As mentioned in the previous articles, US markets are experiencing a fantastic `Bull' right now. But the big, institutional investors are becoming increasingly wary of Net Stocks and the complete confidence that individual investors have in their continued capital gains. This concern is based in a phenomenon known as `the Greater Fool', or more politely, `Momentum Investing'.

Greater Fool type investors are found towards the end of a Bull market, and they rely on their own kind to make money. Here is the situation; Fool Number One comes along and buys a stock that is overvalued (by the traditional measures we discussed in Part Two) for $200. He knows he is being Foolish buying this stock from a long term point of view; but he is really interested in a quick flip. This investor is looking for a Greater Fool than himself who will buy the stock from him for $250. If Fool Number Two comes along and buys the stock for $250, Fool Number One is happy, and out of the game quickly, with a large percentage of capital gain. But, Fool Number Two has to execute the same flip to get his money out.and on the circle goes, inflating prices.

The problem is, most of these types of investors aren't happy with 25% return in one month. They want 100, 200,500% return..as soon as possible. They want to get rich, quick.

Those that see this situation as dangerous are worried about what will happen when we run out of `greater fools'. When there is no longer someone else to take that high priced stock off of your hands, you will be forced to either hold onto it, or to sell at a loss. When the number of bids (want to buy) for Net Stocks is greatly outnumbered by the number of asks (want to sell), the air will be let out of the balloon, and prices will fall. The Real Estate market of the late 1980's experienced a situation much like this.

The Real Estate market of the middle eighties was a Bull, much like the Net Stocks of today. But when the air let out of the balloon in `87-'89, many people got stuck holding property that was worth far less than they paid. This loss of on-paper wealth was one of several triggers for the Recession of the early 1990's.

The whole point of this series of articles has been to familiarize you with something relevant to you, that you may not have put much thought to. What is said here is not the be-all and end-all of the topic. Information expressed in the three `Market' articles are merely my take on the situation. I encourage you to think for yourself, and use what is presented here as a stepping off point for learning more.

With that in mind; here are some good sources of information:

The fastest way to learn more is to talk about it. Check out the PCstats Bulletin Board System for more info.