Lessons from Tulipomania

This is a story from the book Zulu Principle written by Jim Slater.

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In the early seventeenth century, many people in Holland were collecting tulips to such an extent that it was proof of bad taste for a man of fortune to be without a rare tulip bulb collection. The desire to possess tulip bulbs spread to the Dutch middle classes. By the year 1636, the demand for rare tulip bulbs increased so much that regular marts for their sale were established on the Stock Exchange in many of the principal cities. 

As prices continued to rise, many individuals who had speculated in tulips suddenly became very rich. People in all walks of life began to convert their hard-earned money into tulip bulbs. Tulipomania became rampant. You may wonder how the Dutch people allowed themselves to be so carried away from reality. 

Your wonderment would have been shared by an unfortunate sailor who stole a tulip bulb from a merchant’s store, thinking that it was an onion, which a few hours later he ate with his herring breakfast. The tulip bulb in question was a Semper Augustus then worth about 3000 Florins, which would have been sufficient to feed his entire ship’s crew for over a year. The poor fellow had plenty of time to think about tulip bulbs during the months he spent in prison on the felony charge. 

After a while, some of the more conservative rich people began to have some doubts. They ceased buying bulbs and began to sell a few. The worry spread, confidence was lost, and prices tumbled, never to recover. At the height of the mania a Semper Augustus tulip bulb commanded a price of 5500 Florins. The low price, after a 99% fall, was a mere 50 Florins.