Tuesday, October 21, 2008

Understanding the Stock Market: A monkey's guide to short selling**


**I got this email from a friend and I thought that it is pretty fun. I hope you enjoy it too:
  • stock markets in monkey terms
  • short selling in monkey term ;-P

Once upon a time, in a village, a man appeared and announced to the villagers that he would buy monkeys for $10 each. Seeing that there were plenty of many monkeys around, the villagers went out to the forest, and started catching them. The man bought thousands at $10. As supplies of monkeys started to diminish, the villagers ceased their efforts. The man then announced he would now buy at $20. So the villagers renewed their efforts and started catching monkeys again. Soon the supply of monkeys diminished even further and people started going back to their farms. The man increased his offer to $25 and the supply of monkeys diminished to the extent that it was an effort to even see a monkey, let alone catch one. But the man now announced he would buy monkeys at $50! However, since he had to go to the city on business, his assistant would now buy on his behalf. In the absence of the man, the assistant said to the villagers: "Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when the man returns from the city, you can sell them to him for $50 each." The villagers thought that was a great idea so they collected all their savings and bought all the monkeys. They never saw the man nor his assistant again. But they had plenty of monkeys. Now you have a better understanding of how the stock market works.

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