Mar 22, 2007

The Monkey Trade

Shan sent me this modern parable titled:
'Stock Market Simply Illustrated'

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

The man bought several at $10 and as supply started to diminish, the villagers stopped their effort. He further 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 rate increased to $25 and the supply of monkeys became so little that it as 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 on his behalf.

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 it to him for $50." The villagers squeezed up all their savings to buy the monkeys. Then they never saw the man or his assistant; only monkeys everywhere.
This got me thinking... These were my thoughts:

#1
We are assuming that 10a+20b+25c+50d < 35(a+b+c+d). Otherwise it was a net win for the villagers.

#2
Although, as a whole, this might be a net loss for the villagers, lets say 30% of people got interested in the proposition when the bid price was $10, 40% when the bid was $20 etc... (elastic supply & demand). The parable speaks of 100% sale, not 100% people participation. So, it is possible that some villagers got really wealthy from these transactions (if they had gone on a vacation just before the assistant came).

#3
We are assuming that the monkeys didn't reproduce (bad deal for villagers) or die (bad deal for the conman). May be birth approx= death (no change). But monkeys don't breed all that well in captivity. Plus pregnancy period for monkey is large enough to be really significant. Crowded cages cause fights and deaths... which is a bad deal for the conman.

#4
If feeding the monkeys during the holding period i.e. (a+b+c+d)*q [where q = cost of food consumed per day per monkey] is significant, it could be a REALLY bad deal for the conman. To be more accurate, it is:a*q*t + b*q*(t-t1) + ... where t is the total time and t1 is the time elapsed between $10 bid and $20 bid etc.

So, may be the villagers had a net gain? ;-)

Mar 4, 2007

On Writing

Anybody can say you can’t write. Let no one say you don’t.
- Ken Rand #
Though I mostly see blogging as an activity where I reflect on my life, sometimes I reflect on blogging itself. I do this especially when I resolve to blog regularly (daily / at least five times a week etc) and then don't. Blogging is kind of a leading indicator for me if I have my house in order. If life gets little bit disorganized, blogging is the first thing that gets hit.

I've been meaning to blog about (now):
1. What homework do I do before I buy/sell stocks.
This is a FAQ type situation - If I write this, I can just point people to this post when they ask me about this.

2. Some insights I've gained about our thought-process/emotions
This is "I will have a better idea on what the hell I am talking about if I actually wrote something down" situation.

3. Startup efforts
Working on startup is where all my personal non-wasted time is going. Someone might be interested to know about my experiences. May be not. I recently bought a website where I'm going to anonymously blog about my startup efforts - anonymous because I'll get to write my thoughts/experiences in their rawest form and still not be disowned by my family, shunned by my friends and fired from my job :-) (I say enough offensive stuff as it is... that will not stop... this is for especially offensive/pathetic/embarrassing stuff that I think I'll need to write if I need to write about my startup - which has been my dream for ever). I'll still write the regular/important stuff about my startup here - so you won't miss much.

Here is a beautiful article about why everyone should blog:
"You Should Write Blogs" - Steve Yegge
I hope you will read it. I read it long long ago. On rereading my own (this) post, I feel I am in fact quoting Stevey here. So, I'm giving you the link.

I love Stevey's writing. He lives in Kirkland (couple miles from my home). Wish I could meet him some day...