How the Stock Market Works

Once upon a time, a man appeared at a village and announced to the villagers that he would buy monkeys for $10 each. The villagers knowing that there were many monkeys around, went out to the jungle, and started catching them.

The man bought hundreds at $10 and as supply started to diminish, the villagers stopped catching them. Then he announced that he would now buy at $20. 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 increased to $25 each and the supply of monkeys became so small 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 monkeys on his behalf. In the absence of the man, the assistant told 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 returns from the city, you can sell them to him for $50 each.»

The villagers rounded up all their savings, borrowed what they could, and bought all the monkeys. They never saw the man or his assistant again, and there were monkeys everywhere!

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

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