Biggest asset bubbles in history

Published
  • October 05 2016, 4:45am EDT
Investors often buy and sell at the wrong time. Call it performance chasing, loss aversion, human nature or just bad luck, but they seldom really buy at the lows and sell at the highs. That's why most people make less on their investments than the indexes suggest. The graph above, from Lipper, shows fund flows and fund performance.

At its most extreme, this can lead to bubbles in the market. And with that idea in mind, we look back through history at some of the biggest examples of investors feeling they were getting in on a good thing, only to see it all crash.

Zigging when they should zag

Investors often buy and sell at the wrong time. Call it performance chasing, loss aversion, human nature or just bad luck, but they seldom really buy at the lows and sell at the highs. That's why most people make less on their investments than the indexes suggest. The graph above, from Lipper, shows fund flows and fund performance.

At its most extreme, this can lead to bubbles in the market. And with that idea in mind, we look back through history at some of the biggest examples of investors feeling they were getting in on a good thing, only to see it all crash.

Tulip mania

The gold standard of asset bubbles, people in Holland in 1636 paid more for tulip bulbs than homes in some cases. By mid-1637, it was over. A selling panic, lawsuits and massive losses ensued.

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South Sea bubble

The South Sea Co., formed in England in 1711, was granted a monopoly to trade with the Spanish colonies in South America. Perceived riches across the ocean pumped up shares to 10 times their value … then it collapsed.

Florida land boom

In the early 1920s, developers poured into Miami, but ordered so many supplies that the railroads banned the use of their routes for them. After other missteps, a hurricane in 1926 finally brought the market down the earth hard.

Mississippi bubble

In France in the early 1700s, the Mississippi Co. was granted a monopoly on the French colonies in North America. Investors expected a bounty from the Mississippi Territory and bid shares up to dizzying heights before crashing.

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Dot-com bubble

All but the youngest investors today remember the dotcom bubble of the late 1990s. The first wave of Internet companies went public, raked in millions even while still in their early stages. In early 2000, investors bailed and the Nasdaq crashed.