Isaac newton learned about financial gravity the hard way

flintnational

flintnational

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Nice article by Jason Zwieg. A cautionary tale about one of the world's greatest thinkers (and the father of calculus) abandoning sound diversified investing to speculate in a bubble.

"It turns out that Newton had invested prudently and successfully for many years, diversifying his portfolio across stocks and government bonds worth a total of about £32,000 by the start of 1720 (roughly £4.4 million, or $5.7 million, today)."

"“As the bubble continued inflating, it appears that he panicked,” Prof. Odlyzko writes of Newton. The great scientist, throwing his rationality to the winds, plunked £26,000 into South Sea shares on June 14, 1720, at a price of about 700 per share — twice what he had sold them for only a few weeks earlier."

I think Warren Buffet's quote summarizes Newton's experience.

"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 or against the crowd."

FN
 
Interesting article, but the author couldn't help himself from this falsehood:


But surely the author of the law of universal gravitation must have learned the First Law of Financial Gravity: What goes up must come down, and what goes up the most will come down the hardest.
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There simply is no financial rule. Things that go up at a rate based on fundamentals do not have to go down. There is no "must". Sure, nothing is a straight line up, but dips and minor corrections are not "gravity".
 
That's why I love this forum. Even Isaac Newton finds his way here.

Well, I'll give this great thinker a pass. Was just reading about Nikolai Tesla yesterday. He died in a hotel room that was his home, not found untill 3 days after his death.
 
I recall another article suggested one issue may have been his rather advanced age when the bubble hit. He was 77 years old at that time so maybe equivalent to someone in their 90s these days? Which raises the question: what were his motivations? I've heard that for this kind of activity, best results are typically achieved in the age range of 30 to 50 or so.
 
Isaac Newton was also into alchemy and other wild stuff.

Maybe he exposed himself to too much mercury and lead.
 
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audreyh1 said:
Isaac Newton was also into alchemy and other wild stuff.

Maybe he exposed himself to too much mercury and lead.
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Could be. Apparently he was a mainstream investor prior to the South Sea Co. debacle. It could have also been his age as another poster mentioned.

My take aways - I need to stay away from advanced age, lead, mercury, and speculative bubbles. I am selling my Bitcoin this morning. :)
 
I think Isaac is probably the classic example of that old saying about there being a fine line between genius and insanity.
 
The line in the article that caught my attention, referring to what Newton would have earned had he been a buy-and-hold investor in South Seas Co. was:

"That’s about 6.5% annually, not counting dividends — a generous return at a time when long-term government bonds carried interest rates of 4% to 5%."

If 6.5% is a "generous return" compared to govt. interest of 5%, what should we expect over the next 10 years of stock performance with gov. interest significantly lower than that?
 
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