What an 18th-Century Stock Market Bubble Can Teach Us About the SPAC Frenzy

Grab broke records with a $40 billion SPAC value. Is investing in blank-check companies a good idea?

Stephen Foerster
8 min readApr 14, 2021

Here you go, I’ll let you fill out the rest.

Grab Holdings Inc., the “Uber” of Southeast Asia, is the latest and largest announced SPAC deal that values the firm at almost $40 billion, through a merger with a blank-check company in the form of a Special Purpose Acquisition Company. It’s time to pay attention to SPACs to see why all the fuss. I’ll explain what SPACs are, and I’ll describe the pros and cons for investors and other stakeholders, but first I’ll share a cautionary tale from 18th century England, in what may have been the world’s first blank-check company (not literally, but you’ll see what I mean).

The Blank-Check Swindle of 1720

In 1711, the South Sea company, a joint-stock company (the precursor to today’s publicly-traded companies), was incorporated by an act of Britain’s Parliament to reduce the cost of the national debt in return for providing monopoly trade in and around South America. Despite dubious prospects of profitability, the stock rose from £128 per share in January 1720 to almost £1,000 in August of that year, before retreating to around £100 later that year — not unlike some of the recent stock gyrations in stocks like GameStop.

During the frenzied South Sea price ascension, nearly 200 other joint-stock companies were formed, and were collectively denoted as Bubbles-Companies — not referring to the inflated asset price “bubble” connotation commonly used today, but to con artists. Most that made it to the market flamed out in short order, although a few emerged as successful firms, including an insurance company. In response to the hype, the Bubble Act was passed in 1720 to ensure that joint-stock companies could only be incorporated through acts of Parliament. According to Charles Mackay’s 1841 classic Extraordinary Popular Delusions and the Madness of Crowds, some of the companies were declared to be illegal and abolished, including ones for trading in hair, insuring horses, improving the art of making soap, increasing children’s fortunes, improving malt liquors, a hospital for taking in and maintaining illegitimate children, fitting ships to suppress pirates, extracting…

Stephen Foerster

I’m a Finance prof, CFA, and author of In Pursuit of the Perfect Portfolio (with Andrew Lo). I write stories about investing. (I don’t give financial advice.)