Wednesday, October 12, 2011

Stock Markets or Monkey Business?

The are many and oft repeated stories about stock markets.  This is one of them:

Once upon a time a man appeared in a village and announced that he would buy monkeys by paying Rs.10 for each monkey.  Make it ten cents for a monkey if you want to make it an International story.  The villagers seeing that there were so many monkeys around the village and in nearby forests went around and started catching them.  The man bought thousands at Rs.10 or ten cents as per the choice of the sellers.  As supply started to diminish and villagers started to stop their efforts, he announced  that now he would buy monkeys at 20 rupees or twenty cents each. This renewed the efforts of the villagers and they started catching monkeys again.  Even the farmers left their farming activities and took up monkey catching.  Soon the supply diminished even further and people started going back to their farms. The offer rate increased to 25 and the supply of monkeys became so thin 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 the man.  In the absence of the man, the assistant gave an option to the villagers. "Look at all these monkeys in the big cages that the man has collected.  I will sell them to you at 35 and when the man comes back you can sell it to him for 50. You will make a profit of 15 on each monkey with no efforts.  The villagers queued up with all their saving to buy the monkeys.  The assistant sold all the monkeys and converted the rupees into dollars and made a remittance abroad from the local bank. He went back with a promise that he would certainly return with his master after finding out the present demand for monkeys or other animals.

Then they never saw the man or his assistant again.  It was only monkeys everywhere!

There is another golden saying. It is very easy to become a millionaire in a stock market.  Just start as a billionaire.

An average small investor looks at the stock markets and is encouraged when he sees the indices and individual company shares are going up.  Foreign Institutional Investors are investing as the prices are attractive. He also starts buying.  He can only buy small quantities.  A small fish in the ocean of  big fish, very big fish and whales. When samll investors enter the market, the index raises even further. Individually he is small but collectively it is considerable investments. But he will discover shortly that the stocks he purchased have started falling even if others are rising. Rising was in units but fall is in tens.  Then suddenly FIIs start selling.  Before he realises and reacts, the shares have fallen steeply and the index has collapsed.  At a time when he exits the market he has already lost a large part of his money. When the small investor is exiting FIIs are again buying  cheap. The cycle repeats. Monkey business continues.

There are many reasons  for stock market crashes. As well as for runaway upward movement. For crash there is earthquake in Japan.  Deficit in Greece. Downgrading by rating agencies. Higher inflation.  Even fear of inflation going higher.  there are no more drivers of growth.  Or simply that the rise was too fast to sustain!  None of them are in our control.  Only thing in our control is losing money. Or sometimes one wonders, Whether it is in our control?

We have wonderful stock market experts who go on appearing on TV channels one after the other.  One expert after the other on the same channel.  Again, the same expert on different channels.  And have their analysis for what went wrong. and advise for where to invest. They are like GPS.  Or in one way better than GPS.  GPS gives you advise on what route to take.  If you take a wrong turn because road signs are not clear or get into a wrong exit, it immediately stats recalculating and gives a fresh direction. Does not hesitate one bit or waste a minute.  The experts are also like that. They predict a market upsurge. You invest. Market drops. They have an immediate fresh advise.  Before the markets open on the next day.  Just like GPS.  They had good arguments and reasons for the previous advise.  They have better arguments and reasons why the  advice went wrong.  They have even better reasons why their advice is sound now. Sounder than before. They are even better than GPS. GPS gives an advice, you make a mistake, it gives a fresh advice.  These experts gave an advice, you followed it; their advice was wrong and things went wrong.  Now they have a fresh advice against their earlier one which went wrong. Is it not better than GPS?  Don't ask any more questions. Have they not given the first advice?  That they are only giving an advice and you should invest only after satisfying the correctness of their advice by independent research?  Don't tell them that if you were capable of making independent research, you would yourself  be an adviser.  In fact they are preparing you for becoming a better adviser in future.  Probably because all of them lost a lot of money in the markets, gained a lot of experience while doing so and now they are making up the losses and even making a profit by becoming advisers.  Don't worry if you lose money. Nothing to worry if you lose money. Money is not everything in life. You are gaining something even more valuable for leading a good life - which is experience.  You can always become an adviser due to the richness of experience though money-wise you have become poor.

It is not that stock markets always produce losses.  There are many who have made fortunes in there. But for every one such lucky person, there are ten who have lost.  An investor has to ask himself some questions before investing:  Is he investing the surplus he has or is it money on which he depends for the daily bread?  Is he willing to wait for long or looking for a quick profit?  Does he regret if he loses a substantial part of it or is it fine with him?   Does he have other sources of income to depend on in case of severe losses?  Does he have the will to sell at a loss to avoid further losses?  Above all what does his doctor say about the condition of the heart?

Sensex is again climbing to 17000.  Dow is nearing 12000.  Come let us not lose time in silly discussions. Take my advise.  It is time to invest and lose!  There is nothing to lose, except money!!  That too your money!!!


  1. Great Story to drive the result of greediness. The famous saying "Haasige yesht ideyo ashtu kaalu chaachu" should be remembered always.

  2. Very Well said. Investing in stocks can be disastrous to some.

    On a lighter note here goes the stock market humour
    New Stock Market Terms

    CEO -- Chief Embezzlement Officer.
    CFO-- Corporate Fraud Officer.
    BULL MARKET-- A random market movement causing an investor to mistake himself for a financial genius.
    BEAR MARKET -- A 6 to 18 month period when the kids get no allowance and the wife gets no jewelry.
    VALUE INVESTING -- The art of buying low and selling lower.
    P/E RATIO -- The percentage of investors wetting their pants as the market keeps crashing.
    BROKER -- What my broker has made me.
    STANDARD & POOR -- Your life in a nutshell.
    STOCK ANALYST -- Idiot who just downgraded your stock.
    STOCK SPLIT -- When your ex-wife and her lawyer split your assets equally between themselves.
    MARKET CORRECTION -- The day after you buy stocks.
    CASH FLOW -- The movement your money makes as it disappears down the toilet.
    INSTITUTIONAL INVESTOR -- Past year investor who's now locked up in a nuthouse.
    PROFIT -- an archaic word no longer in use.

    Source: Unknown – circulated by e-mail.

  3. My father-in-law once told me, "Never listen to the advisers!". Thats why he watches Profit in mute. The rolling indices and expressions of the speakers speaks a thousand more words.
    A must read article for a small time investor. How small is small is left to the imagination of the reader.
    Was watching the stock market "bucket" hawala. What revelations!!

  4. "New Stock Market Terms" given above in the comments has been appreciated by many readers and they have shared with many other friends. No wonder, we can all identify ourselves with one or more of the terms given!