Common Cents – Bubbles
The bubble in the stock of GameStop and a few other stocks,
reminded me of other “bubbles” down through the years. The first famous one was
the “Tulip Bubble” in 17th century Holland. As tulips began to get popular,
people believed them to be rare and the price of tulip bulbs went through the
roof. People invested their life savings in tulip bulbs only to be wiped out
when the market crashed. Of course, now there are plenty of tulip bulbs.
The first bubble that I was personally involved with was Jim
Beam Whiskey bottles. I was working in a pawn shop when overnight the price of
Jim Beam decanters exploded. Bottles that were selling for $10 one month were
selling for $500 the next month. And then just as quickly, the price dropped,
leaving thousands of people with over-priced Jim Beam bottles on their shelves.
Shortly after that, the same thing happened to Avon bottles.
There were people buying everything Avon made and stashing the bottles away,
sure that their value would increase. Now we can buy Avon bottles that sold for
$50 each forty-five years ago in any flea market for fifty cents.
Other famous bubbles in recent years have been Beany Babies,
Cabbage Patch Kids, and vintage guitars. Gold top Gibson Les Paul guitars that
sold new in 1955 for $200, were selling for $100,000 in 2008. They are still
worth about $20,000. But a lot of people lost a lot of money speculating on
those guitars.
The bubble more related to today’s bubble in individual
stocks was the silver bubble of 1980. The Hunt brothers decided to corner the
market in silver. They bought up all the silver that was available and all of
the futures as well. We were in the photofinishing business at the time and we
reclaimed the silver from processed film. We were getting about $25 per month
for scrap silver, when all of a sudden, the checks jumped to $500 per month as
the price of silver went from $6 per once to $50 per ounce. March 27, 1980 is
known as “Silver Thursday.” That is the day the price of silver went from
$50.42 to $10.80. Brother Lamar Hunt did a lot better with The Kansas City
Chiefs than his two brothers did with silver, for sure. To this day, people are
trying figure out what they were thinking.
The point is, there have been price bubbles for all kinds of
things for at least 500 years. Learn to spot a bubble and then run, unless you
happen to own something you can sell to take advantage of the bubble.
Otherwise, just sit back and watch the show. Price bubbles are not investing. Keep
your hands in your pocket, your financial goals firm, and your future secure.
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