The Tulip Bulb Craze
Virus causes colored stripes in tulip petals. The Dutch valued such bulbs. Prices rose (just when one thought they couldn’t go higher). Let the tulipmania begin.
Tulip bulbs options. 20 for a bulb currently worth 100. If the price moved to 200, the option holder exercises his right: buys at 100 and simultaneously sells at 200, making a profit of 80.
Prices eventually got so high that some people decided they would be prudent and sell their bulbs. Soon others followed suit, and then others…
The South Sea Bubble
Long prosperous period led to fat savings and thin investment outlets. The South Sea Company rose as an investment vehicle. It was given a monopoly over all trade in the South Seas.
The South Sea Company was England’s answer to the French Missisipi Company (aimed to introduce paper currency; investors flocked). There’ll be peace with Spain. We’ll finance the national debt. Stocks payment plan: we’ll lend you £££ - 10% now and not another payment for a year.
The public bought up anything: importing jackasses from Spain; making saltwater fresh, building ships against pirates; encouraging the breeding of horses in England; trading in human hair; building hospitals for bastard children; extracting silver from lead; extracting sunlight from cucumbers; producing a wheel of perpetual motion.
Aug 1720, price reaches £1,000: insiders cash out; investor panic sales; stock falls to £100. Isaac Newton, a victim, is reported to have admitted, “I can calculate the motions of the heavenly bodies, but not the madness of people.”
Wall Street Lays an Egg
Pool managers had relationships with specialists to know the extent of pending buy/sell orders. Together, the pool managers generated trade events that made tick watchers want in on the action.
Pool managers made tipsheet writers and market commentators tell of coming exciting developments.
Once the public flooded in to buy, the pool did the selling.
A Random Walk Down Wall Street: Chapter 2. The Madness of the Crowds. Malkiel, Burton Gordon. Jun 1, 2019. ISBN: 9780393356939.
Cathie Wood and Content Strategy. Ranjan Roy. https://themargins.substack.com/p/cathie-wood-and-content-strategy . Mar 24, 2021.