How did this ever happen?

by Manshu on September 7, 2012

in Books

I’m currently reading Extraordinary Popular Delusions and the Madness of Crowds, which is a book about bubbles and excesses, and it is only natural that the Tulip Mania found its way into the book.

For those of you unfamiliar with the Tulip mania, it was a bubble in Holland in the 1600s which involved Tulips! Yes, the flowers. Tulips speculation and craze reached insane levels during that time, and it’s incredible how much people were willing to pay for these bulbs.

Here is one excerpt from the book that shows just how far the craziness went:

It is related that, at one time, early in 1636, there were only two roots of this description to be had in all Holland, and those not of the best. One was in the possession of a dealer in Amsterdam, and the other in Harlaem. So anxious were the speculators to obtain them that one person offered the fee-simple of twelve acres of building ground for the Harlaem tulip. That of Amsterdam was bought for 4600 florins, a new carriage, two grey horses, and a complete suit of harness. Munting, an industrious author of that day, who wrote a folio volume of one thousand pages upon the tulipomania, has preserved the following list of the various articles, and their value, which were delivered for one single root of the rare species called the viceroy: –
                                                            florins.

Two lasts of wheat                          448

Four lasts of rye                              558

Four fat oxen                                   480

Eight fat swine                                240

Twelve fat sheep                             120

Two hogsheads of wine                 70

Four tuns of beer                            32    
Two tons of butter                          192
One thousand lbs. of cheese       120
A complete bed                              100
A suit of clothes                             80
A silver drinking cup                   60                              
                               – – –                2500        ——

It’s hard to believe today that people could pay so much for just a flower, and yet we know that we are not smarter than people who lived before us and are prone to the same follies that they committed.

In fact all the bubbles and busts during the past few decades have shown us that no one really learns anything from the last bubble. People keep making the same mistakes again and again but with different assets or commodities. Almost every one I’ve told this story has told me that it’s very unlikely that Tulip Mania type situation can ever emerge again but I feel that it’s not all that out of question given how crazy stock markets have behaved in the past. What do you think? Can you ever picture a Tulip Mania type craze happening in India?

{ 25 comments… read them below or add one }

Amit September 7, 2012 at 8:33 am

I think its already happening with Gold and real estate in India 🙂

Reply

Manshu September 7, 2012 at 8:57 pm

Real estate at some places is really crazy, the other day someone was telling me a joke that at one house he was looking at in Mumbai the parking space alone was costing some 30L or so and he asked if they gave a car free with it 🙂

Reply

Shiv Kukreja September 8, 2012 at 1:06 am

That was a good one! 🙂 Is it really parking or a park for 30 lakhs ??

Realtors will start a new offer soon – “Book your parking in Mumbai and get a mansion free in Africa” 😉

Reply

Manshu September 9, 2012 at 4:35 am

hahaha the way rates are you may even get a mansion in USA for that price!

Reply

Rohan Doshi September 7, 2012 at 8:59 am

Yes..
We can relate tulip with GOLD these days… 😉
People are willing to pay anything for piece of gold..

Reply

Manshu September 7, 2012 at 9:04 pm

Not yet I guess 🙂

Reply

Kush September 22, 2012 at 11:25 pm

Try to understand this basic concept, Indian rupee is the real tulip not gold. People are willing to pay for gold because rupee is losing value. Better buy gold now before it goes to 1 lakh per 10 grams.

Reply

harinee September 7, 2012 at 9:13 am

. More than the craze I think it was very ingenious of the Dutch to make a business out a boring flower which blooms only 15 days in a year.With no resources and flood problems they have ingeniously built an economy.
Gold no bubble, no bubble holds up for that long!

Reply

Manshu September 7, 2012 at 8:58 pm

This is one business model I’ll not recommend anyone 🙂

Reply

Soma September 7, 2012 at 10:47 am

Right now EMU farming bubble has just burst in Tamilnadu..not long ago Vanilla cultivation was a rage in Kerala only to burst shortly after..

Reply

Manshu September 7, 2012 at 9:03 pm

I have actually seen people growing vanilla in Kerala and that’s a very apt example. I wonder what happened to those people. What is EMU though? Never heard of that.

Reply

Ashok September 8, 2012 at 11:59 am

Emu is the bird native to NZ and Aus. There are many ads in Tamil TV channels about investing in Emu farming and exports. But I think this craze was at its peak an year or so back and now fading.

Some past crazes I can recollect are the Teak wood craze in TN ( back in the nineties) and the Shrimp farms craze in AP.

Reply

Manshu September 9, 2012 at 4:35 am

Wow! the bird is the first thing that came to my mind but I didn’t think it was possible for people to go crazy after the bird and start farming the bird itself! I must read more about this!

Reply

harinee September 10, 2012 at 10:07 am

It is not a bubble really. Its more of a scam or ponzi scheme where poor farmers were sold into the idea of profits over a bird and the seller disappeared with the money.
TN always has some scam happening on some lines every decade. Last decade was chit funds and before that teak.Overall I think its because the average Tamilian has less business sense than a Gujarati or Marwari which makes them gullible!

Reply

Soma September 10, 2012 at 12:17 pm

Try searching in Google typing ’emu farming tamilnadu erode’..you will get many sites, links and news items.
Here are some news item links ,
1) http://articles.timesofindia.indiatimes.com/2012-04-21/chennai/31378584_1_emu-farms-salem-farmers
2) http://www.thehindu.com/news/states/tamil-nadu/article3745729.ece

Reply

Gaurav Bansal September 7, 2012 at 11:17 am

real estate in metro’s like mumbai is analogous to this story.
i remember reading in the news sometime back about a flat in worli having being sold for 1.11 lakh/sq ft. what would one call this? insanity of course.

Reply

Manshu September 7, 2012 at 9:04 pm

Is that a typo or you really mean 1.1 lakh per square foot? How much is the whole flat then?!?

Reply

Gaurav Bansal September 11, 2012 at 11:29 am

:~) It isnt a typo Manshu. In fact its 1.2Lakh/sq foot.
The whole flat was 39 Cr.
Check the below link.
http://articles.timesofindia.indiatimes.com/2012-06-08/india/32123507_1_tahnee-heights-worli-s-samudra-mahal-ncpa-apartments

Reply

Amrit September 7, 2012 at 12:11 pm

Gold prices seems to be treading towards same situation

Reply

Manshu September 7, 2012 at 9:09 pm

Let’s see how long the run up in gold continues, looks like it is getting another lift due to QE3 anticipation next week.

Reply

Paresh September 8, 2012 at 10:13 am

I think,Gold have mere covered its multi decade backlog and under performance.

Its difficult for Gold prices to correct significantly till incremental Fed rate cycle begins…..But still,prices may not go below $1200-$1300…

Reply

jadus September 8, 2012 at 8:39 pm

Gold is in final leg of bull run of the current wave which may last 2 to 2.5 years and price will reach between 2600 $ to 3200 $ and finally it may spike above 3200$ for few hrs.

Reply

Naresh September 10, 2012 at 1:22 am

A bubble is real estate is unlikely unless the black money economy is curbed. Today the black economy is bigger than the white. A really nice way to know if a real estate bubble is in the offing is to see if the rental value is going up along with the asset price. How real estate bubbles can be identified

Reply

Gaurav Bansal September 11, 2012 at 11:33 am

So true.
I feel not just the relationship b/w asset prices and rental but also the proportion in which they are moving is important as well.

Reply

Naresh September 10, 2012 at 1:24 am

Leave a Comment

Previous post:

Next post: