In a local village in India, a man appeared andannounced to the villagers that he would buy cobras for Rs. 400 each. The villagers knew there were many cobras around the village and started catching them.The man bought thousands at Rs. 400 and as the cobra supply started to diminish, the villagers stopped their effort due to the increased cost of finding them. The man then announced that he would now buy atRs. 800. This emboldened the villagers to start catching cobras again. Soon the supply diminished even further and people started going back to their old jobs.
The man now announced that he would buy cobras at Rs.2000! However, since he had to go to the big city onbusiness, his assistant would now buy on behalf ofhim. Now that the man was out of sight, the assistant told the villagers. "Look at all these cobras in the big cage that the man has collected from you. I will sell them to you at Rs. 1500 and when the man returns from the city, you can sell them to him for Rs. 2000each.
"The villagers rounded up with all their savings and bought all the cobras. Then they never saw the man or his assistant again, only snakes everywhere! Now you have a better understanding of how the stockmarket works.
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