Sunday, June 04, 2006

How share market works

"Once upon a time in a village a man appeared who announced to the
villagers that he would buy monkeys for Rs. 10 each. The villagers seeing
that there were many monkeys went out in the forest and started catching
them. The man bought thousands at 10 and as the supply started to diminish
and the villagers started to stop their efforts, he announced that now he
would buy at 15 rupees.

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 rate increased to 20 rupees and, in fact,
the supply of monkeys became so low that it was an effort to even see a
monkey let alone catch it.

The man now announced that he would buy monkeys at 60 rupees each! However,
as he had to go to the city on some business, he deputed his assistant to
buy them on his behalf.

In the absence of the man, the assistant told the villagers. "Look at all
these monkeys in the big cage that the man has collected, I will sell them
to you at 40 rupees each and when the man comes back you can sell it to him
for 50 rupees each." The villagers queued up with all their savings to buy
the monkeys.

After that no body found that man and that assistant, but only monkeys and
monkeys and monkeys.....


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