say things you don't understand are always created by fools. Now, there are some fools buying these stocks. But to say that each one of these has a high P/E because every shareholder is a fool is very reductionary.

adwn 2y ago
> You can also just say things you don't understand are always created by fools. Do you have a better hypothesis that would explain the extreme valuations of those stocks? > But to say that each one of these has a high P/E because every shareholder is a fool is very reductionary. That's not what "greater fool theory" means.
- wordpad25 2y ago
  > Do you have a better hypothesis that would explain the extreme valuations of those stocks? This isn't crypto, these are real, well run companies with good fundamentals. The trade may be a bet that they are able to corner the market and extract more value. Maybe, it's wrong, but doesn't mean it's just empty hype.
  - adwn 2y ago
    > these are real, well run companies with good fundamentals I'm not disputing that. But even "real" companies don't warrant P/E multiples in the three-digit range, unless there's a very good reason to expect them to grow their profits by 10x or more in the foreseeable future – and that has to be the expected value of earnings growth (roughly, the average growth over all possible futures), discounted by the time value of the investment. P/E multiples over 100 are practically never justifiable, except as "someone else will come along and pay even more" – i.e., the greater fool theory.