Isaac Newton undoubtedly possessed one of the greatest human minds to ever exist. He helped develop the principles of modern physics and was instrumental I the scientific revolution of the 17th century.
You would think having one of the greatest human minds would give someone the talent to make money on the stock market.
But there’s a big difference between being an intelligent physicist and an intelligent investor.
Unfortunately for Newton, he needed to learn this lesson the hard way.
In an updated annotation to Benjamin Graham’s classic book The Intelligent Investor, WSJ’s Jason Zweig reveals what happened when Newton invested in the South Sea Company:
“Back in the spring of 1720, Sir Isaac Newton owned shares in the South Sea Company, the hottest stock in England. 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.’ Newton dumped his South Sea shares, pocketing a 100% profit totaling £7,000. But just months later, swept up in the wild enthusiasm of the market, Newton jumped back in at a much higher price — and lost £20,000 (or more than $3 million in [2002-2003’s] money. For the rest of his life, he forbade anyone to speak the words ‘South Sea’ in his presence.”
This is what happened to the price of the South Sea Company:
Newton obviously possessed extraordinary intelligence, helping the world understand the laws of motion. In 1705 he was knighted by Queen Anne of England, making him Sir Isaac Newton.
Yet for all of his intelligence, even he let his emotions get the better of him. He was swayed by the irrationality of the crowd.
Another way of putting it, according to Graham: “For indeed, the investor’s chief problem — and even his worst enemy — is likely to be himself.”