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Stock Market Bubbles should Pop – Is anything unique Today?

The public confidence crisis dejour – throughout history, financial markets have followed a crowd mentality. The more excited a market becomes, the more people want to jump in, and the higher the prices are pushed up.

This bubble has occured throughout history and the cycles can be studied consistently. Professor Greg Watson teaches business strategy and the role in the market economy. Regardless of whether we want to evaluate recent real estate markets which have Pop, these scenarios are not new. They have regularly occurred throughout time.

One of the most popular historical markets that burst was Amsterdam’s Tuplip market. We can consider the Tulipmania of the tulip market that burst in 1637 as a popularly documented historical account of a economy 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 value soared. One legitimately 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 wage.

This industry mania continued – and 10 years later the price had risen another ten fold. At the market peak, the value of a single Semper Augustus bulb reached 10,000 florins – the value of what it cost to acquire a house in central Amsterdam at the time.

Eventually the market peaked and there was no-one left who still wanted to buy these bulbs at such high valuations. Within weeks, the market value crashed and thousands of people were left in economic ruin.

Throughout time – we have seen similar bubbles reoccur. As the crowd mentality continues to get more hyped, those contrary voices become less and less popular to be heard. Are any of the recent market bubbles any different? In modern times of PC speech, are the contrarian voices that stand up for character, ethics, and honesty any different? Throughout time, these contrarian voices have been ridiculed and ignored. But the market for products and the market for ideas has a way of always correcting itself from the heat of the crowd – and those polar views tend to have their bubbles burst as the required correction occurs. Today’s market is no different.