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Economics 101
Guide to success in the financial world

Once upon a time in a small remote village, in a land far away, a stranger appeared in the town square and announced to the assembled villagers that he would buy monkeys for $10 each.

The villagers, seeing that there were many monkeys around, went out to catch some. The stranger bought thousands at $10 and as the supply started to diminish, the villagers stopped their efforts and returned to concentrate on their farms.

The stranger reappeared in the village square a few days later and further announced that he would now buy monkeys at $20 each. This renewed the efforts of the villagers and they started searching high and low in the surrounding forests catching monkeys again. Soon the supply diminished even further and people started going back to their farms, content with their profits from the second sale of monkeys.

A week later, the stranger appeared again and the offer increased to $25 for each monkey. The villagers redoubled their efforts in the search, but the supply of monkeys had became so little that it was an effort to even see a monkey, let alone catch it. Fewer monkeys were brought in for sale, so the stranger now announced that he would buy monkeys at $50.

However, he told the assembled villagers, since he had to go to the big city on some business, his assistant would now buy on behalf of him.

In the absence of the stranger, the assistant had a huge cage hauled in to town. He told the villagers, “Look at all these monkeys that the stranger has collected in the big cage. I will sell them to you at $35 and when the stranger returns from the big city, you can sell them to him for $50 each.”

The villagers rounded up all their savings, the hard earned money that they made from the capture and sale of monkeys and gave it to the assistant. They bought all the monkeys back.

They waited for the stranger to return. Days went by and turned to weeks and they never saw the stranger or his assistant. There were monkeys everywhere.

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


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24-Aug-2019