when euphoria hits and asset prices skyrocket it could be said that caution on the part of investors is mostly thrown out the window 
figuring out when the bubble will burst isn t easy once it has burst it will not inflate again it is possible to have an echo bubble which is only a temporary rally but anyone who can identify the early warning signs will make money by selling off positions asset prices change course and drop sometimes as rapidly as they rose investors want to liquidate them at any price asset prices decline as supply outshines demand examples of bubblesrecent history includes two very consequential bubbles the dot com bubble of the 1990s and the housing bubble between 2007 and 2008 however the first recorded speculative bubble which occurred in holland from 1634 to 1637 provides an illustrative lesson that applies to the modern day 4while it may seem absurd to suggest that a flower could bring down a whole economy that is exactly what happened in holland in the early 1600s the tulip bulb trade initially started by accident a botanist brought tulip bulbs from constantinople and planted them for his own scientific research neighbors then stole the bulbs and began selling them the wealthy began to collect some of the rarer varieties as a luxury good as their demand increased the prices of bulbs surged some rare varieties of tulips commanded astronomical prices bulbs were traded for anything with a store of value including homes and acreage at its peak tulip mania had created such a frenzy that fortunes were made overnight the creation of a futures exchange where tulips were bought and sold through contracts with no actual delivery fueled the speculative pricing the bubble burst when a seller arranged a big purchase with a buyer and the buyer failed to show at this point it was clear that price increases were unsustainable this created a panic that spiraled throughout europe driving the worth of any tulip bulb down to a tiny fraction of its recent price dutch authorities stepped in to calm the panic by allowing contract holders to be freed from their contracts for 10 of the contract value in the end fortunes were lost by noblemen and laymen alike 4the dot com bubble was characterized by a rise in equity markets that was fueled by investments in internet and technology based companies it grew out of a combination of speculative investing and the overabundance of venture capital going into startup companies investors started to pour money into internet startups in the 1990s with the express hope that they would be profitable as technology advanced and the internet started to be commercialized startup companies in the internet and technology sector helped fuel the surge in the stock market that began in 1995 the subsequent bubble was formed by cheap money and easy capital many of these companies barely generated any profits or even a significant product regardless they were able to offer initial public offerings ipos their stock prices saw incredible highs creating a frenzy among interested investors but as the market peaked panic among investors ensued this led to about a 10 loss in the stock market the capital that was once easy to obtain started to dry up companies with millions in market capitalization became worthless in a very short amount of time as the year 2001 ended a good portion of the public dot com companies had folded the u s housing bubble was a real estate bubble that affected more than half of the united states in the mid 2000s it was partially the result of the dot com bubble as the markets began to crash values in real estate started to rise at the same time the demand for homeownership started to grow at almost alarming levels interest rates started to decline a concurrent force was a lenient approach on the part of lenders this meant that almost anyone could become a homeowner banks reduced their requirements to borrow and started to lower their interest rates adjustable rate mortgages arms became a favorite with low introductory rates and refinancing options within three to five years many people started to buy homes and some people flipped them for profits but when the stock market began to rise again interest rates also started to rise for homeowners with arms their mortgages started to refinance at higher rates the value of these homes took a nosedive which triggered a sell off in mortgage backed securities mbss this eventually led to an environment that resulted in millions of dollars in mortgage defaults 