Investment Bubbles

It seems that most decades, a new investment bubble emerges in financial markets.  Normally it starts out as being quite plausible, then gains momentum and runs to ridiculously high levels, levels off and then comes crashing back to earth.  The losers are invariably those who got onto the bandwagon late.

If we go back to late September 1969, a small exploration company called Poseidon made a promising nickel discovery in Western Australia.  In a few months its share price had jumped from $0.80c to $280.  This sparked a boom across the Australian mining sector, especially amongst the small exploration based companies.  By February 1970 the Poseidon share price had peaked, and eventually it fell back to a few cents.  Of course it took a few small exploration companies down with it.  Nevertheless fortunes were made and lost on what were often spurious or highly exaggerated claims.

By the late 1970’s the markets were at it again.  This time it was the energy and small gold stocks.  Spectacular gains were made and after early 1980 there were equally spectacular losses.  It seemed that no one had learned from the Poseidon adventure.

Moving onto 1987, and there were amongst others, the now infamous Australian entrepreneurs Alan Bond and John Spalvins.  They were joined by expatriate New Zealander, Bruce Judge.  Using smoke and mirrors they produced great gains for their shareholders and then proceeded to lose the lot.

The mid 1990’s saw many New Zealandretail investors get into syndicated property investment. These promised high income returns, and the parcel sizes were not prohibitive. History shows that there was no secondary market, and most have been premeditated disasters. But they made a lot of money for the owners of investment sales groups, most of whom have rebranded.

The late 1990’s were not much different.  This time it was the turn of the tech stocks.  It was another great story, and led to crazy pricing.  The price/earnings (PE’s) of some of the tech stocks got up to around 100.   Then of course the bubble burst.  As is usual, a large chunk of investor’s money went in at the later stages and almost immediately fell into a black hole. 

The early to mid 2000’s saw lots of money go into finance companies as investors were looking for income, and were dead scared to invest in shares as they had memories of the massive share market falls in 1987 and 2001.

As an alternative to finance companies a number of financial institutions in New Zealanddecided to offer collaterised debt obligations. The most infamous offerings were made by ING(shortly to be known as OnePath), often in conjunction with their part owner at the time, the ANZbank. History will show that this was a real disaster both financially and from a public relations exercise. However if you were going to buy one of these types of investments, they were the best source. Several other institutions offered similar investments, and their clients suffered to a greater extent.

Over the years, it has not been easy being an investor. If there is one thing that should have been learned, is do not get overexposed into fad investments. It can be very damaging for your financial health.