At First Hand

The crisis dejour – throughout time, market segments have followed a crowd mentality. The more heated a market gets, the more individuals want to invest, and the higher the prices are driven.

This bubble has occured throughout history and the cycles can be observed consistently. Professor G. Watson teaches economics and the role in the market economy. Regardless of whether we want to analyze recent real estate markets which have Pop, these fluctuations are not new. They have regularly occurred throughout history.

One of the most discussed historical markets that burst was Amsterdam’s Tuplip economy. We can study the Tulipmania of the tulip market that burst in 1637 as a popularly reported historical account of a economy that overheated.

Tulips were originally brought from Turkey in the early 16th century. As new “varieties” of tulips were marketed, competition intensified and their prices 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 exceeded more than six times the average annual income.

This economic mania continued – and 10 years later the value had increased another ten times. At the market height, 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 purchase these tulips at such high valuations. Within weeks, the market value crashed and many of people were left in economic ruin.

Throughout time – we have witnessed similar bubbles develop. 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 environment of PC speech, are the contrarian voices that stand up for morality, ethics, and integrity any different? Throughout history, 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 mentality – and those polar views tend to have their bubbles burst as the inevitable correction occurs. Today’s market is no different.

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Mitch First Hand