Stock Market Bubbles can Pop – Is anything unique Today?
by habits on Feb.22, 2010, under investment
The marketing trauma dejour – historically, markets have experienced a crowd mindset. The more popular a market becomes, the more people want to jump in, and the higher the prices are pushed up.
This mindset has occured throughout history and the cycles can be analyzed consistently. Professor Watson teaches entrepreneurship and ethics and the role of the market economy. Regardless of whether we want to think about recent banking markets which have Burst, these fluctuations are not new. They have regularly occurred throughout time.
One of the most popular historical markets that burst was Amsterdam’s Tuplip sector. We can study the Tulipmania of the tulip market that burst in 1637 as a popularly reported historical account of a market that overheated.
Tulips were originally brought from Turkey in the early 16th century. As new “varieties” of tulip bulbs were marketed, competition intensified and their value soared. One honestly rare variety was the Semper Augustus which reached prices in excess of 1,000 florins per single bulb in 1623. That price exceeded more than six times the average annual income.
This industry mania continued – and 10 years later the value had risen another ten fold. At the market height, the value of a single Semper Augustus tulip bulb reached 10,000 florins – the value of what it cost to buy a house in the middle of Amsterdam at the time.
Eventually the market peaked and there was no-one remaining who still wanted to acquire these bulbs at such high valuations. Within months, the market value crashed and thousands of people were left in economic ruin.
Throughout time – we have observed similar bubbles develop. As the crowd continues to get more excited, those contrary views become less and less popular to be heard. Are any of the recent market bubbles any different? In today’s times of PC speech, are the contrarian voices that stand up for morality, ethics, and honesty any different? Throughout time, these contrarian voices have been denigrated 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 polar views tend to have their bubbles burst as the neccessary correction occurs. Today’s market is no different.
