======Sir Isaac Newton======
Sir Isaac Newton (1642-1727) was a monumental figure in scientific history, a genius who defined the laws of motion and universal gravitation. In the investment world, however, he is remembered for a very different reason: as a cautionary tale. Despite his unparalleled intellect, Newton fell victim to one of history's most infamous speculative manias, the [[South Sea Bubble]] of 1720. He invested in the South Sea Company, initially making a handsome profit, but was then lured back into the frenzy by the sight of his peers getting even richer. He bought back in at a much higher price, only to lose a fortune—reportedly the equivalent of millions of dollars today—when the bubble inevitably burst. His experience led to one of the most famous quotes in financial history: //"I can calculate the motion of heavenly bodies, but not the madness of the people."// For investors, Newton’s story is a timeless and humbling lesson that intellectual brilliance is no defense against the psychological pitfalls of the market.
===== The Genius and The Bubble =====
Even the person who discovered gravity couldn't resist a stock that seemed to do nothing but go up. The story of Sir Isaac Newton and the South Sea Bubble is a powerful reminder that the forces of market psychology can overwhelm even the most rational minds.
==== The South Sea Bubble: A National Mania ====
The [[South Sea Company]] was established in 1711 with a seemingly brilliant plan: to take over the British national debt in exchange for exclusive trading rights with Spanish South America. The problem? Those trading rights were minimal and the business prospects were wildly exaggerated.
Despite the shaky `[[fundamental analysis]]`, the company's stock became the subject of intense [[speculation]]. Fueled by hype, credit, and `[[herd behavior]]`, its price soared nearly tenfold in a matter of months. Everyone from aristocrats to commoners clamored to buy shares, convinced they had found a surefire path to riches. The mania created what we now call a classic `[[asset bubble]]`, where the price of an asset detaches completely from its intrinsic value.
==== Newton's Rollercoaster Ride ====
Newton was no fool; he was an early and savvy investor.
  - **The Smart Start:** He invested in the South Sea Company in early 1720 and, seeing the market getting overheated, sold his shares in April for a 100% profit, netting a cool £7,000. He wisely decided the situation had become too risky.
  - **The Fatal Mistake:** As the summer wore on, Newton watched in agony as the stock continued its meteoric rise. Friends and colleagues who had stayed in were bragging about their incredible paper wealth. Overcome by what we now call `[[FOMO (Fear Of Missing Out)]]`, he abandoned his earlier, rational judgment. He re-entered the market in the summer of 1720, buying shares at a price nearly three times higher than where he had sold.
  - **The Crash:** Shortly after, the bubble popped. The stock price collapsed, wiping out fortunes across England. Newton lost over £20,000—a devastating sum that left him financially and emotionally scarred for the rest of his life.
===== Timeless Lessons for Value Investors =====
Newton’s painful experience provides some of the most enduring lessons in investing, all of which are cornerstones of the `[[value investing]]` philosophy.
=== Lesson 1: Your Temperament Matters More Than Your IQ ===
Newton’s story proves that being a genius doesn't make you a good investor. Successful investing requires emotional discipline, patience, and humility. The ability to control panic and greed is far more important than the ability to solve complex equations. As [[Warren Buffett]] says, //"The most important quality for an investor is temperament, not intellect."//
=== Lesson 2: Beware the Madness of Crowds ===
The crowd provides comfort, but it rarely provides superior returns. When everyone is rushing to buy an asset, it’s usually a sign that prices have been bid up to irrational levels. A true value investor must be a contrarian, willing to be skeptical when others are euphoric and optimistic when others are fearful. Never let the actions of the crowd—personified by [[Benjamin Graham]]'s famous allegory, `[[Mr. Market]]`—dictate your own decisions.
=== Lesson 3: Price is What You Pay, Value is What You Get ===
The price of South Sea stock skyrocketed, but the underlying value of the company didn't change. Newton's fatal error was confusing the soaring price with a genuine increase in value. He bought back in with no `[[margin of safety]]`, paying a price far above any reasonable estimate of the company's worth. The core task of an investor is to determine the //intrinsic value// of a business and only buy when the price offers a significant discount.