A random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing

A rare invention to destroy the crowd,

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Of fools at home instead of foes abroad:
Fear not my friends, this terrible machine,
They’re only wounded that have shares therein.
Many individual bubbles had been pricked without
dampening the speculative enthusiasm, but the deluge came in
August with an irreparable puncture to the South Sea
Company. Realizing that the price of the shares in the market
bore no relationship to the real prospects of the company,
the directors and officers sold out in the summer.

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The news leaked and the stock fell. Soon the price of the
shares collapsed and panic reigned. The chart below shows
the spectacular rise and fall of the stock of the South Sea
Company. Government officials tried in vain to restore
confidence, and a complete collapse of the public credit was
barely averted. Similarly, the price of Mississippi Company
shares fell to a pittance as the public realized that an excess of
paper currency creates no real wealth, only inflation. Big
losers in the South Sea Bubble included Isaac Newton, who
exclaimed, “I can calculate the motions of heavenly bodies,
but not the madness of people.” So much for castles in the
air.
To protect the public from further abuses, Parliament
passed the Bubble Act, which forbade the issuing of stock
certificates by companies. For more than a century, until the
act was repealed in 1825, there were relatively few share
certificates in the British market.
BRITISH SOUTH SEA COMPANY
PRICE, 1717–1722

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Source: Larry Neal,