Milan Somani

A young boy enters a barber shop and the barber whispers to his Customer, “This is the dumbest kid in the world. Watch while I prove it to you.” The barber puts a five rupee coin in one hand and two one rupee coins(1+1=2) in the other, then calls the boy over and asks, “Which do you want, son?” The boy takes the two one rupee coins and leaves. “What did I tell you?” said the barber. “That kid never learns!”
Later, when the customer leaves, he sees the same young boy coming out of the ice cream store. “Hey, son! May I ask you a question? Why did you take two one rupee coins instead of the five rupee coin?” The boy licked his cone and replied, “Because THE DAY I TAKE THE FIVE RUPEE COIN, THE GAME IS OVER”

A man was commuting through a forest road on his motorbike when a tiger started chasing him. The tiger was about to catch him near a T-junction where the rider put the left indicator and suddenly took a right. Getting fooled by the wrong signal, the tiger ran off through the left road.

The next day, the tiger – deciding not to get fooled – chases him again. They reach the T-junction. This time the rider put the left indicator and takes left road itself. The tiger takes right by past experience and the rider escapes again.

On the third day, the tiger prepares itself not to get fooled again and learns all Indian traffic rules, signals, common mistakes, best practices etc. It waits well before the T-junction, the rider appears and it started chasing him again. The man has no choice now, no T-junction either.

Finally he takes his right hand off the accelerator, and waves the ‘Overtake’ signal at the chasing tiger. The tiger accelerates and overtakes past him in no time!

It’s October, and an Indian chief thinks it’s going to be a cold winter. So he instructs his tribe to collect firewood. To double-check his prediction, the chief calls the National Weather Service and asks a meteorologist if the winter is going to be a cold one. The man responds, “According to our indicators, we think it might.” So the chief tells his people to find extra wood, just in case.
A week later he calls the National Weather Service again, and they confirm that a harsh winter is headed their way. The chief orders all of his people to scavenge every scrap of wood they can. Two weeks later he calls the National Weather Service again and asks, “Are you absolutely sure this winter is going to be very cold?” “Absolutely,” the man replies. “The Indians are collecting wood like crazy.”

Once there was a little island country. The land of this country was the tiny island itself. The total money in circulation was 2 dollars as there were only two pieces of 1 dollar coins circulating around.

1) There were 3 citizens living on this island country. A owned the land. B and C each owned 1 dollar.

2) B decided to purchase the land from A for 1 dollar. So, now A and C own 1 dollar each while B owned a piece of land that is worth 1 dollar.

* The net asset of the country now = 3 dollars.

3) Now C thought that since there is only one piece of land in the country, and land is non producible asset, its value must definitely go up. So, he borrowed 1 dollar from A, and together with his own 1 dollar, he bought the land from B for 2 dollars.

* A has a loan to C of 1 dollar, so his net asset is 1 dollar.
* B sold his land and got 2 dollars, so his net asset is 2 dollars.
* C owned the piece of land worth 2 dollars but with his 1 dollar debt to A, his net residual asset is 1 dollar.
* Thus, the net asset of the country = 4 dollars.

4) A saw that the land he once owned has risen in value. He regretted having sold it. Luckily, he has a 1 dollar loan to C. He then borrowed 2 dollars from B and acquired the land back from C for 3 dollars. The payment is by 2 dollars cash (which he borrowed) and cancellation of the 1 dollar loan to C. As a result, A now owned a piece of land that is worth 3 dollars. But since he owed B 2 dollars, his net asset is 1 dollar.

* B loaned 2 dollars to A. So his net asset is 2 dollars.
* C now has the 2 coins. His net asset is also 2 dollars.
* The net asset of the country = 5 dollars. A bubble is building up.

(5) B saw that the value of land kept rising. He also wanted to own the land. So he bought the land from A for 4 dollars. The payment is by borrowing 2 dollars from C, and cancellation of his 2 dollars loan to A.

* As a result, A has got his debt cleared and he got the 2 coins. His net asset is 2 dollars.
* B owned a piece of land that is worth 4 dollars, but since he has a debt of 2 dollars with C, his net Asset is 2 dollars.
* C loaned 2 dollars to B, so his net asset is 2 dollars.
* The net asset of the country = 6 dollars; even though, the country has only one piece of land and 2 Dollars in circulation.

(6) Everybody has made money and everybody felt happy and prosperous.

(7) One day an evil wind blew, and an evil thought came to C’s mind. ‘Hey, what if the land price stops going up, how could B repay my loan. There is only 2 dollars in circulation, and, I think after all the land that B owns is worth at most only 1 dollar, and no more.’

(8) A also thought the same way.

(9) Nobody wanted to buy land anymore.

* So, in the end, A owns the 2 dollar coins, his net asset is 2 dollars.
* B owed C 2 dollars and the land he owned which he thought worth 4 dollars is now 1 dollar. So his net asset is only 1 dollar.
* C has a loan of 2 dollars to B. But it is a bad debt. Although his net asset is still 2 dollars, his Heart is palpitating.
* The net asset of the country = 3 dollars again.

(10) So, who has stolen the 3 dollars from the country ? Of course, before the bubble burst B thought his land was worth 4 dollars. Actually, right before the collapse, the net asset of the country was 6 dollars on paper. B’s net asset is still 2 dollars, his heart is palpitating.

(11) B had no choice but to declare bankruptcy. C as to relinquish his 2 dollars bad debt to B, but in return he acquired the land which is worth 1 dollar now.

* A owns the 2 coins, his net asset is 2 dollars.
* B is bankrupt, his net asset is 0 dollar. ( he lost everything )
* C got no choice but end up with a land worth only 1 dollar
* The net asset of the country = 3 dollars.

************ **End of the story; BUT ************ ********* ******

There is however a redistribution of wealth.
A is the winner, B is the loser, C is lucky that he is spared.
A few points worth noting –

(1) When a bubble is building up, the debt of individuals to one another in a country is also building up.
(2) This story of the island is a closed system whereby there is no other country and hence no foreign debt. The worth of the asset can only be calculated using the island’s own currency. Hence, there is no net loss.
(3) An over-damped system is assumed when the bubble burst, meaning the land’s value did not go down to below 1 dollar.
(4) When the bubble burst, the fellow with cash is the winner. The fellows having the land or extending loan to others are the losers. The asset could shrink or in worst case, they go bankrupt.
(5) If there is another citizen D either holding a dollar or another piece of land but refrains from taking part in the game, he will neither win nor lose. But he will see the value of his money or land go up and down like a see saw.
(6) When the bubble was in the growing phase, everybody made money.
(7) If you are smart and know that you are living in a growing bubble, it is worthwhile to borrow money (like A ) and take part in the game. But you must know when you should change everything back to cash.
(8) As in the case of land, the above phenomenon applies to stocks as well.
(9) The actual worth of land or stocks depend largely on psychology.

Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for Rs10.The villagers seeing that there were many monkeys around, went out to the forest and started catching them. The man bought thousands at Rs10 and as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy at Rs20. 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 Rs25 and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it! The man now announced that he would buy monkeys at Rs50!

However, since he had to go to the city on some business, his assistant would now buy on behalf of him. 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 Rs35 and when the man returns from the city, you can sell it to him for Rs50.” The villagers squeezed up with all their savings and bought all the monkeys. Then they never saw the man nor his assistant, only monkeys everywhere.

Welcome to the “Stock” Market…