Bubbles

[Gsxrboy]

I have been reading a lot of articles lately about the possible housing bubble that may happen in the near future. It got me thinking about past bubbles that have happened recently and if we as a society have learned from it. I remembered an excellent story on the Dutch Tulip bubble that happened around the year 1636, tulips at that time were trading at about $300,000 in todays dollars for one tulip, until of course, it all came crashing down hard, here is the story.

A Turkish merchant brought a tulip to the Dutch and a tulip buying craze started, increasing the value of the bulbs and creating a buying market that everyone was participating in. Due to a virus that affected the colors of the tulips, a new variety emerged that sent the values of the tulips to sky high prices. People were selling their homes, land, animals and anything they can to purchase more tulips to resell in the market. Unfortunately for the Dutch, the tulip market was not a true value of the actual market price, and within one year, the market crashed. People were trying to sell their stock of tulips in a frenzy and this created a depression in the economy due to the fact no one was buying, but everyone was selling. The Dutch government stepped in and tried to offer 10% of the value of the tulips, but it was too late and market came crashing down hard.
What is the moral of the story? Don’t follow trends, when everyone is buying, you should start selling. Continue to save on a monthly basis, live within your means, contribute to your RRSP’s and your company’s pension plan. You will always win in the end.

http://www.investopedia.com/features...#axzz1tXoM2c6P

[ashedfc]

Absolutely True..
Be your own central bank "learn to save", no matter where you save, but its more important to "learn to save"

Bubbles forming & bursting is (& has been) a integral part of market. Its human nature to get greedy in search of quick returns. Its common for people to speculative (that's what investing is all about); but when speculation becomes out of control or expectations becomes too unrealistic, than one has to be careful..

Like now we are witnessing: similar trends in the housing market (almost everyone has a feeling that real estate is a good investment; similar to the tulip mania).

[MortgageQueen]

Absolutely True..
Be your own central bank "learn to save", no matter where you save, but its more important to "learn to save"

Bubbles forming & bursting is (& has been) a integral part of market. Its human nature to get greedy in search of quick returns. Its common for people to speculative (that's what investing is all about); but when speculation becomes out of control or expectations becomes too unrealistic, than one has to be careful..

Like now we are witnessing: similar trends in the housing market (almost everyone has a feeling that real estate is a good investment; similar to the tulip mania).

I agree. Speculation in investment needs to be tempered with self control and getting greedy.
Condo market in Toronto is going to become a glut. NOW is the time to sell. If you want to invest in real estate, you should pick a community where there is about to be major development (as in a large company coming in with tons of new jobs - especially the gov't)

If you buy before the new workplace opens, you stand to make a very tidy profit when you sell.

That said, there are always risks in every investment. . . so always have a contingency plan and be modest in your investment endeavor.

[aemi]

I also feel I cannot trust the housing market at this moment. If kinda feel the bubble however I am not able to express the issue as good as you just did. Good job!

[ashedfc]

this is a must watch regarding canadian housing market (its from cbc, so we all can correlate to) http://www.cbc.ca/thenational/indept...ng_market.html