The Great Railway Mania (1843–1847)

📍 Background

• Britain’s first major speculative boom in industrial equities.

• The trigger: 1843–1844 saw real success stories (Great Western, Midland, London & Birmingham).

• Parliament approved over 1,000 railway companies and projects during the boom.

• Many were paper companies with no track built — funded via deposits and leverage.

• Between 1843–1846, the market capitalization of railway shares quadrupled.

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🏦 Major Railway Stocks During the Mania

Below are some of the most traded and publicized stocks of the period. Data is compiled from The Economist archives (1840s), London Stock Exchange records, and Kindleberger’s “Manias, Panics and Crashes”, and railway history works by Odlyzko & Freeman.

Company	Description / Line	Peak Price (c. 1845–46)	Pre-Boom Price (1843)	Crash Low (1848–49)	Approx. Peak-to-Trough Fall	10-Year Outcome (1857)
Great Western Railway (GWR)	London–Bristol line; Brunel’s flagship	~£225	~£90	~£50	−78%	Survived; recovered to ~£120 by 1857
London & North Western Railway (LNWR)	Merged from London & Birmingham, Grand Junction	~£250	~£120	~£80	−68%	Survived; dominant UK railway by 1857
Midland Railway	Derby-based; strong growth region	~£170	~£70	~£45	−74%	Survived; expanded aggressively, later merged into LMS
Eastern Counties Railway	London–Colchester–Norwich	~£150	~£60	~£20	−87%	Barely survived; eventually absorbed by Great Eastern (1862)
South Eastern Railway (SER)	London–Dover route	~£180	~£90	~£40	−78%	Survived, merged into Southern Railway later
Lancashire & Yorkshire Railway	Northern industrial belt	~£160	~£80	~£60	−63%	Survived, later one of “Big Four” (1923)
Caledonian Railway (Scotland)	Glasgow–Carlisle	~£180	~£90	~£50	−72%	Survived; merged into LMS (1923)

💡 Note: Prices are in nominal £ per £100 share, derived from mid-1840s London Stock Exchange quotations. The “par” was £100, so most traded at huge premiums during the mania.

📈 Valuation Perspective

During 1845–46:

• Dividend yields compressed to 1–2%, versus 4–5% normal — implying P/E ratios of 50–100x on real earnings.

• Many proposed lines had no earnings, so shares traded purely on anticipated profits.

• New flotations often listed at 2–3× book value, despite unbuilt track.

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💥 The Collapse (1847–1849)

• The Bank of England raised rates amid a funding crisis.

• Construction costs and frauds surfaced; railway deposits defaulted.

• Over 700 out of 1,000 approved companies failed.

• Railway share index fell ~70% between 1846–48.

• Individual retail investors were wiped out; The Economist called it “the greatest monetary delusion of the age.”

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📊 10 Years Later (by ~1857)

• Out of ~1,000 rail projects floated, only ~200 survived.

• Survivors consolidated into strong regional monopolies:

  • Great Western Railway (GWR)

  • London & North Western (LNWR)

  • Midland

  • Lancashire & Yorkshire

• These companies became the backbone of British transport for the next 70 years.

• Most never fully regained their 1846 highs in nominal terms until the 1870s–80s, but operationally, they became profitable and stable dividend payers.

• Long-term shareholders in the survivors still made decent returns through dividends after the washout.

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🧭 Key Takeaways

1. Speculative premiums collapsed 60–90% once fundamentals mattered again.

2. Consolidation saved only the strongest — good projects eventually prospered.

3. It took a full generation (25–30 years) for valuations to reach back to mania highs.

4. Technological revolutions (like railways, internet, AI) usually have two stages:

   • Stage 1: Exuberant overbuilding and investor mania.

   • Stage 2: Shakeout → survivors dominate and create real wealth.