Samstag, März 15, 2008

Understanding How The Stock Market Works...

Hat tip to Sense of Events: I expanded on it slightly...

Once upon a time in a jungle village, a man appeared and announced to the villagers that he would buy monkeys for $10 each.

The villagers seeing that there were many monkeys around, went out to the forest, and started catching them.

The man bought thousands at $10 and as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further and people started going back to their farms. The offer increased to $25 each and the supply of monkeys became so small that it was an effort to even see a monkey, let alone catch it!

The man now announced that he would buy monkeys at $50 ! However, since he had to go to the city on some business, his assistant would now buy on behalf of him. In the absence of the man, the assistant told the villagers. 'Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when the man returns from the city, you can sell them to him for $50 each.'

The villagers rounded up with all their savings and bought all the monkeys. Then they never saw the man nor his assistant again, and in their desperation tried selling the monkey to each other, with some buying in the hope that the man or his assistant would reappear. Others tried keeping the monkeys but saw them die; others just gave up and let the monkeys free. Others went out and started killing monkeys out of rage that they had lost so much.

Now you have a better understanding of how the stock market works.

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