Crashes & Crises
What Happened
Tulip Mania occurred in the Dutch Republic in the 1630s, when prices for rare tulip bulbs surged to extreme levels.
Tulips were scarce, newly introduced, and quickly viewed as luxury goods.
Forward-style contracts allowed buyers to speculate with very little capital, pushing prices higher.
The bubble collapsed in early 1637 when an auction failed, confidence broke, and buyers withdrew.
Prices fell sharply as participants abandoned contracts that were not enforceable.
What Drove the Bubble
novelty and scarcity created early demand
tulips became status symbols
forward contracts enabled speculation with limited capital
rising prices attracted more speculators
markets became momentum-driven, detached from fundamentals
herd behavior amplified the cycle
Investor Lessons
bubbles form when prices rely on the next buyer, not intrinsic value
leverage accelerates both booms and collapses
weak or unenforceable contracts increase fragility
confidence can reverse instantly — bubbles rarely unwind slowly
staying anchored in fundamentals helps avoid momentum-driven traps
market psychology and incentives can push prices far beyond real value