Chapter 1: What economic bubble is being discussed in this episode?
You're listening to TED Talks Daily, where we bring you new ideas to spark your curiosity every day. I'm your host, Elise Hugh. It sometimes feels like it's the only thing anyone's talking about, but are we actually living through what may be the largest economic bubble in history, spanning AI, mega cap tech stocks, and cryptocurrency?
In this talk, financial analyst Henrik Zeeberg takes us on a journey through history's economic bubbles from tulips and South Sea shares to the dot-com craze, showing how crowd psychology and speculation keep luring us in. By recognizing the patterns of this past, he says, we can better navigate today's frenzy.
Don't think you're special. Don't think that you know more than we do. These are some of the statements from the law of Yante. And I think that is dangerous. I think that is actually driving a common thinking that can bring, you know, hazard outcomes. And today I want to talk about something that may be a little more dry, which is Bitcoin, crypto, bubbles, financial bubbles.
Bitcoin is a mineral disease. Bitcoin is rat poison squared. These are not my words. These are the words of Charlie Munger and Warren Buffett, two of the most prominent investors this world has ever seen, most successful investors, 5 million percent in returns over their investment careers. Speaks for itself.
So when they talk and speak, and unfortunately Mr. Munger is dead, but when they did talk or when they speak, we have to listen. And I definitely listened. Bitcoin has, of course, had a fantastic journey. And we all need to praise, of course, the amazing returns that that has given over the years.
But when we hear about it, of course, we have to wonder why are the two most successful investors in the world talking about it like rat poison? And I can tell a personal story. In 2016, I was close to investing in Bitcoin. Actually buying around maybe $150,000 worth of Bitcoin, which today would have had a value of around $20 to $25 million. I didn't do it.
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Chapter 2: How do historical economic bubbles relate to today's market?
I didn't get to it because of the difficulties in actually getting the money transferred from a bank to a wallet back then. But one of my friends actually did enter, did take the crypto plunge. And he entered Ethereum, which is another crypto. At the time, it was at 50 cents. And he held onto it until the moment it was actually reached around $1,400. So 2,800 times.
And he's not the only one that has done well when it comes to crypto. We've all heard of these Lambo guys or people that have jumped into something that seems ridiculous only to see it go up 100 times. I don't know about you, but I definitely can feel the FOMO. FOMO, what is that? FOMO, fear of missing out. Well, fear of missing out is something that is very deep in the human mind.
It goes back to the times of, as we lived in hunters and gatherers, in groups, being part of the group ensured food, security, mating, and being outside was dangerous. And that's something we have taken on to us today also. If we're not part of the group, if we don't think alike, like the Yantze law is also kind of commending, well, then it's dangerous.
So fear of missing out, FOMO, is something that is deeply in us and something that can make us maybe come up to conclusions or do things we don't necessarily would do if we were just ourselves. And this is not something just maybe I as a stupid person or people that don't understand things do.
Chapter 3: What role does crowd psychology play in financial bubbles?
Sir Isaac Newton is probably one of the most intelligent people that has ever lived. And in the 1700s, he actually were a victim of FOMO. So that was the time of the South Sea bubble. Newton invested in FOMO. saw his stock rise, earned a good money, got out, but saw his friends actually staying in and becoming even more rich. He FOMOed in, invested more, actually a lot, and the bubble burst.
He famously said afterwards, I can calculate the movement of heavenly bodies, but not of the madness of men. So FOMO can make us do things we don't want, that can be against what is good for us. And that is actually also very visible, that crowd dynamics that is a part of, when we talk about what is called the smoked room experiment. This is an experiment from 1968.
where a group of applicants to a job are invited into a room. Eight of the nine applicants are actors. They're told to stay seated, just work on their assignment, no matter what happens. One person is a real applicant. All of a sudden, while they do their application, smoke comes through the door.
When there are other people, the other eight actors are in the room, 90% of the time people stay seated and do not report on the smoke, on the potential hazardous event that is unfolding. But when that person, the applicant is alone, 75% of them got up and actually reported on the smoke. So crowd dynamics is something that changes the way we think.
And that is what actually also is part of why we see financial bubbles developing. If you look at financial bubbles, then we saw one of the largest financial bubbles back in the 1630s, which was called the tulip mania. It was at a time where the tulip had been introduced from the Ottoman Empire. And for some reason, it became the center of attention.
People started buying it, the market rose up, and people kept buying this tulip, or the tulips, not because of its utility, but because they thought they could sell it off the next day to earn money. The bubble burst at the peak of that hype, of that mania, and that's just to explain how mad it can become. One tulip bulb had the price of a house at that time.
Then we can fast forward to the 1840s Britain. And this was at a time where a fantastic technology came out. Steam engine, the locomotive, promised to change the world. And it certainly did. But the thing was, everybody thought that this is now changing ways also we'll earn money. And everybody FOMOed in. Thousands of companies rose up, were established.
People thought this is a cannot-lose opportunity. And again, we saw how a bubble burst and a lot of people actually lost money. And this was still because even though there was a really fantastic technology that changed the world. We can then fast forward to the Roaring Twenties and try to imagine that was a time where we just saw the end of the First World War.
We saw the electrification, we saw the technology of a car, we saw radio coming out. Try to imagine sitting there in your silent home, all of a sudden you can turn on the radio and you can hear people speaking to you. That was quite something. Turning on the light, getting yourself into the car and driving instead of having horses. We think we have seen technology, a leap in technology.
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