Issac Newton was well known for his significant contributions to physics, maths and astronomy. However, when it came to the stock markets, even someone as brilliant a scientist as him succumbed to the herd behavior and lost a fortune.
Throughout the 1710s, Newton owned shares in the South Sea Company. The bubble associated with this company eventually resulted in one of the biggest financial crashes in London at that time. Though the real reasons behind the bubble are complex, it’s among the earliest major manipulations of financial markets.
There was a mad scramble for the shares of the South Sea Company. As it got out of hand, Newton famously remarked 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. This time around, he wasn’t as lucky. Although estimates vary about the financial setback, it is said that he lost quite a fortune.
Swayed by the financial hype and media of the time, emotions got the better of Newton. This popular anecdote of a remarkable financial blunder serves as a cautionary reminder of how dual forces of greed and fear drive the stock markets.
As Warren Buffett wisely said, “Be fearful when others are greedy, and greedy when others are fearful.”