The famous “Monkey business” story in Stock market !!
Forget “The intelligent investor”.
If you are a beginner then this is the first thing you should read !!
Once upon a time, a rich man from the city arrived in a village. He announced to the villagers that he would buy Monkeys for ₹ 100 each.
The villagers were very happy, after all there were hundreds of Monkeys in a nearby forest.
They caught the Monkeys and got them to the rich man. He bought hundreds of Monkeys and paid ₹ 100 for every monkey the villagers gave him.
They began to make a living out of getting Monkeys from the forest and selling it to the rich man.
Soon, the forest began to run out of monkeys that were easy to catch.
Sensing this, the rich man offers ₹ 200 for every monkey. The villagers were ecstatic.
They went back to the forest, set up traps and caught the monkeys and got them to the rich man.
A few days later, the rich man announced he would pay ₹ 300 per monkey.
The villagers began climbing trees and risking their lives to catch monkeys and get them to the rich man who would buy them all.
There were no Monkeys left in the forest.
One day, the rich man announced he would like to buy more monkeys, this time for ₹ 800 each.
The villagers couldn’t believe this. They were desperately trying to get more monkeys..
Meanwhile, the rich man said he had to go back to the city due to some business work and until he returns his manager would deal on his behalf.
Once he left, the villagers were unhappy. They were making quick and easy money from selling monkeys, but the forest no longer had monkeys.
This is when the manager of the rich man stepped in.
He made an offer the villagers could not refuse.
Pointing out to all the monkeys that the rich man had caged, he told the villagers he would sell the monkeys for ₹ 400 each.
Sell them back to the rich man at ₹ 800 each when he comes back, the manager said.
The villagers were over the moon. Buy for 400 and sell for 800 in few days. They had just found the easiest way to double their money.
The villagers collected all their savings and even borrowed money.
There were long queues and within a few hours, almost all the monkeys were sold out.
Unfortunately, their happiness did not last long, as the manager went missing the next day and the rich man never came back.
Many villagers kept the monkeys with them, hoping the rich man would come back. But soon, they lost hope and had to let the monkeys back into the forest as feeding and taking care of the noisy monkeys became extremely difficult.
This is exactly what happens when you buy low-quality companies in the stock market.
There will be a low-priced stock which no one is interested to buy. A few rich men will suddenly start buying it.
The stock price will rise, because there are suddenly a lot of buyers and very few sellers. Classic case of huge demand and no supply — like the Monkeys in the forest.
The stock gets plenty of coverage on business channels and newspapers. These rich men will also use tricks like sending out bulk SMS, asking people to buy the shares for huge returns, giving free tips.
New and inexperienced investors, hoping to double and triple their investment, get lured into them.
And finally the big players who had bought the stock early when no one wanted it, sell it back to inexperienced investors at high prices.
Don’t be greedy, there is no quick money in the stock market or in life.
It takes time and effort to become wealthy and there are no shortcuts.
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Regards !!
