After reading an advance copy of Jeff Nabers’ new book, I learned more about the concept of “The Greater Fool.” This theory says that people buy things thinking that it will go up in price and value and that a “greater fool” will come along and buy the thing for more.
We have never seen this theory more in practice than of late – as everyone was buying up real estate thinking it would go up in price and a greater fool would come along and spend more for that piece of property. The fact is that they bought overpriced pieces of property that didn’t cash flow and they were stuck with mortgages they couldn’t pay. Indeed, no greater fool came along to rescue them.
This whole theory got me thinking about if I was the “greater fool.”
For many years I had been investing in a variety of mutual funds that seemed to always be going up in price. I was putting more money into these mutual funds thinking I was being smart about saving. But the truth is that these mutual funds were not going up in value – they were just going up in price and I was buying artificially inflated mutual funds that cost more than they ever cost. I was, in fact, the greater fool because after awhile, the prices on my mutual funds sank and I lost almost half of my savings.
But so much has changed in the last year.
I’ve taken much of retirement savings out of the Wall Street machine. I’m buying a property that is going up in value and cash-flows well without depending on a greater fool to come along and buy it from me and fatten my pocket. I’m fattening my pocket on my own. In fact, I’m finally investing, not speculating. I’ve finally wised up. I’m no longer the greater fool.