Sometimes investors are irrational (three famous crashes in history)

The Dutch 1636 crash story, although it happened more than 360 years ago, is still the best example for people to understand the irrationality of investors. The most important point of this story is that although this is one of the biggest crashes in the history of securities trading in the world, and although it has plunged the whole country into hysteria, the result is bankruptcy and depression, the investment object is neither stocks nor bonds or commodity futures, but tulip bulbs.

Tulips first appeared in Europe in 1559, when Senator Howard was particularly fond of collecting exotic flowers and herbs. A friend sent him a box of tulip balls from Constantinople, and he planted them in the garden of augsburg. These tulips attracted many people's attention. In the following years, tulips became more and more popular in the upper class, especially in Germany and the Netherlands. It has become a fashion to order gold incense from Constantinople at a high price. At 1634, this fashion is becoming more and more popular. From that year on, the wealthy class in the Netherlands thought that no tulip was a symbol of no taste.

The price of tulips rose year by year, and finally reached astronomical figures. According to the most fanatical original records, a rare name is called "Augustus forever"

For expensive tulips, the price of each bulb is equivalent to: 4,600 Frohring (then the Dutch Goolden unit), a new carriage, two mares and a complete harness. At that time, a fat cow was worth 120 Frohring, and 4600 Frohring was a lot of wealth. Another rare tulip named "Governor" spent 24 wagon grains, 8 fat pigs, 4 cows, 4 barrels of beer, 1000 pounds of cream and several tons of milk coolers. At 1636, the demand for tulip bulbs surged and people began to trade in several cities in the Netherlands. It is not only the rich who buy tulip bulbs, but also agents and speculators. Even if the price drops slightly, they will buy and sell at a profit. In order to promote margin trading, tulip bulb option trading came into being, and the margin can be as low as 10%-20%. Ordinary people from all walks of life also began to sell their assets and invest in this attractive market.

The prosperity of Dutch Jinxiang has also attracted foreign attention, and capital has begun to flow into this market. These capitals not only support the price of tulips, but also drive up the prices of land, real estate and high-end consumer goods. Wealth has expanded, and some nouveau riche have joined the ranks of the upper class. These upstarts got rich by speculating on tulips and put the money they earned into the tulip business. Legend has it that a wine dealer in Utrecht is willing to sell his winery with three tulip bulbs.

9. 10, a long-lost feeling began to spread: confusion and doubt. How can we be sure that three tulip bulbs are equivalent to the price of a brewery? People began to hold back their laughter. Who says tulip bulbs are of infinite value? So the market panicked and prices began to plummet.

Many nouveau riche have to face the cruel fact that all they have is tulip bulbs that nobody wants, let alone cash loans to brokers. The government had to seek compromise. All tulip contracts signed before 1636 were declared invalid, while the contracts after 1636 were only executed at l0% of the original price. But the actual price is lower than 10%, and more and more people go bankrupt. It was not until many years later that the Netherlands gradually recovered from the Great Depression after the tulip crash.

The second enlightening example of market irrationality is18th century British speculation. 184 1 year, Charles? Michael described this in his memoir, Extremely Popular Illusions and Popular Fever.

This company, later called "Nanhai Bubble", was founded in 17 1 1. At that time, Count Niunao became the South China Sea Company, which received financial support from some businessmen at that time (the official full name of this company was "promoting the development of fisheries in the South China Sea and other parts of America"). The company is backed by 6,543,800,000 British government bonds, with an annual interest rate of 6%, and monopolizes trade with Latin America.

Shortly after the company was established, there were rumors that its profitability in business was extremely high and unreliable. At that time, British goods could be directly traded with gold and silver in Peru and Mexico, and the gold mines in Peru and Mexico were "inexhaustible". The reality is that the Spanish colonial authorities only allow one British ship to dock every year, with a quarter of the profits and 5% of the goods as collateral. On the stock exchange, the stock performance of Nanhai Company is flat, and the price often fluctuates only by two or three points every month.

17 17 King Ingrid suggested that the national debt could be "privatized" again. The Bank of England and Nanhai Company, the two largest financial institutions in Britain, have put forward their own plans. After heated discussion in Congress, they finally voted to allow Nanhai Company to operate with an annual interest rate of 5%. However, an incident that happened in France in 17 19 had a great impact on this British company. A very clever man named John? Luo's people set up a company called "Western Association" in Paris to engage in the colonization and development of Mississippi in North America. Speculation on the company caused its share price to rise rapidly from 1765438+466 francs on August 9, 2009 to 65438+l705 francs on February 2. In addition to the French, there are crazy foreigners, so that the British minister asked Her Majesty's government to take measures to prevent British capital from flowing into the "Mississippi bubble" of the French stock exchange. The Mississippi bubble peaked at 17 19 12, and the subsequent collapse triggered a large amount of funds to flow back to the UK to find the next operation target.

The Mississippi incident provided an excellent opportunity for the shareholders of the British South Sea Company, who are now willing to accept all British debts. 1720 65438+1On October 22nd, the British House of Commons set up a committee to consider this proposal. Despite repeated warnings, on February 2, the House of Commons passed a bill submitted to Congress. Investors are encouraged by the proposal to further promote the capitalization of Nanhai Company. Within a few days, the share price rose to 176, including the contribution of French capital. While the bill was still being debated, new rumors became popular again, the company's profits were excellent, and the stock price further rose to 3 17. On April 7th, 1720, the bill finally passed. However, the next day, investors took profits and the stock price fell from 307 to 278.

Even at this price level, the founders and partners of the company can still get investment income, which is huge by the standards of that era, not to mention that the company has stopped its activities. However, this further stimulated their appetite. On April 12, new rumors began to appear again, and new shares of 1 10,000 pounds were issued at a price of 300 pounds per share. After two public subscriptions, the share price rose to 340 pounds a few days later. The company immediately announced that regardless of the new and old shares, each share will receive a dividend of 10%, and the parent company will reissue/kloc-0,000,000 new shares at a price of 400 pounds per share. This time it is oversubscribed, but the company itself is still at a standstill.

17 17- 1720 The bubble of Nanhai company greatly stimulated the entrepreneurial spirit, and a new phenomenon appeared in the stock market: more and more stocks sacrificed new "concept stocks". There are many companies like "Western Society" and "Nanhai Company" that do nothing but sell plans, concepts and hopes. These companies have no actual business at the time of registration and are managed by novices in the field of planning business. People snapped up stocks and prices soared. Stock speculation is not just a game for the rich: everyone is involved. Men, women and children. These companies quickly gained a popular name "bubble" because the founders sold their shares within a few days or weeks of listing to make huge profits. Poor investors are trapped by high prices, while the company exists in name only.

On June 1720, 1 1 day, the king declared some of these companies as "public pests" and prohibited their stock trading. Offenders will be fined. * * * There are 104 banned companies, including the following fictitious business activities:

● Improve the soap making process.

● Extracting silver from lead.

● Buy and assemble ships to eliminate pirates.

● Convert mercury into ductile fine metals.

Despite the government's efforts to curb bubbles, new bubbles still appear every day and speculation continues to heat up. On May 28th, 1720, the stock price of Nanhai Company, the earliest and largest bubble, reached 550. This price has exceeded the imagination of investors. In June, the price exceeded 700 pounds. During this period, the stock price changes were particularly tense and fluctuated greatly. The price dropped to 650 pounds at noon on June 3, and rose to 750 pounds in the afternoon. Many big investors took advantage of this summer's high price to sell their stocks and shifted their profits to other industries, including land, commodities, real estate and other stocks. However, other investors who bought shares in Nanhai Company, including physicist Isaac? Newton, at the beginning of the stock price rise of Nanhai Company, sold all the shares and made a profit of 5,000 pounds. However, in the midsummer, he bought it back, and the deal cost him 20 thousand pounds.

At the beginning of June, the share price of Nanhai Company reached a new high. After a brief dizzying change, the share price of Nanhai Company reached 65,438+0,050 on June 24th, 1970. Only a few people understand that the time for investors to escape from the top is not far away. What they know is the founders and board members of the company, who have successfully sold their shares by taking advantage of this summer's high share price. At the beginning of August, the truth of the company began to be exposed to ordinary investors, and the stock price fell step by step.

On August 3rd1day, the management of the company announced that 12 would receive an annual dividend of 50%. This will completely hurt the company, but it has not alleviated the growing tension and anxiety of investors. In September 1, the stock price continued to fall. Two days later, the stock price fell to 750. The collapse began. In the remaining trading days of this month, the stock price plummeted. On September 24th, Nanhai Company Bank declared bankruptcy, and its share price began to fall at an accelerated rate. On the last day of the month, the share price 150 fell by 85% in one month.

After the collapse of Nanhai Company, banks and brokers were under siege. Many people borrowed money from banks and bought a lot of shares of Nanhai Company, and the financial sector suffered a series of bankruptcy storms. Nanhai Company was finally dissolved on 1855. Company shares are converted into government bonds. In the 40-year history of this company/KLOC-0, it has never really succeeded in engaging in any large-scale trade in the South China Sea.

The third instructive example of market irrationality is the United States. 1929 the wall street stock market crash ended the biggest crazy speculation in history.