One day, an old man and his assistant arrived at a farming village. The old man gathered all the villagers and told them that he is in the business of buying and selling monkeys and that the reason why he has come to their village is because there is a forest next to that village which is infested with lots of monkeys. He told the villagers he would pay $10 for every monkey they bring him.
So some of the villagers started to stop work on their farms to go into the forest to catch monkeys. They brought their monkeys to the old man and true enough, he paid them $10 for every monkey. Words spread and not long after, more and more of the villagers stopped working on their farms to go into the forest to catch monkeys. And they were all paid $10 for every monkey they delivered to the old man.
Because more villagers were now monkey hunters, it became more and more difficult to catch monkeys as their numbers started to dwindle. The supply of monkeys started to come down. So the old man gathered all the villagers and told them he would pay $20 for every monkey they bring him. Wow! That sounds great and the villagers started to drum up the beat to look deeper into the forest and higher into the trees to look for more monkeys. And they were paid $20 for every monkey they caught and everyone was happy.
As more and more villagers turned monkey hunters, the monkey population in that forest started to dwindle very significantly and it became increasingly difficult to catch even one monkey a day. As such, the villagers started to return to their farms to work.
Once again, the old man gathered all the villagers and told them that as he is running out of time and he needed more monkeys, he would up the stakes and pay $50 for every monkey delivered to him. He also told the villagers that as he has to leave the village for a few days to attend to some business in town, they can deliver the monkeys to his assistant and his assistant has been instructed to pay $50 for every monkey caught.
The villagers got all excited and went deep into the forest to look for monkeys but by this time, there were no monkeys to be found. The villagers approached the assistant and told him the $50 offer is wonderful but the monkeys were simply not there.
That assistant then said to the villagers……”I know there are very few monkeys left in the forest. But here in my cages, I have thousands of monkeys. Tell you what…why not you buy these monkeys from me at $35 each. Then when the old man comes back, you can sell your monkeys to him for $50 and make $15 each.”
“Wow! That sounds like a great idea”, the villagers thought. So they bought as many monkeys as they could from the assistant at $35 each.
After that day, the villagers never saw the old man or his assistant again
Source: Author unknown
Last year, I captured some ‘nice waterfall’ charts for some stocks and this monkey tale is a good illustration to explain these charts. Besides the monkey tale’s explanation, I also observed one major pattern of all these stocks – All these stocks’ financial report are very weak – continuous loosing money almost every quarters.
Conclusion, when this type of stock keep going up, don’t try to use whatever technical analysis to buy up. Technical analysis won’t work here. And when it is the time to waterfall, you might not have the chance at all to get out. Worst of all, some game over (delisted) at the end. By the way, I am not one of the victims. Just feel that the chart is sort of ‘nice’ for me to capture it and to share to all. Next time, I will try to share some on the best principles I have ever learnt in stock market investment this year.