How to Recognize an Economic Bubble: Lessons from the South Sea

It’s impossible to predict the future. Nonetheless, investors and speculators continually attempt to guess what the future will bring in order to find the proper place to put their money. The best way to understand what might happen in the future is to look at the past. While learning history, you can see patterns that have repeatedly taken place.

Over the last 500 years, there have been many asset bubbles. Some notable bubbles include the Tulip Mania, Japanese stock market bubble, Dotcom Bubble, and the US Real Estate Bubble. This video concentrates on the South Sea Bubble which took place in the 1700s in England.

Like other bubbles, this mania included ill-informed investors who didn’t realize their investments were on the verge of disappearing. Even the great Isaac Newton got caught in the speculative frenzy. If these investors recognized the signs of a bubble, they could have taken their money out and saved themselves from economic ruin.

When will the next big bubble come about? It will come someday, but investors need the tools right now to recognize a classic bubble.