I’m gonna tell you a fictional story about a rich businessman and how I can relate it to the stock market. This is based on a story I read and I want to re-tell it in a Filipino perspective.
A long time ago, a rich businessman was sailing down the Marikina river and saw the river teeming with janitor fishes. The businessman had an idea; he told the fishermen around the area that he would pay them 25.00 Php each for every janitor fish that they could catch. The fishermen seeing the opportunity to make a quick buck, went out with their boats and fishing nets and caught lots of janitor fishes. The fishermen went to the businessman and sold all their catch at 25.00 Php each. Everyone is happy.
As more and more fishermen jumped into the action, the janitor fishes started to diminish and seeing that these fishes are now harder to catch, they realized that the pay is not reasonable anymore so the fishermen stopped their efforts.
When the businessman found out about this, he increased the offer to 50.00 Php. These gave the fishermen renewed efforts to catch even more fish.
Soon enough, the fishes diminished even more and the fishermen again stopped their efforts.
Again, the businessman raised the offer to 75.00 Php each so the fishermen went out again to catch them diminishing the supply even further until such time that efforts catching them are now slim to none.
Seeing this, the businessman announced that he would now buy them at 100.00 Php each. But this time, he told the fishermen that he would go on to a business trip to visit other rivers to look for more janitor fishes and will be back after a month. He left his son and a big aquarium full of janitor fishes to manage the business in his behalf.
Seeing all the janitor fishes that his father bought, the son then told the fishermen, “Look, with these huge quantity of janitor fishes, I could sell some of it to all of you at 80.00 Php and when my father comes back, you can sell them at 100.00 Php without him noticing it.”
The fishermen, seeing that the Marikina river has been completely depleted of all the janitor fishes, agreed to buy them at 80.00 Php. Seeing that this is a good idea to earn a profit, the fishermen then bought all of the fishes with their savings and waited for him to come back.
A month passed and the businessman didn’t return. The son also disappeared and they never saw both of them again.
The fishermen were left with all of the worthless janitor fishes in their possession. With no one else to buy it, they dumped all of it back in the Marikina river.
Soon, the river is now again teeming with janitor fishes.
Does it make sense to you? If so, welcome to the reality of the stock market.
Happy investing!