Even geniuses cannot prevail against the machinations of the markets: Sir Isaac Newton’s story

Brilliant scientists have been known to do foolish things, but Sir Isaac Newton’s financially disastrous moves during the South Sea Bubble of 1720 are considered to have been a particularly remarkable blunder.

In my eyes, he was simply being human; allowing his emotions to get the better of him, swayed by the financial hype and media of the time.

An investor of his time

Throughout the 1710s, Newton owned shares in the South Sea Company, the hottest stock in England. He was an early investor but, sensing that the market was getting out of hand, the great physicist muttered that he

“could calculate the motions of the heavenly bodies, but not the madness of the people.”

Towards the end of the decade Newton sold his South Sea shares, pocketing a 100% profit totalling £7,000.

But just months later in the Spring of 1720, swept up in the wild enthusiasm of the market as the bubble kept inflating, Newton jumped back in at a much higher price - almost its peak. He lost £20,000 (or more than £3 million in today’s money). For the rest of his life, he forbade anyone to speak the words ‘South Sea’ in his presence.

From investor to speculator

Newton is not alone in his actions. He had shifted from a prudent investor with his money spread across several securities to a speculator who had plunged essentially all of his capital into a single stock. The great scientist was chasing hot performance as desperately as a day trader in 1999 or many bitcoin buyers today. 

 Maybe this is an apt time to share one of world-class investor Warren Buffet’s best-known quotes:

 “The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd nor against the crowd.”