Today is July 18 and the Navigate the Chaos question to consider is “How often do you learn lessons from history?”
Author Aldous Huxley noted “That men do not learn very much from the lessons of history is the most important of all the lessons that history has to teach.”
One historical phenomenon that substantiates Huxley’s quote is called an economic bubble. A speculative bubble occurs when investors put so much demand on a stock that they drive the price beyond any accurate or rational reflection of its actual worth, which should be determined by the performance of the underlying company.
Like the soap bubbles a child likes to blow, investing bubbles often appear as though they will rise forever, but since they are not formed from anything substantial, they eventually pop.
And when they do, the money that was invested into them dissipates into the wind.
The first bubble in history was known as Tulip mania during the Dutch Golden Age during the 17th century. Contract prices for bulbs of the tulip, then relatively new to the Dutch, reached extraordinarily high levels and then dramatically collapsed.
The Great Depression in 1929, the Crash of 1987, The Dotcom Crash in the late 1990s, and the housing and credit of 2007-2009 were all bubbles where people created most of the risk in the market place by inflating stock prices beyond the value of the underlying company.
The unreasonable belief in the possibility of getting rich quick is the primary reason people get burned by market crashes.
Since there are plenty of economic bubbles and periods of speculation throughout history it appears that people have not learned from the lessons of history.
Every generation has people who want to get rich quick and, therefore, contribute to the speculation that often leads to a bubble thereby ignoring the lessons of history.
How often do you learn from the lessons of history?