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Analogy of the Stock Market The Monkey Story

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Analogy of the Stock Market The Monkey Story

Last updated: August 10 2011
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  • Analogy of the Stock Market The Monkey Story

    Once upon a time a man told a small village, “I will buy monkeys for $10 each.”

    Since there were many monkeys in the forest, the villagers caught them and sold them to the man.

    As the supply of monkeys diminished, the villagers’ efforts slowed, so the man offered them $20 each.

    They renewed their efforts but the supply of monkeys diminished further, so he increased his price to $25.

    Soon no one could even find a monkey in the forest.

    The man increased his price to $50, but announced, “Since I must go to the city on business, I authorize my assistant to buy monkeys on my behalf.”

    As soon as his boss was gone, the assistant told the villagers, “My boss has collected lots of monkeys. I’ll sell them to you for $35 and then, when he returns, you can sell them to him for $50.”

    The villagers rounded up all the money they could and bought as many monkeys as possible. Then they had monkeys everywhere…

    … but they never saw the man or his assistant again.

    And now you understand the workings of the stock market!


    ABOVE IS TRUE FOR STOCK MARKET AND REAL ESTATE MARKET TOO. THE WAY PRICES MOVING UP/DOWN....
    SO YOU HAVE 3 OPTION:
    1.BECOME TRADER (WHO BUY/SELL MONKEY IN ABOVE CASE)
    2. BECOME VILLAGER (WHO LOST EVERYTHING)
    3. OR BECOME MONKEY

    Builders have launched so many projects in last one year than in last 10 years... kahi aisa na ho ki "Monkey strory in progress."
  • #2

    #2

    Re : Analogy of the Stock Market The Monkey Story

    Nice one...


    But here in noida we have categories of villagers:

    1. just booking: Booking with initial 10% in 2-3 schemes...no need to pay full and wait for delivery..hope for appreciation(even if 10-15%) and let go the holdings..even if no appreciation..will release their holdings in whatever price they get..

    2. Living in peace: Already living in overprices flats in ncr..investing surplus again in hope of 400% return in 4 years...they will eventually buy these..n even hold them until there's some appreciation..or rent them....or leave them for their next generation....but may not actually live there...

    3. The NRI's: They need some better returns in $$ than what they get overseas..also planning to have a already booked adobe on return(50% of them never will..and hence never will actually live..)

    4. The renters like me: Getting sal in INR...and not much disposable income..living on rented premises and looking to own one on a LOAN...but torn b/w confusing re scenario.higher emi's...higher inflation..flat or no increase in sal for last 2 years....

    If current scenario goes as it looks..4 lakh units ready in nxt 3 years..with owners not living(thanks to cat. 2 and 3 pple)....I believe next 5-7 years will see rental price going down/remaining flat...

    So...should I skip this plung into noida RE for time being?????

    Any comments pls...

    Comment

    • #3

      #3

      Re : Analogy of the Stock Market The Monkey Story

      LOL

      Good one, Chandra
      Venky (Please read watch a or before posting)

      Comment

      • #4

        #4

        Re : Analogy of the Stock Market The Monkey Story

        its a good story but isn't it backwards in case if RE. here villagers are buying monkeys from Man from the city, not selling to him. I think you need to updated this story to match the situation on ground

        Comment

        • #5

          #5

          Re : Analogy of the Stock Market The Monkey Story

          Either ways you take the story. The meaning (moral) remains the same even if characters get changed.

          Chandra, excellent story!! Games people play by manipulating demand and supply....

          Comment

          • #6

            #6

            Re : Analogy of the Stock Market The Monkey Story

            good story i am pasting another one posted by a senior member which i read on the forum worth reading if not already read.

            **************************************

            Once there was a little island country. The land of this country was the tiny island itself. The total money in circulation was 2 dollars as there were only two pieces of 1 dollar coins circulating around.

            1. There were 3 citizens living on this island country. A owned the land. B and C each owned 1 dollar.

            2. B decided to purchase the land from A for 1 dollar. So, now A and C own 1 dollar each while B owned a piece of land that is worth 1 dollar.

            The net asset of the country now = 3 dollars.

            3. Now C thought that since there is only one piece of land in the country, and land is non producible asset, its value must definitely go up. So, he borrowed 1 dollar from A, and together with his own 1 dollar, he bought the land from B for 2 dollars.

            * A has a loan to C of 1 dollar, so his net asset is 1 dollar.
            * B sold his land and got 2 dollars, so his net asset is 2 dollars.
            * C owned the piece of land worth 2 dollars but with his 1 dollar debt to A, his net residual asset is 1 dollar.

            Thus, the net asset of the country = 4 dollars.

            4. A saw that the land he once owned has risen in value. He regretted having sold it. Luckily, he has a 1 dollar loan to C. He then borrowed 2 dollars from B and acquired the land back from C for 3 dollars. The payment is by 2 dollars cash (which he borrowed) and cancellation of the 1 dollar loan to C. As a result, A now owned a piece of land that is worth 3 dollars. But since he owed B 2 dollars, his net asset is 1 dollar.

            1. B loaned 2 dollars to A. So his net asset is 2 dollars.
            2. C now has the 2 coins. His net asset is also 2 dollars.

            The net asset of the country = 5 dollars. A bubble is building up.

            5. B saw that the value of land kept rising. He also wanted to own the land. So he bought the land from A for 4 dollars. The payment is by borrowing 2 dollars from C, and cancellation of his 2 dollars loan to A.

            1. As a result, A has got his debt cleared and he got the 2 coins. His net asset is 2 dollars.

            2. B owned a piece of land that is worth 4 dollars, but since he has a debt of 2 dollars with C, his net Asset is 2 dollars.

            3. C loaned 2 dollars to B, so his net asset is 2 dollars.

            The net asset of the country = 6 dollars; even though, the country has only one piece of land and 2 Dollars in circulation.

            • Everybody has made money and everybody felt happy and prosperous.


            One day an evil wind blew, and an evil thought came to C’s mind. “Hey, what if the land price stop going up, how could B repay my loan. There is only 2 dollars in circulation, and, I think after all the land that B owns is worth at most only 1 dollar, and no more.” A also thought the same way. Nobody wanted to buy land anymore.
            1. So, in the end, A owns the 2 dollar coins, his net asset is 2 dollars.
            2. B owed C 2 dollars and the land he owned which he thought worth 4 dollars is now 1 dollar. So his net asset is only 1 dollar.
            3. C has a loan of 2 dollars to B. But it is a bad debt. Although his net asset is still 2 dollars, his Heart is palpitating.
            4. The net asset of the country = 3 dollars again.
            7. So, who has stolen the 3 dollars from the country ? Of course, before the bubble burst B thought his land was worth 4 dollars. Actually, right before the collapse, the net asset of the country was 6 dollars on paper. B’s net asset is still 2 dollars, his heart is palpitating.
            1. B had no choice but to declare bankruptcy. C as to relinquish his 2 dollars bad debt to B, but in return he acquired the land which is worth 1 dollar now.
            2. A owns the 2 coins, his net asset is 2 dollars.
            3. B is bankrupt, his net asset is 0 dollar. ( he lost everything )
            4. C got no choice but end up with a land worth only 1 dollar
            5. The net asset of the country = 3 dollars.

            ************ **End of the story; BUT ************ ********* ******

            There is however a redistribution of wealth.
            A is the winner, B is the loser, C is lucky that he is spared.

            A few points worth noting -

            1. When a bubble is building up, the debt of individuals to one another in a country is also building up.
            2. This story of the island is a closed system whereby there is no other country and hence no foreign debt. The worth of the asset can only be calculated using the island’s own currency. Hence, there is no net loss.
            3. An over-damped system is assumed when the bubble burst, meaning the land’s value did not go down to below 1 dollar.
            4. When the bubble burst, the fellow with cash is the winner. The fellows having the land or extending loan to others are the losers. The asset could shrink or in worst case, they go bankrupt.
            5. If there is another citizen D either holding a dollar or another piece of land but refrains from taking part in the game, he will neither win nor lose. But he will see the value of his money or land go up and down like a see saw.
            6. When the bubble was in the growing phase, everybody made money.
            7. If you are smart and know that you are living in a growing bubble, it is worthwhile to borrow money (like A ) and take part in the game. But you must know when you should change everything back to cash.
            8. As in the case of land, the above phenomenon applies to stocks as well.
            9. The actual worth of land or stocks depend largely on psychology"
            MM

            Comment

            • #7

              #7

              Re : Analogy of the Stock Market The Monkey Story

              Quite a learning experience for me after reading this post.
              Munish, many thanks for sharing the evolution of bubble story...wonderful!

              Comment

              • #8

                #8

                Re : Analogy of the Stock Market The Monkey Story

                HI MUNISH

                Excellent explanation

                We all know that there are bubble formations time to time in Stock or RE market, still unable to understand the fundamentals behind it. This kind of story is definately a caution for all new entrants.

                Comment

                • #9

                  #9

                  Re : Analogy of the Stock Market The Monkey Story

                  Bubbles are bound to happen. if they can happen on an island of 3 people then it can happen anywhere
                  Some reasons compounding the issue i think are -
                  -FDI
                  -Bank Lending(loans etc)
                  -Inflation due to rise of essential products
                  -Population explosion
                  -Corruption
                  -Red tapism in Judiciary and legal system
                  -Fear psychosis

                  Btw the story was posted by Venky on another thread.
                  MM

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                  • #10

                    #10

                    Re : Analogy of the Stock Market The Monkey Story

                    Atleast the stock market is better managed and controlled unlike RE which has no MAI-BAAP what so ever. High time there is one.
                    MM

                    Comment

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