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Behavioral economics

Biggest asset bubbles in history

ByLee Conrad
October 5, 2016 4:45 AM
Sponsored by

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.

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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.
Tulips by Bloomberg News
Bunches of tulips await distribution at FloraHolland, the largest flower trade center in the world, in Aalsmeer, Netherlands, on Tuesday, March 11, 2014. The Netherlands' flower and plant exports, the world's biggest, fell 2.3 percent last year as declining consumer purchasing power was compounded by cold spring weather in Europe and a summer heat wave that hurt sales. Photographer: Jasper Juinen/Bloomberg
Jasper Juinen/Bloomberg

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.
South Sea Bubble

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

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.
Nasdaq by Bloomberg News
The Nasdaq 100's gains in 2023 were concentrated in its top seven companies, but in 2024 experts expect a broader range of winners.
Eric Thayer/Bloomberg

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.
Lee Conrad
Former senior editor, Employee Benefit News and Employee Benefit Adviser
Behavioral economics InDepth
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