By Mike Turner, Investment Solutions, Aberdeen Asset Management
This article expands upon the third of Mike Turner’s Seven Deadly Sins, which was first published in booklet form in January 2014.
What’s the most you would pay for a pretty tulip? A few dollars, perhaps? How about a particularly beautiful midnight blue tulip with crimson petals? Nowadays, it seems hard to believe that at the height of ‘tulip mania’ — the first recorded financial market bubble in 1630s Holland — such tulip bulbs were selling for the equivalent of a wealthy merchant’s annual salary. At its peak, just before the crash in 1637, the price of the most desirable tulip had risen to the equivalent of an opulent house in Amsterdam. Investors had driven up the price of a visually appealing flower, yet one with no practical use, to extortionate levels.
Fast-forward 370 years and the technology, media and telecoms (TMT), aka the dot-com bubble, burst in the US. Like the tulip investors before them, investors in the TMT bubble were similarly carried away by euphoria and excitement, this time for all things related to the internet. Investors paid the price when the bubble burst with resounding consequences.