Tuesday, October 19

How the “dumbest theory” works that can lead you to make wrong financial decisions (and what it has to do with bubbles)


  • Cecilia Barría
  • BBC World News

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Caption,

“You can lose all your money if you keep stocks that nobody wants to buy,” says Vicki Bogan, a professor at Cornwell University in New York.

The “dumbest theory” is a widely used expression in the stock markets.

It works like this: you can make money if you buy a stock that is overvalued because there will always be “someone dumber” willing to pay a higher price.

This theory works as long as you can sell at a higher price than you bought. The problem is that if you did not sell on time, that is, before the price fell, there will be no others “dumber than you”.

“You can lose all your money if you keep stocks that nobody wants to buy,” says Vicki Bogan, a professor at Cornwell University in New York.


www.bbc.com

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