February 3rd – Begin To Invest Daily – End of Tulipmania

Quote of the Day

“Men, it has been said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one” – Charles Mackay author of “Extraordinary Popular Delusions and the Madness of Crowds“

 

 

This Day in History

1637 – Holland – The tulip market suddenly crashes. Within a day there are no buyers for tulips at any price, after just reaching prices as high as 6,000 Guilders for a single bulb. (At the time, the average annual wage is between 200-400 Guilders and a typical small town house sold for about 300 Guilders.) By May of 1638 contracts were annulled for 3.5 cents on the dollar, a drop of 96.5%. (Source: Devil take the Hindmost)

 

 

Chart of the Day

What would be today’s value of that 6,000 Guilder investment in 1637, if it was instead put in an investment yielding just 5%?

 

A final value of 644 BILLION Guilders, (a currency which was in existence up until 2002, when it was replaced by the euro) After converting Guilders to Euros, and Euros to dollars – a value today of over $359 Billion – That tulip was quite a bad investment indeed!

Today’s Links

• “Oldie but Goodie” – Berkshire’s 1978 Chairman’s Letter:

                  “We are not concerned with whether the market quickly revalues upward securities that we believe are selling at bargain prices.  In fact, we prefer just the opposite since, in most years, we expect to have funds available to be a net buyer of securities.  And consistent attractive purchasing is likely to prove to be of more eventual benefit to us than any selling opportunities provided by a short-term run up in stock prices to levels at which we are unwilling to continue buying.”

• The Incredible Growing Dividend – Wealth of Common Sense – In a brilliant post, Ben Carlson looks at the history of dividends. It turns out, companies have been pretty darn good at increasing payouts and rewarding their shareholders over time.

“Rarely do dividends fall and when they do it’s not nearly as much as the stock market. Over all one year periods since 1945 the worst drop in dividends was a -19% fall. Over three year periods the worst drop was -18%. And dividends have never fallen over a five year period in that time.

Since 1945, total dividends paid are up sixty-six fold.”

• Guide to the Markets – JP Morgan – Updated January 31st 2016. This is always a great collection of charts and graphs detailing what is going on in the world economy and stock market.
• Why NOT to Invest in Airlines – Tren Griffin – The air industry is booming. High demand, low oil prices…it seems like everything is going right for the airlines. Does this mean its time to jump into airline stocks finally? Not so fast says Griffin (and Munger, and Buffett)