We have heard that the operators often trap innocent investors into penny stocks. Let’s understand it through an innocent story how operators trap investors.
Once a man appeared in a village and announced that he wanted to buy monkeys for Rs 100 each. The villagers, realizing that there was no dearth of monkeys in the nearby forest, went out and started catching them. The man bought thousands of monkeys at Rs 100. As supply started to fall down, the villagers stopped catching more monkeys.
Now the man further announced that he would now buy monkeys at Rs. 200 each. This renewed the efforts of the villagers and they started catching monkeys again. As the supply diminished even further, people once again stopped catching monkeys and started going back to their farms.
The man further increased the rate to Rs 250. Soon the supply of monkeys became so little that it was quite an effort to even get a glimpse of a monkey, let alone catch it!
The man now announced that he would buy monkeys at Rs 500. 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 said to the villagers: “Look at all these monkeys in the big cage that the man has collected. I will sell them to you at Rs. 350 each and when the man returns from the city, you can sell them to him for Rs 500 and make a profit of Rs150 .”
The rich bought monkeys in lots and the poor borrowed money from money lenders to buy what little they could. In short, the villagers squeezed up with all their savings and bought all the monkeys.
But then the next day the man never came back, and the assistant left the village in the dead of the night. All they were left with were worthless monkeys everywhere and no money in their hands.
Take this lesson and be very wary of operators. Check the real value of the stock before buying. Check their book value and PB, the PE, the Intrinsic value as the base minimum ratios before investing.
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