Consider a small town in India where a shop owner has discovered a unique type of “Tulip”. Fascinated by its fragrance the shop owner, we’ll call him Harshad, did a little digging and found out that there are only 1,00,000 such tulips in the city
Harshad Meets Ashwin
Harshad went to the only flower market in the city and asked for the price of the “Tulip”. A vendor named Ashwin quoted “Rs 100” per Tulip. Harshad just nodded and returned to his shop wondering why such an amazing “Tulip” is just being sold at Rs 100
Few days passed and Harshad had made up his mind. He understood that prices of goods are a function of its demand and supply & had a plan which would 3x his invested money !! Few days later Harshad went to the flower market and asked Ashwin to give 200 Tulips for Rs 105
Ashwin laughed as the “Market price” of Tulip was Rs 100 and a fool wanted to buy it for Rs 105. However, he recollected a recent chatter in the vendor community that the “Tulips” start to lose their fragrance as time passes and soon these Tulips would be worthless
Ashwin thought for a while but in the end made the deal for Rs 105. A critical point to note over here is that just because of a single transaction the “Market price” of Tulips did not change. It was just Ashwin who got a better price.
Ashwin faces Fear & Greed
Ashwin still had 800 Tulips with him and Harshad asked if he was willing to sell them for Rs 110. Ashwin was shocked. Ashwin was now experiencing a mix of emotions. Greed to ask for Rs 120 , Rs 150, or Rs 200 as he was 100% sure of Harshad’s intent to buy all Tulips
Fear of not selling enough and getting stuck with Tulips which will soon be losing their fragrance. In the end, Greed won and Harshad walked away with all the Tulips for an average price of Rs 130.
Every week Harshad would come and pick one vendor to buy 100,500,1000 Tulips for a price greater than the Market price and after 2 months of this insane buying Harshad had 20,000 Tulips at an average price of 150 Rs
Note: During this time, the price of Tulip kept fluctuating. Decreasing due to the fear of it losing the fragrance and increasing because…..yes..Harshad was offering a higher price and vendor’s greed of gaining more from the sale took over
Three Months Later...
3 months later, Ashwin was speaking with a cousin from a neighbouring village when ALAS!! his jaw dropped. His cousin said that the Tulips from his town were declared as "ONE OF THE BEST" in the "WORLD" due its unique property of ever-lasting FRAGRANCE.
The worth of each Tulip can be estimated around Rs 1,000/- with an ever growing demand in the west... The profits which Ashwin made 2 months ago now seemed peanuts v/s the profit he would have made had he just held on to it. He was petrified
Ashwin hurried up and called Harshad. Harshad picked up the call and just said “Rs 750 per Tulip”. Ashwin was shocked. How could he demand such a high price !! Harshad said “Hurry up! I just have 500 Tulips left". Ashwin gasped "What??"
Ashwin in Panic
"I don’t know why but from the past 5 days there has been a spike in the demand and people from all cities are willing to pay any amount to get their hands on these Tulips”. Greed & Fear again kicked in. Ashwin made the deal and Harshad tripled his original investment
News, Tips & Rumours Are Not Meant Help You....EVER!
The most important part : - Harshad initiated the chatter about the Tulips losing their fragrance overtime (Rumour) - Harshad visited neighbouring cities each week willing to pay any price for these Tulips (News) - Harshad knew Fear & Greed are a trader’s biggest enemies
This may be a hypothetical story and certainly a long story but such scenarios are common in every market including ours!
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