Speculators caught up in the buy-and-sell frenzy of its shares soon realized that the company churned out less-than-stellar profits that fell below the company executives’ claims. An eventual sell-off battered South Sea Company’s share prices, causing one notable investor and famed scientist, Sir Isaac Newton, to famously remark, “I can calculate the movement of the stars, but not the madness of men.”
“Black Monday” in 1987
Perhaps the name came about as it left investors’ portfolios battered black and blue as the U.S. stock market crash of 1987 on a Monday, October 19 became notorious as the largest single-day decline with the Dow Jones Industrial Average shedding a whopping 22.6%. Prior to the crash, markets were in a heated frenzy as they were fueled by a spate of corporate takeovers that made stars out of names like Carl Icahn.
However, with the advent of portfolio insurance, investor sentiment was tantamount to being in a risk-on mode with an injection of steroids. As the story goes, a tsunami of sell-offs that Monday caused a market capitalization loss of over $500 billion, causing the Federal Reserve to intervene after the crash by lowering interest rates in order to help bring the financial markets back to life.
The “Dot-Com Bubble” of the Late 90s, Early 2000s
As technological innovation spurred a rise in internet companies labeled “Dot-coms,” investors were wide-eyed with the potential these companies could bring in this burgeoning internet space. As such, these Dot-coms were overvalued to exorbitant levels as investors were eager to cash in on the next big thing in this new economy.
However, early 2000 marked the resurgence of common sense as investors were realizing that a plethora of these companies were worth far less than their billion dollar valuations at the time. In addition, scandals related to inflated earnings caused panic selling and as such, many of these Dot-coms were reduced to nothing.
The Housing Bubble in the Mid-2000s
In the mid-2000s, real estate was the equivalent of gold with land, a foundation, retaining walls, roof, windows, and interior accoutrements. Unlike shares of Dot-coms, real estate was something that was also a tangible asset and such, was deemed a safer asset, especially for those who were burned by the recent internet company bubble.
Combined with low interest rates and easy access to credit via subprime mortgages, fly-by-night real estate investors began flooding the real estate market by the masses, inflating real estate prices to levels far beyond their true market valuations. As values peaked in early 2009 and subsequently fell, the housing market went into a downward spiral that eventually took down the whole financial sector and the rest of the economy with it into what would eventually be labeled “The Great Recession.”
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