Invest Lobby

How the stock markets work? I always explain simply through this joke:

Once upon a time in a 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 efforts.

The merchant 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 little, that it was a rare event to even see a monkey, let alone catch it!

The businessman now announced he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would now buy on his behalf.

In the absence of the monkey dealer , the assistant told the villagers. “Look at all these monkeys in the big cage that my boss has collected. I will sell them to you at $35 and when he returns from the city, you can sell them back to him for $50 each!”

The greedy villagers instantly agreed. They rounded up all of their savings and bought every single monkey inside the big cage.

Then they never saw the monkey dealer nor his assistant again, only monkeys jumping everywhere!

The Villagers


The Businessman and his assistant


Lessons to be learned:

1. Do not trust anyone who ask you to buy or sell, except for yourself, so you must first learn hot the market works especially if the offer is to good to be true. (The businessman and his assistant)

2. Do not be fooled by prices in the market, look at what and why price move (People like to see rising prices)

3. Be careful of announcements (businessman now announced he would buy monkeys at $50)

4. Be wary of low liquid stocks where prices can be cornered (supply of monkeys become so little)

5. Do not follow the crowd (villagers)

6. If major shareholders bought back lots of shares days or weeks ago and prices are already high, they are probably going to sell monkeys!

7. Greed is good but do not be over-greedy (villagers bought every single monkey)

So, make sure you understand how market works or you will end up having monkeys instead of money!