Jan 20, 2012
Stock Market Bubbles That Break – Is Anything Original Today?
The public confidence crisis dejour – throughout time, market segments have followed a crowd mentality. The more popular a market gets, the more individuals want to buy in, and the higher the prices are pushed up.
This social experience has occured throughout history and the cycles can be studied consistently. Professor Watson teaches serial entrepreneurs and the role of the market economy. Regardless of whether we want to evaluate recent real estate markets which have Broke, these fluctuations are not unique. They have regularly occurred throughout history.
One of the most discussed historical markets that broke was Amsterdam’s Tuplip sector. We can evaluate the Tulipmania of the tulip market that burst in 1637 as a popularly reported historical account of a industry that overheated.
Tulips were originally imported from Turkey in the early 16th century. As new “varieties” of tulip bulbs were introduced, competition intensified and their prices soared. One honestly rare variety was the Semper Augustus which reached prices in excess of 1,000 florins per single bulb in 1623. This price exceeded more than six times the average annual wage.
This market mania continued – and 10 years later the price had risen another ten fold. At the market peak, the price of a single Semper Augustus bulb reached 10,000 florins – the equivalent of what it cost to purchase a house in the middle of Amsterdam at the time.
Eventually the market peaked and there was no-one left who still wanted to buy these bulbs at such high prices. Within weeks, the market value crashed and many of people were left in financial ruin.
Throughout time – we have observed similar bubbles reoccur. As the crowd continues to get more hyped, those contrary views become less and less popular to be heard. Are any of the recent market bubbles any different? In modern environment of PC speech, are the contrarian voices that speak up for morality, ethics, and integrity 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 always correcting itself from the heat of the crowd – and those politically correct views tend to have their bubbles burst as the inevitable correction occurs. Today’s market is no different.
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