Tulip Mania : In 1559 when the first tulip bulbs arrived in Holland and Germany, people fell in love with the exotic Turkish flowers. Soon speculators entered tulip market purely for monetary gain and trading tulips became popular.
Speculation led to high trading volumes by merchants and shopkeepers. At the height of the tulip mania, in 1635, single tulip bulbs were being exchanged for as much as four tons of wheat, silver cups, two casks of wine and four oxen.
People sold homes, livestock, everything for the privilege of owning tulips, on the expectation that prices would continue to rise. By 1636, tulips were being traded like stocks on the Amsterdam stock exchange.
Now comes the peak :
Smart players began to liquidate their tulip holdings as prices rose. Tulip prices weakened rapidly. Panic seized the market. Within six weeks, tulip prices crashed by 90 per cent.
Obviously tulips have little practical value. So, what could cause people to behave so irrationally? Nobody knows but over centuries, we've seen collective insanity time and again. It's herd mentality where everybody rushes off to buy something and then suddenly,
everybody stampedes in the opposite direction.
This story is now used as a warning to investors to be careful.
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Monday, July 9, 2007
Story of tulip mania in Holland from centuries back
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