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Dutch Tulip Mania And The Lessons It Holds For The Modern Economy

By Finserv MARKETS - Aug 24,2019
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All About The Dutch Tulip Mania

The Dutch Tulip Mania is one of the earliest and most famous instances of financial speculation gone wrong. In the 17th century, Netherlands was the world’s leading economic power in a period that is widely referred to as the Dutch Golden Age, since the Dutch had the highest per capita income in the world at the time. The Tulip Mania refers to prices of tulip bulbs reaching extraordinarily high amounts before they crashed in 1637. At the height of the mania, a couple of the rare bulbs were worth more than the price of houses in the Netherlands.

Tulips reached Netherlands from Turkey, and gradually became a status symbol with most of the country’s elite and powerful classes purchasing it. As prices rose, trading tulip bulbs while drinking alcohol became a common sight at Dutch inns. As word spread of the skyrocketing prices of these bulbs, speculators rushed in and began trading on these exotic bulbs. Overnight, the prices crashed and many people were left in debt.

While this is probably the first recorded instance of speculative markets crashing, today’s investment climate also demands careful examination and analysis before one gets into trading. At such times Unit Linked Insurance Plans emerge as a good bet for growing your wealth with security. Investment plans on Finserv MARKETS offer investment options as well as the benefit of an insurance cover. Some of the best ULIP fund performance is displayed by this cover, which includes a myriad of benefits including partial withdrawals. Bajaj Allianz Future Gain ULIP is a great option for investors looking to grow their wealth. You can begin for as little as Rs. 2,500 a month and end up with a substantial corpus. With a maturity age of up to 70 years, this fund will help you create wealth for the long-term.

Read on below to learn about some eternal lessons the modern economy could learn from the Dutch Tulip Mania:

  1. Analyse and understand market timing: Understanding market timing is a fundamental lesson to investing in the market. During the Dutch Tulip Mania, many speculators rushed in and bought tulips by the dozen, assuming prices would continue rising. When they didn’t, their entire inventory became utterly worthless. The same spectacle was witnessed during the 2008 crash in the U.S.A. Timing the market is a next-to-impossible task, but a careful study of market forces may allow you to determine whether rising prices are reflective of the asset’s value or whether they are simply a bubble. The best unit linked insurance plan will allow you to choose from a bouquet of high-performance funds. Bajaj Allianz Future Gain ULIP , available on Finserv MARKETS, will let you choose from two investment plans and seven investment funds, and switch between them anytime without any extra costs.
  2. Watch the Fundamentals: While investing in a market, it is essential to keep in mind the fundamentals such as the actual value of the asset you are investing in. Though the price of the asset may be burgeoning now, the tide could turn and people may realize that the asset shouldn’t be as highly-priced. Sooner or later, the asset will reflect the true value it provides as opposed to the value it is currently perceived to be providing. In the Dutch Tulip Mania, the prices of the tulip bulbs which had been pushed up eventually dropped. Though there is a lot of money to be made during these financial bubbles caused by speculation, the entire situation is fraught with risk too. The best fund performance is from fluctuating market forces.
  3. Markets are Irrational: A major lesson to be learned from the Dutch Tulip Mania is that markets can often be very irrational. Prices can get pushed up by the herd mentality of investors, which are encouraged by speculators trading in the market as well. However, it is dangerous to assume that a market that is thriving today will continue to flourish in the future as well; especially if the asset is not as highly valued as it is being perceived to be. With Finserv MARKETS, you can avoid this kind of dangerous situation though. A part of the premium you pay for this plan is dedicated to providing you with a life cover, while the rest of it is invested in funds that are either debt, equities or a combination of both. ULIPs provide flexibility for you to switch between funds at any point in time if you feel the market is getting too volatile for your comfort.
  4. React Sensibly to Market Fluctuations: It is essential to not get carried away by the “mood” in the market which may tend to be irrational. During the Dutch Tulip Mania, traders continued buying tulips thinking the prices would keep increasing and they would be able to find customers to whom they could sell the tulips at a price higher than the cost they had incurred while buying it. This is a trend that is observed in the modern-day markets as well. However, it is imperative to remember that while this may be true today, it may not stay true tomorrow. If prices do appreciate more than investors are willing to pay for it, you might end up with an inventory of worthless stocks as well.
  5. Avoid the Rush to Invest: A lesson that should be taught to everyone entering the markets is that investing while there is a rush to do so, without checking out the underlying fundamentals of the market is a dangerous precedent to follow. Always study the market, the assets, and its associated risks very carefully before investing. Bajaj ULIP plans ensure a safe mix of funds to invest in.

While the Dutch Tulip Mania shaped modern economy lessons, these points above continue to hold true. For absolute security, while investing, the Bajaj Allianz unit linked insurance plans available on Finserv MARKETS is a great option. Not only do they allow you to secure a life cover, but they also provide you with the option to invest your money across multiple funds. Even if the market growth is slow in one fund, you can always switch with flexibility and with a minimum amount of risk. Since the Bajaj Allianz Future Gain ULIP is a long-term wealth creation fund, it provides the dual benefit of acting as an insurance cover along with being an investment option. This means that in case the policyholder is no longer around, the fund sum will be passed on to the other nominee. That’s not all, high ulip returns is another reason why you should consider investing in such a plan.

To know more on ULIP investments in depth, you can check out these blogs:

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