May 13, 2006

Over dinner yesterday, my friend, who works for a leading private sector bank, shared an interesting story about stock market psychology that was shared with him by a very senior manager of the bank. Here is the story:

Once upon a time, a man went to a remote village and saw a lot of monkeys there. So he announced that he would purchase each monkey for Rs.10. The villagers were enthralled and they started capturing monkeys and selling them to this gentleman. Soon not many monkeys were around and it became difficult to capture monkeys. So the gentleman announced that he would give Rs.15 for each monkey. Excited by the increased offer price of each monkey, the villagers started finding and capturing monkeys with renewed vigour. After sometime, it became tough to capture monkeys as very few of them were left now. Seeing the scarcity, the gentleman this time offered Rs.20 for each monkey. This increase in offer price meant a lot to poor villagers and they started spending lot of their time and effort in finding and capturing whatever monkeys were left. This continued for sometime. But soon there were hardly any monkey left in the village. So the gentleman announced that he would offer Rs.50 for each monkey keeping in mind the acute scarcity of monkey. He put his staff in the village and left for the city after this announcement.

The villagers could not believe their ears – Rs.50 for each monkey. But they were very worried as there was hardly any monkey left. So the staff of the gentleman came to their rescue and offered to sell them monkeys for Rs.35. Villagers thought that they could still make Rs.15 from this deal by buying at Rs.35 and selling at Rs.50. So they agreed.

And the staff of the gentleman sold all the monkeys that his boss had purchased between Rs.10 and Rs.20 to the villagers . He then left the village to call his boss to complete the Rs.50 per monkey deal with villagers. The villagers kept waiting for the gentleman and his staff to return but they never returned!


Moral of the story: Don’t become a Bandar in the irrational exuberance of the stock market.

2 comments

  1. Phil Quotler // May 18, 2006 at 7:40 AM  

    This is too much....Does it happen this way in your country?

  2. Mayank Krishna // May 19, 2006 at 12:54 AM  

    Hi Phil

    This is a fictitious story to drive down the stock market psychology, irrespective of the country. It is not real.

    And of course, it doesn't happen this way in my country :-)