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The merchant who loves to buy monkeys

Op-Ed by Haresh Daswani

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There was once a humorous story teaching the Indians about the stock market. It was a story of a man from the city going to some alienated village and telling the farmers that he wants to buy monkeys for Rs. 10 each. People started grabbing monkeys all over their village and sold them to the merchant. Later, the merchant says this is not enough and is now willing to pay Rs. 15 per monkey.

People this time around took the effort of going further out into their village and started pulling monkeys off trees and other further places they never really thought about. Still discontent, the merchant was now willing to pay Rs. 20 per monkey. The vilagers went far and wide looking for monkeys and got quite a few. Still unhappy, the merchant now stated that he still needs more monkeys, and money was not an issue, and that he is now willing to pay Rs. 50 per monkey, but will get back in a week as he has to do some work in the city. The villagers talked to the assistant of the merchant, who then told the villagers that the merchant was so stupid, he didn’t do a headcount on the monkeys. He stated that he was willing to sell each monkey for Rs. 35, and when the merchant comes back, will buy it from the villagers for Rs. 50. The deal was so lucrative that the villagers pooled all their savings to buy out all the monkeys. The assistant left, the merchant was to never be seen again, and now they’re stuck with a lot of monkeys.

While I found the story above to be very humorous, I couldn’t help but realize that the entire world is falling into the same trap the villagers are in. Their emotions and greed got the better of them that they’re throwing their money away on companies they have no idea about when it comes to actual profitability and trend. Many companies show a springboard profit start but turn out to be a mere fad. End of the day, the real winner seems to be the venture capitalist, who knows when he should really just leave, and those who initially put in their investment to bring up the price of the stock.

There are a lot of “monkey” stocks out there. These are overvalued companies, or even overvalued properties. People invest in things that don’t profit or in speculative properties whose rent no one can afford. This was the cause of the ’97 crisis, and I won’t be surprised if it is bound to happen again anytime soon. The Philippine property market has a new batch of “villagers.” These are their Filipino overseas contract workers who want to invest their money in the Philippine property market with hopes that the rent will pay off the monthly amortization of the property. Little do they realize that there is now just too many apartments and not enough lesees to rent the properties. Adding grain to the salt, the dollar weakened against the peso, making it more expensive for them to afford the monthly amortization, aside from the impending ballooning of their payments.

The worst thing that can now happen is for stocks of proper corporations losing value just because the economy does not look so hot. This was the case for India last week, when stock prices fell, and almost crashed, because of some excuse about the U.S. economy. This is what I call as an excuse as companies solely dealing with the domestic market, or companies who are recession proof, are getting slammed upon by market sentiment over common sense.

This is where the real investors like to play the game. Let things crash, and buy good companies cheap. But for the rest of those who did not know any better, put your money on that vacation you planned for, or that European car you have been vying to get. After all, if one does not know how to really look at good opportunities from bad ones, he’s merely gambling on hopes and wishes.