South Sea Bubble

AAA

DEFINITION of 'South Sea Bubble'

One of the largest stock scams of all time. The U.K.-based South Sea Company's shares saw a huge appreciation based on rumor, speculation and false claims before plummeting and eventually becoming worthless. Thousands of people lost their life savings.

INVESTOPEDIA EXPLAINS 'South Sea Bubble'

The scam occurred in 1720, when South Sea's stock soared in the wake of speculation and greed surrounding the monopoly the South Sea Company was perceived to have in the shipping and trade industries, particularly in Mexico and parts of South America.

With nothing to prevent it from doing otherwise, South Sea Company's management continued to issue shares in response to seemingly insatiable demand. As a result, the stock's price soared, defying all fundamental sense. Eventually, the truth was exposed: the company was making virtually no profit, and the share price plummeted when investors fled. In the post-Enron investing world, some have dubbed this scam the "Enron of England".

RELATED TERMS
  1. Voodoo Accounting

    Creative rather than conservative accounting practices. Voodoo ...
  2. Cookie Jar Accounting

    A disingenuous accounting practice in which periods of good financial ...
  3. Enron

    A U.S. energy-trading and utilities company that housed one of ...
  4. Global Crossing

    A communication services company that filed for bankruptcy protection ...
  5. Bubble

    1. An economic cycle characterized by rapid expansion followed ...
  6. Bankruptcy

    A legal proceeding involving a person or business that is unable ...
RELATED FAQS
  1. What was the South Seas bubble?

    The British East India Company introduced England to the joys of corporate finance. The company enjoyed a government-backed ... Read Full Answer >>
  2. What burst the Mississippi bubble?

    In 1715, France was essentially insolvent as a nation. Even though taxes were raised to extremely high levels, the hole ... Read Full Answer >>
Related Articles
  1. Economics

    Online Investment Scams Tutorial

    To bamboozle someone out of their money is an age-old ruse. Learn about some of the gimmicks modern-day swindlers use and avoid becoming a statistic.
  2. Investing

    The Biggest Stock Scams Of All Time

    Where there is money, there are swindlers. Protect yourself by learning how investors have been betrayed in the past.
  3. Economics

    Economic Meltdowns: Let Them Burn Or Stamp Them Out?

    Whether the Fed should intervene in market bubbles is up for debate. Learn about both sides here.
  4. Budgeting

    The Greatest Market Crashes

    From a tulip craze to a dotcom bubble, read the cautionary tales of the stock market's greatest disasters.
  5. Investing

    3 Major Risks For Annaly’s Investors

    Thanks to its double-digit dividend yield, Annaly Capital Management has long been a favorite among income-seeking investors.
  6. Credit & Loans

    Which Is One Of The Nation’s Safest Banks?

    While there's no such thing as a completely safe bank stock, it's hard to find one that comes closer to the mark than New York Community Bancorp .
  7. Economics

    Afraid Of A New Financial Crisis?

    It may be time for the U.S. to adopt a model for financial companies that better deters risky financial behavior.
  8. Economics

    America's Most Notorious Corporate Criminals

    Learn about the crimes and punishments of some of the most infamous convicted white-collar crooks.
  9. Economics

    The New Global Banking Regulations To Avert Future Crisis

    These are the types of policies that are being developed to minimize the risks posed to the global financial system by banks which are too big to fail.
  10. Economics

    Where NOT To Invest in Latin America

    Venezuela has more oil than anyone, and Brazil and Argentina have lots going for them, too, so why can't they get out of their own way economically?

You May Also Like

Hot Definitions
  1. Risk Averse

    A description of an investor who, when faced with two investments with a similar expected return (but different risks), will ...
  2. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  3. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  4. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  5. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  6. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
Trading Center