Previous Story: Monkey Business
Mother and son sat silently watching the plummeting charts on TV.
Newscasters pretended to intelligently explain reasons for today’s fall.
“Can Pa not do something about it?” Josh asked suddenly, as if he had read her mind.
“Wish he could,” Isha sighed. “You were asking me the other day why markets crash?"
"It’s not as important to know why they do, as it is to know what to do when they do crash."
"In late 2007, just before the Global Financial Crisis happened, Dhirendra Kumar wrote another version of the fable I told you yesterday.”
“In his version of this parable, and I’m improvising again as I can’t recall it exactly, a village gets a visitor one day, who wants to buy the village monkeys for a silver coin each."
"Because no one has ever traded in monkeys before, the villagers catch all the monkeys in the neighborhood and happily sell them to him."
"Having bought all the monkeys, the buyer proceeds to the neighboring village. Later, another visitor arrives in the monkey-less village and is happy to pay double for the monkeys."
"But there aren't any monkeys left around. They were all bought by the first buyer. So the villagers ask the new buyer to come back next week."
"In the meantime, they track the first buyer down and offer to buy back their monkeys and return his money. Obviously, the first buyer is unwilling to sell without an appropriate profit. The villagers raise the offer price to coin and half per monkey, but the buyer declines.”
“How do you give half a coin Ma?” asked Josh.
“I don’t know," stumbled Isha, then recovered. "That was the least of their worries though, as the buyer didn’t sell at that price. So they offered him a coin and three quarters.”
“Ooh,” Josh giggled. “That’s pretty clever. Three quarters coin won’t buy anything either, it’s useless. So they really are only giving him back what he paid them initially.”
“A coin and three-quarters is worth a lot more than just a coin,” Isha insisted.
“You don't know, Ma," Josh said authoritatively. "Three-quarters of a coin is worth nothing. The shop keeper didn’t sell me a sweet for a full defaced coin I’d found. He would most definitely give me nothing for a damaged coin.”
“Good point,” Isha had to agree with his irrefutable logic. “The buyer probably figured that out too, so he declined again. But remember, coins are made of metals. Even damaged coins are worth something."
"When you are older and smarter than you are now, you will find wonderful ways to profit, even where others see no opportunity. If you learnt how to use the magic of Math, you could really be rich one day."
"How?" asked Josh.
"For example," Isha said, "if you bought two monkeys for three coins, wouldn't that be paying a coin and a half for each monkey? Two half coins make a full, and you wouldn't have to break the coin either."
"So if you were really smart, would you decline if someone offered you one and three quarters coin value per monkey."
Josh sat reflecting deeply, then answered with his usual confidence, "You'd need to sell more monkeys to get full coins. Selling one or two or even three monkeys just won't do."
"How do you mean?" asked Isha.
"Two three quarters make one and a half," answered Josh, "Add two full coins, and I could sell two monkeys for three and half coins. But we'll still get half a coin. I wouldn't want that."
"So double everything as two halves make one whole. So I could sell four monkeys for ... seven coins. Paid four, got seven back. I would sell them, if I were him. The deal is good."
Isha smiled at her precocious child and continued, "But he didn't. The villagers were horrified though, when one hasty youth amongst them raised the price to two full coins. There’d be no margin left in it for them.”
“Yet, their horror turned to surprise when the buyer declined this offer as well. It was clear he was holding out, but for how much? And why?"
"Whoever said you can’t sell a secret, was obviously wrong. He had never heard of whole subdivisions being sold off the plan, or public issues of dot com stocks that never earned a decent coin.”
“Anyway, negotiations had almost petered out without a deal, but the hot shot still had adrenalin pumping through him. Like a dog who just won’t let go of the bone, he bid the price higher and higher until the buyer finally relented at three coins.”
“The villagers were gob smacked, but reasoned that city dwellers being pretty astute and more informed than them, must be on to something big to do with monkeys."
"Otherwise who would buy a useless monkey for a silver coin in the first place and then not let go of him until three times that price.”
“Not willing to miss the proverbial bandwagon, they jumped on and bought back their monkeys too for three coins each, before the buyer could reconsider or reset the price higher."
"Like in our original version of the story, the second buyer never returned to their village to buy the monkeys next week or ever after, so they were left holding the babies – I mean monkeys.”
“But the story doesn’t end here, in this version. In yet another village nearby, another man appeared one day and offered to buy goats for two silver coins apiece."
"Goats are useful domestic animals you see. So it would be fair to pay more for them, than what one would pay for the useless monkeys. But no one normally paid that much for them those days, so the villagers happily sold all their goats to this buyer.”
“Then, they had a similar experience. A second buyer appeared soon after, offering them three coins for any goats. The first buyer refused to sell back without a profit, and eventually the villagers ended up buying back their goats for four coins each.”
“Yet again, the two buyers disappeared after the transaction and no one ever came and offered so much money for a goat again."
"But there was a difference. Goats weren't monkeys. They could be milked every day, and when the milk stopped, they could be killed for their mutton.”
“Dhirendra writes that it wasn't such a disaster for the goat buyers. The monkeys ate too much, shouted and shrieked all day and sometimes bit people."
"Eventually, when it became clear that the monkeys were worthless, their owners abandoned them and tried to forget about their losses.”
“And that, he says, is the moral of this story. In the share markets, you can always find good stocks that are overpriced and worthless stocks that are overpriced."
"If you are going to act a goat and pay absurd prices, betting on a greater fool coming along later to relieve you of your burden, make sure you buy a goat and not a monkey.”
Next Story: I Am Jesus' Sower