On May 23, 1719, one of the greatest financial bubbles in the history of the world kicked off when the Compagnie Perpetuelle des Indes was granted a monopoly by the French monarchy over all the trading rights of all French colonies worldwide.
The company’s stock price quickly soared, from 300 livres per share to more than 1,000 just a few months later.
It was quite a jump. But the enthusiasm continued for more than 18-months.
In fact there was such a frenzy to buy shares that it wasn’t uncommon for the stock price to double in a single day.
By November, share price had surpassed 10,000.
Based on modern-day calculations, a share price of 10,000 livres would have valued the company at more than the entire GDP of France at the time.
That would be like Google or Amazon having a $20 TRILLION stock market capitalization today. Insane.
As with all bubbles throughout history, that one burst as well… quickly and violently.
Call it ‘reversion to the mean’. Stein’s Law. Or just plain old common sense.
It’s pretty simple – there are certain anomalies that are too absurd to last. And nature always finds a way to correct them.
This post was published at Sovereign Man on February 22, 2017.
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