bubble http://www.wisebread.com/taxonomy/term/6170/all en-US How to create a speculative bubble and profit http://www.wisebread.com/how-to-create-a-speculative-bubble-and-profit <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-create-a-speculative-bubble-and-profit" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/bubble.jpg" alt="Bubble" title="" class="imagecache imagecache-250w" width="250" height="222" /></a> </div> </div> </div> <p>Recently I read an enlightening <a href="http://www.nytimes.com/2009/01/17/world/asia/17tea.html ">story in the New York Times about the Pu'er tea bubble in Yunan, China</a>.&nbsp; The burgundy fermented teas fetched prices of $150 a pound at the peak, but now sells for less than a tenth of those prices.&nbsp; I have actually been to one of those tea houses in Yunan, and I have also seen the rise and burst of the housing bubble in America.&nbsp; These experiences make me think that there is a certain formula to creating a speculative bubble out of anything, and here is what I have gathered.<br /> <strong><br /> 1. Create a magical backstory for your product&nbsp;</strong> - In the tea houses of Yunan they told us the story of the accidental invention of Pu'er, and how it cures many diseases and also aids dieting.&nbsp; In America homeownership is touted as &quot;The American Dream&quot;.&nbsp; Both of these products were given an emotional and almost mystical backstory that made people covet them.&nbsp; The magical backstory should make people believe that they will be improved in some manner by your product, and that owning your product is an ideal to strive for.</p> <p><strong>2. Market your product as an investment&nbsp; </strong>-&nbsp; After people start to buy your products, it is important to make people believe your product is a great investment. In the tea houses they told us that they buy antique teas back as if they were gold, and paid more for older teas. Thus they have a saying that Pu'er gets more valuable as it ages.&nbsp; It sounded a bit incredulous, but it was also attractive.&nbsp; In America, I have no idea how many times I have heard that a home is the best investment you can make.&nbsp; Once money is involved, the product also appeals to greed.</p> <p><strong>3. Pump and dump </strong>- If you have a bit of capital, a great way to inflate the bubble is by buying up a lot of the product being promoted and then selling it to new people caught up in the fervor.&nbsp; In Yunan wholesalers bought teas back at a markup of nearly 30% a year and then sold it again to new &quot;investors&quot;.&nbsp; In America there was a frenzy of flipping homes by individuals and large corporations that bought up land.&nbsp; The same happened during the dot com bubble, when investors that bought into the high technology religion snapped up every related stock they could find and quickly drove up prices.&nbsp; The key is to dump all the inventory before the demand dries up, and that is the hardest thing to do.</p> <p>A classic book about speculative bubbles is <a href="http://www.amazon.com/gp/product/9562915700?ie=UTF8&amp;tag=stuffies-20&amp;linkCode=as2&amp;camp=1789&amp;creative=9325&amp;creativeASIN=9562915700">Extraordinary Popular Delusions and the Madness of Crowds</a><img height="1" width="1" border="0" style="border: medium none ! important; margin: 0px ! important;" alt="" src="http://www.assoc-amazon.com/e/ir?t=stuffies-20&amp;l=as2&amp;o=1&amp;a=9562915700" /> written&nbsp; by Charles Mackay&nbsp; in 1841. It details the dangers of mob mentality in investing and other aspects of life. Indeed, it is very difficult for one person to blow up a gigantic speculative bubble.&nbsp; It took entire industries and various government efforts to inflate the asset bubbles we have seen in recent years.&nbsp; I have no doubt that we will see more asset bubbles in the future, as they are testaments to human nature.&nbsp; The key to surviving them and maybe make a profit is to keep your emotions in check, and do not be so greedy that you are left holding the bag.&nbsp; Of course, this is all easier said than done.&nbsp; <br /> &nbsp;</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/xin-lu">Xin Lu</a> of <a href="http://www.wisebread.com/how-to-create-a-speculative-bubble-and-profit">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-does-the-fannie-mae-and-freddie-mac-bailout-affect-you">How does the Fannie Mae and Freddie Mac bailout affect you?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/welcome-to-container-city-how-shipping-containers-are-recycled-into-green-dwellings">Welcome to Container City - How Shipping Containers Are Recycled into Green Dwellings</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-is-keeping-you-from-a-life-of-financial-independence">What is keeping you from a life of financial independence?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/seller-funded-down-payment-assistance-charities-scammers-or-saints">Seller Funded Down Payment Assistance Charities - Scammers or Saints?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/do-not-buy-something-just-because-you-can-afford-it">Do not buy something just because you can afford it</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Food and Drink Investment Lifestyle Real Estate and Housing bubble housing news tea Mon, 19 Jan 2009 21:39:43 +0000 Xin Lu 2758 at http://www.wisebread.com