Isaac Newton Was a Terrible Investor 🤦 📊
He Would Have Loved Wall Street Bets 🤷
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Among those 23,000 people (myself included), I’d bet that very few, if any, are smarter than Isaac Newton was.
But with that being said-
I’m willing to bet almost all of you are better investors than Isaac Newton was.
Let’s go back about 300 years…
The South Sea Company was a British joint-stock company founded in 1711.
It was granted a monopoly to trade with South America.
At the time, there was significant excitement and speculation about the potential wealth from this trade, even though Britain was at war with Spain, limiting actual trade opportunities.
By 1720, speculation in the stock of the South Sea Company reached a fever pitch.
(The keyword here is ‘speculation’.)
The company's stock price soared due to the public's enthusiasm and the company's promises of untold riches, which were largely exaggerated.
Isaac Newton, one of the greatest minds in history, initially invested in the South Sea Company when its stock price was still relatively low.
He sold his shares early on for a tidy profit and was satisfied with his earnings.
But that wasn’t good enough for Newton.
The stock price continued to skyrocket, and all of Newton’s friends got rich.
Swept up in the excitement, Newton reinvested a significant portion of his wealth at a much higher price.
The bubble burst later that year, and the stock price plummeted.
Newton lost almost all of his investment, which amounted to millions in today’s dollars.
Newton reportedly said, "I can calculate the motions of heavenly bodies, but not the madness of people."
So where was Newton’s mistake?
Speculation.
Chapter 1 of ‘The Intelligent Investor’ by Benjamin Graham is ‘Investment versus Speculation’.
In that chapter, Graham explains that investing requires thorough analysis, risk protection, and seeking reasonable returns, while speculation is more like betting on price movements without deep analysis.
Initially, Newton’s first investment in the South Sea Company was closer to a true investment—he entered at a reasonable price and took a profit based on rational evaluation.
However, when he re-entered with a significant amount after seeing others get rich, he transitioned into speculative behavior.
So ask yourself this:
Are you an investor, or a speculative trader?
Because if you are a trader, then the same thing that happened to Newton could unfortunately happen to you.
NOTE: I recently made a video summarizing every chapter of The Intelligent Investor. You can watch it HERE.
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