Greed is good? The story of the tulip mania

Updated: Dec 29, 2019


There is a sufficiency in the world for man’s need but not for man’s greed - Mahatma Gandhi

Sometimes humans are irrational.


Alright, maybe I shouldn’t be so courteous.

Let me rephrase that.


Sometimes humans are naïve.


There are people in this world who love the idea of getting rich quick. When they hear that everyone else is making good money from an opportunity, they jump in without understanding what they are getting into. They don’t put in the hard work and expect things to turn out in their favour. They follow the herd blindly as they have the fear of missing out (FOMO). They invest their money based on sales pitches that promises huge returns and then blame the market and everyone else when they lose their money.


During my previous job as a Relationship Manager, I have encountered people who complained to me that they bought their insurance endowment plans with over promised returns claimed by their previous sales agent. After a long lock-in period of 10 years and above, what they got back was less than the total amount of capital that they put in every month, The reason is because they were not told that the returns and capital are not guaranteed. Some do not even know that the endowment products have a lock-in period and there is an early surrender penalty.


I have also met outrageous sales agent from the bank who charges 3% sales commission for the same unit trusts/mutual funds that can be bought on Fundsupermart (FSMOne) online at 0% sales commission. That's $3,000 for every $100k of investment for helping you key in the buy order. What the...


I have friends who invested in shady financial instruments such as bitcoin mining when bitcoin is already on a downtrend. It is hard to even know if such financial instrument is even regulated by Monetary Authority of Singapore (MAS). I pray for him.


I have read about how people invested in property during the property boom and when the property market collapse, the sharp fall in property value triggered a margin call by the bank. The poor guy could not pay up, had to sell his property at a huge loss and still had to pay the bank an outstanding amount of loan. Can you imagine losing your house and still owing the bank money just because the market valuation of your house dropped?


I have known friends who was lured into the idea of being a rich and successful entrepreneur and fell into the trap of multi-level marketing schemes. They end up with a huge inventory of products that they bought with their own money and could not sell any of it. On top of that, their friends avoided them like vermin.


I have seen people who wants to trade the financial markets, but don’t even know the difference between fundamental and technical analysis. They want to do day trading WHILE working a full time job. They want to trade Forex, but they don't know what margin call ratio is or what is the effect of interest rates on the currency pairs. They want to dabble in stock market but don't know the difference between investing & trading.


Sigh..


Look, I am not mocking at anybody. I am warning about the dangers of ignorance. The point is we shall really put effort in educating ourselves so that we are well prepared for such risky ventures. Enough is enough. It’s time to be logical and think objectively.


Instead of letting your financial adviser manage everything, it’s time to take charge of your own financial journey. I am not trying to bash all the financial agents out there, but there is a need to be careful of some black sheep out there in the market. As an ex- financial adviser, I can be frank with you that the worst financial product fetches the sales agent the highest commission. There is an obviously conflict of interest.


Nobody cares about your money more than yourself. Do your own research, study the business and read your contract clauses carefully.


The video below contains a phenomenon known as the stock market bubble. It shows how in the short term, efficient market hypothesis (EMH) fails because of human’s irrational behaviour and herd following mindset. Stock market bubbles have occurred repeatedly in history such as the dot-com bubble in late 1990s, the subprime mortgage crisis in 2008 as well as the more recent crypto-currency bubble in late 2017. The video will show how within the Dutch Republic of the 17th Century, the tulips mania market bubble occurred. Tulips were so overvalued that it once cost 10 times the annual salary of a skilled craftsmen. Wow. Maybe I should go "invest" in some tulips and plant them in my room. Who knows if it might be worth some money again. =) Enjoy!


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