The Story of a Cow

This is not to talk about the bullish market, it's about a story of a cow and a smart guy. 

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John just bought a cow at $100, and he leave the cow at his backyard.

1 week later, John is running out of cash. He have no choice but to put the cow up for sale. He intend to sell it at $120 to pay his debt. Unfortunately, all potential buyers are only willing to pay maximum $100 as they think the cow only worth $100.

Being so desperate for money, John came out with an idea. John register a company called Cow Technologies Limited, with the cow as the asset of the company.

John applied for IPO and managed to get approval to issue 100 shares at the price of $3 each. In total, the IPO practice will raise $300 cash for John. In John's prospectus, Cow Technologies is described as "a conglomerate operating various business units to provide solutions for food and beverage industry in local and regional market".

The IPO get strong response with 10 times over subscription. John happily receives $300 from the IPO, while keeping the cow in his backyard. On the opening day, the share price of Cow Technologies Limited closed at $3.30, 10% higher than the IPO price.

In week 1 -  $4.00
The price closed strong at $4.00

In week 2 - $6.00
Some experts start to analyze the productivity of the cow and conclude that, base on some calculation, after 3 years the number of cows will grow to 30 cows, hence the share price should worth much more than $4. Investors are encouraged and rush to market to buy at higher price. By end of the week, Cow Technologies closed at $6.00

In week 3 - $9.00
Investors visualize how many tonnes of milk will be produced by the cow and sold to the market. Realizing the value added, investors rush in to buy again. Price close at $9.00

In week 4 - $12.00
Investors heard news that Cow Technologies is forming a capable R&D team to develop a wide range of dairy products target for local market, and then export to other regions. There were also plans in setting up a factory to mass produce the dairy products. Some heard that Cow Technologies had already identified a land nearby to build the factory. Riding the strong outlook, the share price closed at $12.

In week 5 - 9.00
There are news saying the cow is old, and life span is not long. A small group of investors felt uncomfortable and starts to dispose the share. Share price retraced to $9.00. Yet most people think this is healthy correction, and its time for bargain hunting.

In week 6 - $4.00
A lot of rumors saying the cow is dying. Panic spread. More people dumb the shares. Price plunged to $4.

In week 7 - $0.50
People found that the cow carries mad cow disease, and highly possible it had infected residents in that area. Cow Technologies will be ordered to cease operation, and the factories and office will be quarantined. Further panic selling, the price plunged to $0.50!

In week 8 - $0.50
There's one crazy guy named Peter, went to visit John's house to find out what's going on. He found that John is sitting at home as usual, and cow the lazing around in the backyard. Nothing has changed. The cow is still worth $100, and the share worth $1. Peter decided to purchase the share at $0.50 from the market. Peter was laughed by other investors as being crazy to "catch the falling knife".

In week 9 - $3.00
Some people start to realize "the situation is not as bad as predicted" and start to rush into market to buy. Share price rise back to $3.

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John lives happily ever after with his cow and $300 cash. End of story.

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Nothing has changed on the cow, John did nothing to the cow. Nothing happened, except for the extra $300 for John.

While nothing happen to John and his cow, many things happened in the stock market in a few weeks. Investors had ride through a rough roller coaster, enjoying the greed, and enduring the fear.

That's why, stock market is a fun place, for investors to imagine, hope, anticipate, fear, and panic.