U.S. analyst Nick Maggiulli accomplished a fascinating exercise in a recent blog post by ranking the biggest asset bubbles in investing history. Mr. Maggiulli used three broad criteria – total loss of market capitalization, the price change in the affected asset class, and amount of time for the sector to recover to previous highs – to rank seven of the all-time biggest market collapses.
The seven finalists for worst asset bubble ever were the tulip mania of 1637, the South Sea Bubble of 1720, the U.S. market crash of 1929, Japan in 1989, the 2000 technology bubble, the 2007 U.S. housing bubble and bitcoin in 2017.
The author posted a survey on social media to allow people to guess the final answer and very few respondents got it right. The implosion of the Japanese economy after 1990 was the clear winner.
The analysis of each asset bubble provided interesting information in every case. The crash of 1929, for instance, couldn’t be the winner because less than five per cent of Americans owned stocks and weren’t initially affected. It was the bank runs in the early 1930s that spread the panic and intensified the great depression.
The U.S. housing market caused huge financial losses at US$6.5-trillion, but Mr. Maggiulli wasn’t impressed with the price appreciation in the housing market leading up to the collapse, a mere 7.9 per cent per year.
Japan ranked number one for investors not only for the scale of losses – US$2-trillion in equity losses and US$8-trillion in real estate – but because neither Japanese stocks nor residential real estate prices have fully recovered despite the passing of three decades.
The article is useful and informative in its own right but also carries an important reminder: investors don’t change. No matter how many times asset bubbles occur, and how closely we study them, the temptation to jump in to an asset class with prices rocketing higher will always be difficult to overcome.
-- Scott Barlow, Globe and Mail market strategist
This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.
Stocks to ponder
Unisync Corp. (UNI-T). This stock may be best suited for consideration by investors with a high risk tolerance and patience. While Unisync is a micro-cap stock, it has well-known clients such as Air Canada, Purolator, Petro-Canada and the Canadian Department of National Defence. The company is currently preparing to launch its uniform supply program with Alaska Airlines and WestJet. Its operational head office is located in Mississauga. Unisync is a uniform manufacturer and distributor. Jennifer Dowty reports (for subscribers).
David Rosenberg: It’s time for an investing history lesson
The pundits who watch bubblevision see the S&P 500 going to new nominal highs, while those who watch the tapes know better – that we are exactly where we were 10 months ago, notes economist David Rosenberg. Since that time, all your portfolio has done is pick up the dividend – the total return in the stock market is just 2 per cent. Go to the bond market, and the 10-year T-note has generated in excess of a 10-per-cent total positive return in the same time frame. Rosenberg takes a look at what this all means for the stock market for the next few months and where you should invest. (For subscribers).
A Facebook cryptocurrency offers much to worry about
Facebook Inc., the company that brought you fake news and privacy scandals, is now backing a global currency that intends to challenge the world’s existing monetary hierarchy. What could possibly go wrong? For starters, there is the possibility that Libra, the new Facebook-backed cryptocurrency, will give social media companies and payments giants even more ability to pry into your life. We’ve seen what happened when we entrusted Mark Zuckerberg with our personal data. Do we really want to give the Facebook billionaire a potential window on our financial transactions as well? Ian McGugan gives his view.
Short sales on the TSX: What bearish investors are betting against
The rally on the Toronto Stock Exchange this year is lifting all boats – including those of the short sellers, to their dismay. One indication of the hit they’re taking is the average 13-per-cent gain since January in the 20 most heavily shorted companies. This increase is nearly the same as the TSX’s increase. Larry MacDonald reports on the latest short positions, including a big rise in shorts in pot stocks. (for subscribers).
The key to GFL’s billion-dollar IPO: shrinking the heavy debt load
The timing of GFL Environmental Inc.'s plan to go public is nearly perfect. Stock markets are on fire, and rival waste-management companies are watching their share prices soar. But there is a variable that clouds GFL’s future, one that could prevent the waste-management company from attaining a premium valuation: its large debt load. Tim Kiladze reports (for subscribers).
Others (for subscribers)
Others (for everyone)
Are you a financial advisor? Register to Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation – a powerful tool to help you manage your clients’ portfolios.
Ask Globe Investor
Question: I have a family registered education savings plan for my three kids, the oldest of whom is starting university this fall. I’ve contributed $88,000 to the RESP and received $17,600 in Canada Education Savings Grants (CESGs), for a total of $105,600. However, some investments I made didn’t work out and the RESP is now worth about $80,600, for a net loss of $25,000. Is tax still payable on the full amount of the grants when the money is withdrawn?
Answer: First, my sympathies. I remember how difficult it was to watch my kids’ RESP plunge in value during the 2008 financial crisis. RESPs are designed to help our children get off to a good start in life, so losses have an emotional dimension. What’s more, parents typically tap RESPs long before they start withdrawals from a registered retirement savings plan, so there’s less time for an RESP to recover from losses. That’s why it’s important to choose conservative investments for an RESP and dial back the risk level as the beneficiaries approach postsecondary school age.
Fortunately, my kids’ RESP has bounced back over the past decade, but what are the consequences for parents who have to tap an RESP when it’s still in a loss position? As you’ll see, the government still wants its pound of flesh.
Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.
What’s up in the days ahead
Share buybacks have surged recently on the TSX. But that doesn’t necessarily mean good news for retail investors. Robert Tattersall will explain why.
More Globe Investor coverage
For more Globe Investor stories, follow us on Twitter @globeinvestor
Click here share your view of our newsletter and give us your suggestions.
You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.
Compiled by Gillian Livingston