Share

Flower Power

The year was 1636, during the Dutch Golden Age. Demand for tulips suddenly shot through the roof. Welcome to the world’s first financial bubble, when flowers were worth more than a mansion next to Amsterdam’s Grand Canals.

Today, high-net-worth investors – those with $1 million or more invested – often diversify their holdings to include more than the usual stocks, bonds and real estate. That’s why the portfolios of the ultra-rich also have the fun stuff – Hermes handbags, Rolex watches, art, gold bars, and other appreciating collectibles. In the 1600s, tulip bulbs made the list.

Flowers had always been a status symbol in medieval Europe, as only the wealthy could afford their cultivation and maintenance. When tulips were first introduced to the continent from trade routes, they gained particular interest due to their intense color, never seen before. And so tulips became a coveted luxury item. Rare colors were grown and both the wealthy and common people wanted a slice of the pie.

As demand grew and merchants joined in the market, the price for tulip bulbs shot up and soon started trading between 4,000 to 5,500 florins. For reference, 1,000 gallons of beer back then would cost only 32 florins – imagine buying a tulip bulb that would cost you 171,875 gallons of beer! At the height of the tulip mania, some rare bulbs even sold for 10,000 florins, or the price of a mansion in the heart of Amsterdam. 

Like all financial bubbles that would come after it, this one eventually popped. 

As prices started reaching exorbitant levels, the number of buyers dwindled. The scary thing about the tulip mania was that people had started buying tulips on credit – yes, going into debt for flowers – confident they’d be able to pay off the debt once they sold the tulip bulbs for a profit. But with no one left to purchase their tulips, people started defaulting on their loans. Thus began the tulip market’s landslide.

While some analysts believe the story has been exaggerated over time, the tulip mania certainly happened. It’s the earliest example of how market hype and irrationality could drive valuations to insane numbers. Knowing this history, would you still invest in collectibles and the latest fads?


Related


Want more?

You know what to do

Insights, trends and company deep dives delivered straight to your inbox.


Stake logo
Over 7,000 5-star reviews
App Store logoGoogle Play logo

Subscribe to our free newsletters

By subscribing, you agree to our Privacy Policy.

Stakeshop Pty Ltd is registered as an overseas company in New Zealand (NZBN: 9429047452152), and is registered as a Financial Service Provider under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (No. FSP774414). We hold a full licence issued by the Financial Markets Authority to provide a financial advice service under the Financial Markets Conduct Act 2013. However, the content on this website has not been prepared to take into account any of your individual objectives, financial situation or needs. To the extent you require further information about the relevant New Zealand legislation that may apply, or require specific advice, please contact your legal and/or financial adviser (as appropriate). The information on our website or our mobile application is not intended to be an inducement, offer or solicitation to anyone in any jurisdiction in which Stake is not regulated or able to market its services. At Stake, we’re focused on giving you a better investing experience but we don’t take into account your personal objectives, circumstances or financial needs. Any advice is of a general nature only. As investments carry risk, before making any investment decision, please consider if it’s right for you and seek appropriate taxation and legal advice. Please view our Terms & Conditions, Privacy Policy, Financial Advice Disclosure and Disclaimers before deciding to use or invest on Stake. By using the Stake website or service in any way, you agree to our Privacy Policy and Terms & Conditions All financial products involve risk and you should ensure you understand the risks involved as certain financial products may not be suitable to everyone. Past performance of any product described on this website is not a reliable indication of future performance. Stake is a registered trademark under class 36 (New Zealand).

Copyright © 2024 Stake. All rights reserved.