Monkey Business

A few weeks ago, I wrote about cryptocurrency, specifically using Bitcoin as an example.  That was June 9 and Bitcoin was worth about $30,250.  Since then, Bitcoin has never been worth more, but it has been as low as $17,700 (June 18).  As I write this, Bitcoin is worth around $21,600.

I firmly believe that Bitcoin falls into the “greater fool theory of investing” where one buys an investment (the fool) and hopes that someone will buy the investment from him at a higher price (the greater fool).

If you look at the history of Bitcoin, you may debate who’s the bigger fool.

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Anyway, my aunt sent me this story which I though set a pretty good example of Bitcoin.

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Not long ago a merchant saw that a lot of monkeys lived near a village.  One day he came to the village saying he wanted to buy monkeys and announced that he would pay $100 each.  The villagers thought that this man must be crazy.  How can somebody buy stray monkeys for $100?

Some people caught monkeys and sold them to the merchant for $100 each.  This news spread like wildfire and many people sold monkeys to the merchant.

After a few days, the merchant announced that he’ll buy monkeys for $200 each.  The villagers ran around to catch monkeys and they sold these monkeys for $200 each.  The merchant then announced that he will buy monkeys for $500!

The villagers started to lose sleep.  They caught six or seven monkeys, which was all that were left and got $500 each.  The merchant announced that he was going on vacation for a week, but when he returned, he would buy monkeys for $1,000.  He said that in his absence his assistant would be in charge to take care of his monkeys.

The merchant went on vacation.  The villagers were frantic that there were no more monkeys left for them to sell for $1,000 each as the merchant promised.

Seeing their concern, the merchant’s assistant told the villagers that he would secretly sell them some monkeys at $700 each.  This news spread quickly the villagers realized they could sell the $700 monkeys to the merchant for $1,000 and make a $300 profit on each monkey. 

The next day the villagers lined up near the monkey cage.  The assistant sold all the monkeys for $700 each.  The rich bought monkeys in large lots.  The poor borrowed money and bought the rest of the monkeys.

The villagers waited for the merchant to return.  However, nobody came!  They ran to find the assistant but he was nowhere to be found.  It was then that the villagers realized they had been duped into buying the useless monkeys at $700 each, and were now unable to sell them.

This monkey business is now known as Bitcoin.  It will make a lot of people bankrupt and very few people filthy rich.

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“The intelligent investor is a realist who buys from pessimists and sells to optimists."

- Ben Graham (Warren Buffett’s mentor), The Intelligent Investor

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You may not be a fan of golf, but ya gotta admit this is just amazing!

(Louis Oosthuizen, 2016 Masters)

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