South Sea Bubble

This was one of the earliest stock market bubbles. The South Sea company was a trading company that supposedly had a lucrative trade contract with Spanish colonies in the New World (for the record, it was slavetrading). In fact, the profits were much limited than was widely believed then. (The South Sea Company was actually a vehicle used by the government to unload some of the national debt.)

Investors bought the stock in a frenzy as the stock price kept going higher and management encouraged optimistic rumors. Isaac Newton was said to have bought the stock at first and sold at a profit, but bought in later at a higher price. He was said to have lost 20,000 pounds when the stock crashed. Later on, he said, “I can calculated the motions of heavenly bodies but not the irrationality of humans.”

The South Sea Bubble is one of the earliest recorded stock market manias or bubbles in history. It is a useful and interesting reference for investors and traders alike. Many traders believe that while technology and society have evolved since the South Sea Bubble, human nature has not changed much, and cite the dotcom bubble as evidence.

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