The Rock Story: Part i

07 Apr The Rock Story: Part i

During the financial crisis between 2007-2009, it was really sad to see many investor’s portfolios decline especially due to the rapid drops in the stock market. Investors felt helpless that they couldn’t do anything to protect themselves or profit from the situation besides hoarding their cash and stuffing it under the mattress. Some traders benefited immensely from this stock market decline and made millions of dollars in the process. How, may you ask? Some of you may have heard of the trading concept called “Short Selling”. Rather than give you some generic mumbo jumbo explanation. I thought I would tell you a story about The Rock. So, here goes…

There once was an average Joe named Mark. He was quite a hard working and a smart individual, but never achieved much financial success in his life. He worked at a job which he hated and logged long hours in the office without much appreciation from his bosses. One day, he overheard some of his colleagues talking about how much money they were making on speculating on the value of some investment. Mark was curious of what they were talking about and wanted to know more. He found out that there was this rare rock or stone that actually contained diamonds inside it and investors were driving up the prices of this rock up as high as $1,000 a rock. Mark thought this couldn’t be possible and decided to do a bit of research on this rare form of a rock. Based on his findings, he felt that there was little evidence to support the case that diamonds could exist inside a rock. Therefore, he just forgot about this opportunity and passed on participating in the rock investment. However, as the rumors spread about this rock and its potential to contain high grades of diamonds, this rock shot up to as high as $10,000 per rock over the next few months. Mark just couldn’t believe the hype.  He  started informing his colleagues and friends to not invest in buying these rocks, but nobody listened especially when they were all making a load of money. Some even told Mark that he was a fool in missing out on the opportunity of a lifetime. However, Mark being the astute investor didn’t want his emotions to influence him on an investment that he did not understand, or believe in. One night he started questioning if the rock investment was a scam and whether the rock ever contained any diamonds in it. Besides not buying this rock investment and not having the risk of losing money, was there a way that he can profit from the speculation that the price of the rock will decline in value…?

Stay tuned for Part ii…

 

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