Tuesday, January 31, 2006

"mAlice in Wonderland" - a money machine

Once upon a time lived a girl named Alice, in a world where earning money was termed malice .... so much for my attempts at poetry. The world has changed enough from the fantastical world of Lewis Carroll. Lets examine a situation in this new world order down our rabbit hole ...

Day 1
You wake up and go through your rather extensive phone book. There are exactly 1000 mobile numbers. After neatly dividing the stock in two equal parts, you start the rather laborious exercise of sending a message to the first 500 people - "Reliance will go up today" and to the other 500 people - "Reliance will go down today". Your cost = 1000 rupees (Re.1 being the charge of an SMS)

Day 2
Another wonderful morning. You pick up the morning paper to find the Reliance stock to have shot up. You look to the skies, say a small pray for the people who got your prediction wrong and get about your work for the day. You divide the stock of 500 people who got the right tip
into two parts. To one part (250) you sms - "Infosys is definitely up today" and to the remaining 250 - "Infosys is surely down today". Your cost = 500 rupees (total cost = 1500)

Day 3
Infosys seems to have gone down today.. these cut in spends in the US are creating some havoc, you say and get down to business. 250 correct tips (for two days) get cut in 125 and 125. To one half, Wipro to go up and to the other, Wipro to go down. Cost for the day = 250 rupees

Day 4
125 is broken into 62/62. Now HLL is at stake, and you have me (the famous stock analyst) to give you your daily sms stock tip. Cost = 125; total cost = 1875

Day 5
By now these 62 people who got all 4 tips correct would be really going nuts. Some might have also invested using my tips while some others would be really scouting for some money because they now have this amazing stock analyst who gives correct predictions after another. Only this time it's pay-back time. In return of these wonderful tips, I ask for a paltry sum of rupees 10 for the next tip. Let assume the 62 of them pay up 10 rupees. Thats a cost of 62 for me (for the sms) but an earning of 620 rupees. Total loss is now down to 1,317 rupees. Again we do the 31/31 split.

Day 6
31 is split as 16/16 (rounding off numbers here for illustration purposes). This time I charge a premium of 20 rupees because its 5 correct tips in a row.

Day 7, day 8, day 9 and day 10
16 = 8/8; 8= 4/4; 4=2/2; 2=1/1
Premiums also increase to 30, 40, 50 and 60 rupees. I am currently sitting on a cumulative profit of 362 rupees.

Day 11
Last day at work. I pick up my phone for a rather lackluster day, flip a coin and sms the one lonely fellow my tip of the day (boy, this guys must have gone real crazy by now)

At the end of 11 days of work I have a net PROFIT of 431 rupees.

Scenarios -
a) Had I started the share-tip collection in the fourth iteration itself, I would have made profit of 2921.
b) And if I had charged a premium of 10 rupees throughout from the fourth iteration - i would have gained 491 rupees.

The queen of tarts may ask - "Is it legal?". Well what makes any aspect of this illegal. The people receiving the tip have a choice to act or not act on it. Consideration is being taken for a service rendered - i.e. pain-staking research of Indian equities.

Excellent money making machine, eh?


Anonymous Mohit--noida said...

Yaar shankar your post is very scary,now every time i come across such a tip i will have to think twice and then rethink.From a supposedly genuine source i got a tip that hindustan construction(hincon) is going to be on a spree....i bought 50 shares at 163,it did went on for a negative spree instead and is now trading at 149,that is when markets are at all time high,now i do not have any idea as what to do....should i get out with whatever has happened or wait for the RIGHT time to come.....what will you suggest my friend....

Best Regards,

5:57 PM  
Blogger Shankar said...

Hi Mohit,

"Tips" are more often than not, news based scenarios which may or maynot get through. Even the great Buffett has said "An insider's tip can also go terribly wrong".

Think of it like an exam you are taking. Your partner's solution is visible to you and yet, you have a choice to do your own calculation or copy the solution.

The irony is: More people would say that they would rely on the second choice - do it themselves ... but most would actually take the first approach.

My advise - learn the system !!!

PS: Will research Hindustan Construction when I get home. It might take a while .. you know the Delhi roads.

7:25 PM  
Blogger Shankar said...

Mohit, Hindustan Constructions is a great stock to reasearch. There a lot of things to learn from this stock. I am taking it to a blog. Please read the same and arrive at possible answers.

Me and all the other readers will help you in your analysis

Warm regards, Shankar

10:04 PM  
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