1. Tulip Mania: Holland
In 1623, a single bulb of a famous tulip variety could cost as much as a thousand Dutch florins (the average yearly income at the time was 150 florins).
A record was the sale of the most famous bulb, the Semper Augustus, for 6,000 florins.
By 1636, tulips were traded on the stock exchanges of numerous Dutch towns and cities.
In February 1637 tulip traders could no longer get inflated prices for their bulbs, and they began to sell. The bubble burst. Panic developed.
Allegedly, thousands of Dutch, including businessmen and dignitaries, were financially ruined.

2. Stamps in Israel
November 1956, Itzik Friedman was a student at the Technion. He started trading stamps. Prices kept going up.
In March 1957, by buying and selling he had half-million pounds in cash. (could buy an apartment for 3000).
Father begged him to stop, but he wanted a million.
In May 1957, stamps fell to 50 percent of their nominal value
Itzik went tens of thousands of pounds in debt.

3. Tea in China
Menghai is in a lush, mountainous tea-growing region in China.
Over the past decade, as the nation went wild for the region’s brand of tea, known as Pu’er, farmers bought minivans, manufacturers became millionaires and Chinese citizens plowed their savings into black bricks of compacted Pu’er.
From 1999 to 2007, the price of Pu’er, a fermented brew invented by Tang Dynasty traders, increased tenfold, to a high of $150 a pound for the finest aged Pu’er, before tumbling far below its preboom levels.

4. Bubbles and Crashes
Story of two people: Irving Fisher and Joseph Kennedy.
Irving Fisher
Famous economist and inventor.
He invented the Rolodex and made a small fortune from it (10 million in 1929).
Pretty much came up with the fundamental value of a stock.
Lost all his money in the 1929 crash. Said in 1929 “that prices have reached what looks like a permanently high plateau”
Yale had to buy his home and rent it back to him for free. Died in poverty.

5. Good timing Joseph Kennedy Made a fortune in the booming 20’s.
Decided to get out of the market when the boy shining his shoes gave him stock advice.
Father of JFK and Robert Kennedy.

6. Bubble Experiment Interest on cash was 10%.
Dividend was 50% of $.40 and 50% of $1.
After 20 periods the price was $7.
What should have been the price?
Expected dividend was $.7
An annuity that pays out .7 with interest of .1 is worth $7.
Thus, the PV is worth $7 at any time.

7. Bubble Experiment

8. Bubble Experiment Why did you buy for above $7?
Why did anyone buy above (21-t)*.7+7<$21? Above $27?
What strategies worked well?
What strategies didn’t?