Tulip mania ( Tulip Craze Bubble)

Tulip Mania

• Generally considered to be the first recorded economic bubble

• The Tulip Mania of 1636-1637 was an episode in which tulip bulb prices were rising to incredible heights before collapsing and plunging the Dutch economy into a severe crisis that lasted for many years.

But,WHAT IS ECONOMIC BUBBLE?

• Economic bubble is a situation in which prices for securities especially stocks, rise far above their actual value.
• This trend continues until investors realize just how far prices have risen, usually, but not always, resulting in a sharp decline.
• Bubbles usually occur when investors, for any number of reasons, believe that demand for the stocks will continue to rise or that the stocks will become profitable in short order

Where and Where did it occur?

• Where: Holland
• When: 1634-1637

• Tulip Mania mostly occurred in Holland but England and Germany did experience small amounts of the mania
• In 1593, botanist Carolus Clusius brought tulips from Constantinople to Holland for research. He refused to give or sell any to the locals, so some of his neighbours stole some of these exotic new bulbs.
• This started the Dutch tulip trade. Tulips popularity and price increased dramatically  

How did it occur?

• People started to buy the bulbs and store them
The price was getting higher and higher due to bulbs was getting less and hard to find. 
• Bubbles usually occur when investors, for any number of reasons, believe that demand for the stocks will continue to rise or that the stocks will become profitable in short order
• Others started selling house and assets or any thing that could change into money to get those bulbs
• The Dutch made a huge profit by fooling the foreigners and those not knowing much about tulips.

Why Did It Occur?

• People started to value tulip bulbs so much that they could sell their assets to get one
• In the market like this, people started to act irrational
• They started to invest to the bulbs when they see other making money from doing it

HOW MUCH A SINGLE TULIP BULB CAN TRADE WITH!!

Item	Value (florins)
Two lasts of wheat	448
Four lasts of rye	558
Four fat oxen	480
Eight fat swine	240
Twelve fat sheep	120
Two hogsheads of wine	70
Four casks of beer	32
Two tons of butter	192
A complete bed	100
A suit of clothes	80
A silver drinking cup	60
Total	2,500

***A good trader could earn up to 60,000 florins in a month-- approximately $61,710 adjusted to current U.S. dollars

Bubble Burst!!!

• The height of the bubble was reached in the winter of 1636 – 1637
• So one day, people concerned about the price. It isn't worth paying that huge amount of money for just a single bulb
• And since people start realizing it, the price went down a lot
• When the price went down, they realized that if they don't sell it fast. They are going to go broke
• People started to panic
• Everyone started selling tulip bulbs all at one time. 
• As we know, when everyone start selling things all at time, there is no market. No one want to buy them anymore. 
• And when no one want to buy, as we know, it happened recently, the market go down. 
• It caused A CRASH!

What Can We Learn From This?

Don't chase and buy things just because many people are getting lots money from it. It may benefits you in the short run not in the long run. 
Not to invest in only a single stock or a single bond.
Make sure you DIVERSIFY YOUR PORTFOLIO! and REBALANCE YOUR PORTFOLIO!

Relfect:

Article: http://business.time.com/2013/09/16/explaining-the-financial-crisis-why-do-we-still-not-know-what-happened/

This quote shows that there are lots of book written about the economic bubbles in the past and how to recognize or how to avoid the bubble and the burst. But it seems like they don't help anything at all. I think this would have something to do with human psychology, the way we think. I think that people just crave to have a lot of money in a short run but they don't think about what will have next, or what will happen if they invest their money in a long run. Because no one will know when the market is going to drop.