Twentieth-century bubbles

The twentieth century saw four great stock market bubbles. Four eras, four stories, and the same sentence: this time is different.

First, the Roaring Twenties in the United States. From nineteen twenty-seven to nineteen twenty-nine, the stock market became a national passion.

People bought on credit. With ten per cent of their own money, they could buy shares, the rest being lent by the broker.

Say one thousand dollars of your own and nine thousand borrowed: ten thousand dollars of shares. If they rise twenty per cent, you have tripled your stake.

But if they fall ten per cent, nothing is left. It all goes to repay the loan.

In October nineteen twenty-nine, the fall came. Forced sales drove prices down, which forced more sales.

From the peak of September nineteen twenty-nine to the trough of July nineteen thirty-two, the Dow Jones lost eighty-nine per cent.

It only got back to its peak in nineteen fifty-four. Twenty-five years of waiting.

Second bubble, more discreet: the Nifty Fifty, in the early seventies. About fifty large American companies, considered perfect.

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They were called one-decision stocks: you buy them, and never sell. Whatever the price.

Some traded at more than fifty times their profits. Then came the crash of nineteen seventy-three and seventy-four.

Many lost more than half their value. An excellent company can be a bad investment, if you pay too much for it.

Third bubble: Japan in the late eighties. Property and shares soared together.

People said the land of the Imperial Palace in Tokyo was worth more than all of California. The image stuck in people's minds.

On the twenty-ninth of December nineteen eighty-nine, the Nikkei index peaked. By two thousand nine, it had lost more than eighty per cent.

It only passed its nineteen eighty-nine record in two thousand twenty-four. Thirty-four years later.

Fourth bubble: the internet. Between nineteen ninety-five and March two thousand, the Nasdaq was multiplied by five.

Companies with no profit, sometimes almost no revenue, were worth billions. Adding "dot com" to a name was sometimes enough to make the share jump.

Then, from March two thousand to October two thousand two, the Nasdaq lost nearly seventy-eight per cent. It was divided by more than four.

Four bubbles, one script: a real novelty, an irresistible story, easy credit, and the idea that the old rules no longer count.

The internet did change the world. But the Nasdaq only got back to its March two thousand peak in two thousand fifteen.

The fund manager John Templeton said the most dangerous words in investing are: this time is different.