How the stock market works...

[Omaroo (Chris Malikoff)]

Are you currently shaking your head wondering what is going on in the financial markets?

Here is a small story that illustrates it nicely.

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

The man bought thousands at $10 and, as supply started to diminish, the villagers stopped their effort.

He further announced that he would now buy at $20 for a monkey. 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 find 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 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 $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 and bought all the monkeys.

They never saw the man nor his assistant again, only monkeys everywhere!

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

[DeanoNZL (Adrian)]

Nice one, Chris

[RB (Andrew)]

Moral of the story: invest in bananas, the world is full of hungry monkeys.

[leon]

Na Andrew, just stay away from the stock market, I reckon, not that I know how it all works, or have any investments there of.

Leon

[h0ughy (David)]

what do I get for a bag of peanuts?

[RB (Andrew)]

Originally Posted by leon

Na Andrew, just stay away from the stock market, I reckon, not that I know how it all works, or have any investments there of.

Leon

I've invested in Glass Leon, my portfolio includes Canon, Takahashi and Tele Vue.

Originally Posted by h0ughy

what do I get for a bag of peanuts?

Investment advice.

[leon]

Yep, Andrew, I didn't think of that one, a much better investment indeed.

Leon

[Kevnool (Kev)]

Someone is gambling your super away!!!

[Ric]

I like the description Chris, sums it up perfectly in my mind.

Cheers

[Louwai (Bryan)]

Originally Posted by Kevnool

Someone is gambling your super away!!!

That's a true comment Kev, But I'm amazed at how many people over the age of 60 that have ALL or most of their funds tied up in the stock market.

All of the investment advisors tell the more snr folk to pull their money out of the high risk areas at least 5 to 7ys BEFORE they retire. They advise to put the money into term deposits etc. Not as profitable, but certainly more secure.

So why are there so many retirees now complaining that their money is dissapearing??? Because they didn't head the advice & favored more profit. So now who's paying for it??? The tax payer..... again............

[xelasnave]

I dont know that the idea behind the system is flawed really...

But what I am sure of is that poor human virtues corrupt the system...
The monkey story has been to often been played out with only the product being different to the story told.

I have no interest in protecting greedy fools but they are often not the only victims and it is a problem with our society that we can look at a drug adict robbing a store with contempt and yet these CEOs who steal with greater dishonesty can still hold their head up after the short time they may do in confinment and move back into their social strata somewhat richer, after the law backs off taking back assetts from wives etc who have been entrusted to hold the stolen cash.....

Why buy shares anyways you have no control..if the company does well the directors give themselves even more cash than when the company goes belly up...instead buy a flat or a house ...it will always be there and it (both income therefrom and capital value) will always keep step with inflation...you can live in a flat or a house but try keeping the rain off with a valuless share script.. about all it may be good for is to start a fire and using one hundred dollar notes will be cheaper for that purpose considering how much we pay for any share script.

alex

alex

[Miaplacidus (Brian)]

I have no affection for investment bankers. Many of them are swine, no doubt, and I don't care if any of them are shot.

So, having established my credentials as a right-thinking person, let me now say that I don't believe the problem lies with them. I expect bankers to be greedy. If we're honest, it's what we pay them for.

No, this problem didn't start on Wall St and spread to Main St. It started in Skid Row and spread from there. Sure, lenders were stupid, but when did it become OK for people to sign mortgage contracts that they knew they had no hope of repaying? "No job, no prospects, no assets, no savings. Hell, I think I'll jus' buy me a house!" What society spawns so many indolent dullards that their collective cupidity can jeopardize the entire global economy? If you ask me, that's why this problem isn't going to be fixed anytime soon. There are just too many fat, lazy, dumb-asses who still think the government owes them a house and an ipod.

But we're all to blame, in some measure, because we allowed the super fund trustees to be pressured to continously outperform the general economy. They can't all be geniuses, so it just ain't gonna happen without debt and leverage. Great idea while the market is advancing. Not so hot when it heads downhill.

[qld]

Originally Posted by Miaplacidus

I have no affection for investment bankers. Many of them are swine, no doubt, and I don't care if any of them are shot.

So, having established my credentials as a right-thinking person, let me now say that I don't believe the problem lies with them. I expect bankers to be greedy. If we're honest, it's what we pay them for.

No, this problem didn't start on Wall St and spread to Main St. It started in Skid Row and spread from there. Sure, lenders were stupid, but when did it become OK for people to sign mortgage contracts that they knew they had no hope of repaying? "No job, no prospects, no assets, no savings. Hell, I think I'll jus' buy me a house!" What society spawns so many indolent dullards that their collective cupidity can jeopardize the entire global economy? If you ask me, that's why this problem isn't going to be fixed anytime soon. There are just too many fat, lazy, dumb-asses who still think the government owes them a house and an ipod.

But we're all to blame, in some measure, because we allowed the super fund trustees to be pressured to continously outperform the general economy. They can't all be geniuses, so it just ain't gonna happen without debt and leverage. Great idea while the market is advancing. Not so hot when it heads downhill.

you couldnt have put it any better,but you forgot to mention the politicians who dont help, either to stop stupidity or solve the problem after the horse has bolted,but looove to intervene which only prolonges the recovery.

[casstony]

In the USA government dismantled rules aimed at protecting ignorant consumers from themselves and from predatory lenders. You can't blame the consumer for being foolish with money if they've never been educated. I lay the blame with fraudulent real estate valuation, fraudulent lending practices and lack of regulation that allowed the fraud to happen.

[Barrykgerdes]

The stock market only works because of greed. Other industries(?) fueled by greed are casinos, lotteries and the like but the worst of course is POLITICS. This last cause is why nothing is ever done to reduce the others

Barry

[Miaplacidus (Brian)]

Originally Posted by casstony

In the USA government dismantled rules aimed at protecting ignorant consumers from themselves and from predatory lenders. You can't blame the consumer for being foolish with money if they've never been educated. I lay the blame with fraudulent real estate valuation, fraudulent lending practices and lack of regulation that allowed the fraud to happen.

There are many criminal elements in this debacle, and you are right to identify the ratings agencies. Moodys, Standard and Poors, and their ilk have so far avoided everybody's ire, and yet these were the mobsters who lied to everybody, bestowing upon these worthless mortgage backed securities a AAA rating. Of course they should hang, like everybody else in this endless concatonation of fraud. (Pelions of liars piled on top of Ossas of sociopaths, as the Greeks might say.)

But I still come back to the fact that this many noxious weeds can only grow in a forest full of schmucks. Okay, let's blame poor education, or government, or the media, but once we acquiesce to near universal dumbness, we should accept without surprise the inevitable exploitation of the stupid by the savvy and the selfish.

[Alchemy (Clive)]

Originally Posted by Omaroo

Are you currently shaking your head wondering what is going on in the financial markets?

Here is a small story that illustrates it nicely........................

The villagers rounded up all their savings and bought all the monkeys.

They never saw the man nor his assistant again, only monkeys everywhere!

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

and we live in a banana republic...... the monkeys are eating all the bananas

[casstony]

Miaplacidus, our views are similar, but rather than accept the inevitability of the fraudsters feeding on the schmucks (even though you're probably right) I feel compelled to choose a side. I identify with the schmucks, since financially speaking I have been one for most of my life. Most people have no idea about business cycles and the importance of credit/consumer sentiment, and I've had to learn the hard way. I cling to the silly notion that we may one day elect responsible governments and wrongs will be righted.

[Miaplacidus (Brian)]

Well, yes, Tony. I know I'm coming across very harsh, much harsher than I truly feel. Naturally, I feel sorry for people who lose their home. Actually, I worry more about their kids, who are unquestionably blameless victims in all this.

I guess I just think it is too easy to blame nameless "fat cats" and the obscenely rich. No one complained when we were in a bull market, we were happy enough to pay CEOs squllions according to "tournament theory" and encouraged mindless, deregulated risk-taking, even though no one in their right mind would operate a small business that way.

You're on the money with respect to regulation. It usually comes post hoc, but not this time. The US actually removed an enormous amount of regulation over the last 10 years or so. Someone thought it was a good idea to allow shorters to forgo the uptick rule. And what idiot rescinded the Glass-Steagall Act? (Not all regulation is good, though. A lot of people think that the post-Enron Sarbanes-Oxley rules just added a box-ticking burden to boards of directors.)

Cheers,

Brian.

[casstony]

In todays news: "The Bush administration is pledging to do whatever it takes to battle a severe financial crisis that is threatening to push the country into a steep recession."

Translation: The Bush administration is sending good money after bad and threatening to send us into a long depression.