Comfort Zone Investing: Bubbles Always Burst

Filed under: Comfort Zone Investing

In the 1630's, it was tulips. More specifically, it was Semper Augustus, a tulip of extraordinary beauty; deep, deep blue with a band of white and touches of crimson flares. In its day, it was the must have thing. There was one man who owned the dozen flowers known to exist. He was offered the equivalent of one year's annual income from a wealthy merchant for one bulb. He turned it down.



Tulip prices increased throughout the decade as more speculators got into the game. In 1633, a farmhouse was traded for three rare bulbs. By 1636 any tulip could be sold for extraordinary sums. Futures markets started. Trades were made in fields or taverns, between farmers and merchants. Some bulbs were bought and sold 10 times in a day. One father left his seven children an inheritance of 70 tulips. One sold for the all-time record price of 5,200 guilders.



Then, one day in 1637 everyone decided to stop playing. No buyers showed up at the local tulip auction in Haarlem. Within days, panic started, then spread. Tulips that sold for 5,000 guilders soon went for less than 50. (Source: Tulipomania by Mike Dash)

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