Before It Was Real Estate, Before It Was Dot Com, It Was Tulips…?

That’s right. One of the first truly devastating economic bubbles was the tulip bubble during the early 17th century. While not on a global scale like the bubble bursts we have been witnessing today, this story brings up an interesting question whether simple irrationality is to blame for the phenomenon of economic bubbles.

In 1593, tulips were introduced to the Dutch from Turkey. These flowers had colors more vibrant and beautiful than any flower seen before and the Dutch immediately prized them and began cultivating them on a large scale.

At one point, the tulips became infected with a non-fatal virus. Instead of harming the plant, the virus simply left them altered leaving “flames” of colors on the petals.

These altered tulips, rare in nature, became increasingly valuable. That is to say, people assumed they were becoming more valuable and became willing to spend more money on them.

One could almost call what ensued a “buying frenzy.” This is the initiation of the bubble, the stage has been set, and now poorly-made assumptions and irrational decision making fuel the bubble’s inflation. Just like a hot-air balloon.

The prices of some tulips rose twenty times in a period of just one month. In 1624, a dealer in Amsterdam was offered the equivalent of a wealthy merchant’s annual salary for ONE tulip bulb. Obviously these prices could not sustain themselves.

Soon, the bubble burst as they all do and lives were devastated. Fortunes were lost in a matter of days. Men were left holding their heads in their hands wondering how they could have been so stupid.

The lesson here is to avoid getting swept up with the crowds. Keep a steady eye on what’s going on in the world and our economy. Trust your gut when something seems too good to be true.

And invest in the things that never lose their value. Like silver and gold. (I cannot say this often enough.)

If you’d like to learn a little more about that, head over to goldsilver.com and meet my friend Mike Maloney. He’ll teach you everything you need to know.

Or ask me a question below in the comments section. I’m happy to help!