Stock Market Bubbles can Burst – Is anything new Today?
The crisis dejour – throughout time, markets have followed a crowd mindset. The more heated a market gets, the more people want to invest, and the higher the prices are driven.
This bubble has occured throughout history and the cycles can be analyzed consistently. Professor Watson teaches serial entrepreneurs and the role in the market economy. Regardless of whether we want to evaluate recent credit markets which have Burst, these fluctuations are not unique. They have routinely occurred throughout history.
One of the most talked about historical markets that broke was Amsterdam’s Tuplip sector. We can analyzie the Tulipmania of the tulip market that burst in 1637 as a popularly known historical account of a economy that overheated.
Tulips were originally introduced from Turkey in the early 16th century. As new “varieties” of tulips were sold, competition intensified and their value soared. One apparently rare variety was the Semper Augustus which reached prices in excess of 1,000 florins per single bulb in 1623. This price was more than six times the average annual income.
This market mania continued – and ten years later the price had risen another ten times. At the market peak, the price of a single Semper Augustus tulip bulb reached 10,000 florins – the value of what it cost to buy a house in central Amsterdam at the time.
With time the market peaked and there was no-one remaining who still wanted to acquire these tulips at such high prices. Within months, the market price crashed and thousands of people were left in financial ruin.
Throughout time – we have observed similar bubbles reoccur. As the crowd continues to get more excited, those contrary voices become less and less popular to be heard. Are any of the recent market bubbles any different? In modern environment of politically correct speech, are the contrarian voices that speak up for morality, ethics, and honesty any different? Throughout time, these contrarian voices have been ridiculed and ignored. But the market for products and the market for principles has a way of eventually correcting itself from the heat of the crowd – and those extremist views tend to have their bubbles burst as the required correction occurs. Today’s market is no different.
