Business, Legal & Accounting Glossary
The Castle-in-the-Air Theory, one of the Investment Theories, is rather opposite in its postulations compared to the Firm Foundation Theory.
The Firm Foundation Theory believes and tries to understand the intrinsic value of any stock or other asset.
The castle-in-the-air theory delves deep into another aspect of investing behaviour – it tries to unravel and understand the psychic values and behaviour of the group of investors.
This theory was made popular in 1936 by John Maynard Keynes, a famous economist (as also an investor) and the theory postulates that the investors try to build a sort of castles in the air and think of the probable price rise in the future than estimating the intrinsic values of stocks.
Once the investor has estimated this, he/she tries to beat the crowd by building positions in the preferred stocks before the crowds (read other investors) start buying those stocks and the price surges ahead.
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This glossary post was last updated: 3rd May, 2020 | 14 Views.