Phunware (NASDAQ:PHUN) is a software company that saw its shares skyrocket in October, going from under a dollar on Oct. 1 to a high of $24.04 on Oct. 22. This was followed by a dramatic selloff, opening at $4.16 on Nov. 8. PHUN stock is a clear example of the greater fool theory.

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Phunware provides some information on its website: “Phunware is mobile software that exhibits gamelike mechanics and behavior so brands can contextually engage customers and drive digital transformation.” Its goal is to help other businesses achieve more so that “brands can get the right content to the right customer at the right time in the right place.” That all sounds interesting, but PHUN stock is a perfect example of bad investment thinking.

The Greater Fool Theory

Investopedia offers this summary of the greater fool theory:

“The greater fool theory argues that prices go up because people are able to sell overpriced securities to a ‘greater fool,’ whether or not they are overvalued. That is, of course, until there are no greater fools left.

“Investing, according to the greater fool theory, means ignoring valuations, earnings reports, and all the other data. Ignoring the fundamentals is, of course, risky; and so people subscribing to the greater fool theory could be left holding the bag after a correction.”

The greater fool theory is inevitable as investors treat the stock market like an online casino. By ignoring…

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