Isaac Newton was a smart guy. Everyone would like to be thought of as a newton. He is one for the greatest mathematicians ever, yet he had a varied past. Surprisingly, he was a worldly person who had a career that when well beyond math. He was Master of the Mint in England and was instrumental in the recoining of the currency. He was also a speculator albeit it is questionable whether his skill as a speculator matched his skill as a mathematician,
I recently became aware of an interesting chart which shows Newton’s skill as a speculator during the South Sea bubble. The South Sea debacle is one of the great speculative bubbles of all time and is often referred to as a poster child for extreme bubbles and price declines. Newton got in during the early part of the bubble and then was smart enough to take profits; however, he got in a second time at a much higher price. Newton suffered from FOMO. He had to get in a second time which led to his demise. Not only did he get in near the high, but he held way beyond the peak to lose all his gains and then some. No risk management. No stop loss. Newton was not a genius in this case. We don’t have information on what Newton was thinking other than he suffered from regret and stated that he could not predict stocks. That was after the fact.
The FOMO effect will impact even smart investors which means that trying to buy dips, or jumping on stock rally bandwagons is a dangerous game. Remember Sir Newton fell to the temptation to get rich. Fear when others are greedy is a good policy.
Can we learn something from newton? Smart people can loss money. Smart people can suffer from behavioral biases.
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