Tulip Mania
In 1593 tulips were introduced to the Dutch from Asia. Somehow, over time they contracted a virus which caused the tulip color to change dramatically. This in turn made the “new” tulips rare, increasing their desirability to all.
Simple supply and demand caused prices to increase, until individuals actually started to trade in bulbs, speculating that their price would continue to escalate.
Prices increased so fast that people began trading their houses, life savings, and anything else of value in order to buy more bulbs, the value of which exceeded the annual income of a skilled worker. Remember this is tulip bulbs – their value is based on desirability alone, nothing else. In one month the price of bulbs increased by over 20 times.
By the end of 1636 bulbs were changing hands more than 10 times a day, to the extent that actual tulips were not physically changing hands, only the rights to buy them were.
Of course tulip prices eventually collapsed and people were left holding nothing but a worthless bunch of flowers that they couldn’t even give to their wife. The mania was over, and people were homeless.
What does this have to do with anything?
Be careful what you invest in and be careful of how much money you put into any one investment, regardless of how good it may appear. Think more along the lines of what products and companies that you interact with on a daily basis, Starbucks, McDonalds, Netflix, Facebook, Amazon, your Bank, etc. rather than what may be "the next best thing". It is ok to put a small amount of money into an investment that is more speculative in nature, but only put in what you are prepared to lose.
Nothing is ever a "sure thing". Investment history is littered with companies that were "too big to fail". Nortel, Enron, Chrysler, Worldcom, Lehman Brothers, the list goes on.
Be careful investing, be smart investing, and make sure you manage your risk investing. Hire a professional.
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Sincerely,
Vice-President and Portfolio Manager
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