After a particularly spectacular trading debacle, Uncle Joe offered his nephew consolation and some "hard facts" about the stock market, drawn from his unique business: Widgets & Co. As the sole, government-licensed distributor of widgets—which possess intrinsic value and fixed supply—Joe found the standard buying and selling process dull and low-profit. To generate greater income, he decided to create market excitement. He spread a rumor through his gossipy neighbor that widgets would soon be in short supply, knowing he had sufficient stock. The plan worked; sales surged, and Joe began incrementally raising his prices. Customers, believing the scarcity myth, continued to buy in ever-larger quantities, making the business highly profitable, even as astute buyers started selling back their stock for a profit.Joe’s successful scheme soon faced a crisis point: his warehouse stock was becoming very low, and he needed a way to buy back inventory to sustain the business. The solution arrived by chance when he learned his neighbor was spreading a new rumor: a much bigger widget company was moving into the area, which would dramatically reduce widget values. Recognizing a golden opportunity, Joe feigned distress and confirmed the rumor, allowing the panic to spread naturally. This triggered mass selling, and customers quickly queued at his warehouse begging him to buy back their stock.With countless sellers desperate to offload their widgets, Joe rapidly dropped his buy-back prices, intensifying the panic and allowing him to purchase an enormous volume of stock at minimal cost. Once the wave of fear-driven selling subsided, Uncle Joe’s warehouse was full again. Having made a great deal of money very quickly, he could afford to take it easy and sell widgets again at their old levels. Everyone soon forgot how the rumors started, and life returned to normal—that is, until Joe began contemplating when he could orchestrate the entire cycle of manipulation again.
