More than three hundred years ago, 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 mumbled that he ‘could calculate the motions of the heavenly bodies, but not the madness of the people.’ Newton sold all his South Sea shares, pocketing a 100% profit totalling 7000 pound. But just months later, carried away by the wild enthusiasm of the market, Newton jumped back in at a much higher price – and lost 20,000 pounds (or more than $1.4 million in (2022’s) money. For the rest of his life, he prevented anyone to speak the words ‘South Sea’ in his presence. From Newton’s story we learn that it is one thing to be an intelligent scientist but another thing to be a smart investor. Newton wasn’t smart about investing because he let his emotions get the best of him, and got swayed by the irrationality of crowd. It also appeared that he didn’t diversify his portfolio. So, to become a smart investor, it is important that you understand the cyclical nature of the market and the human emotions the market is based on. Once you do, you should determine not to let your emotion mess you up like what happened to Newton. In addition, understand that:
- Inflation is the number one enemy of wealth; therefore, have a strategy to hedge against it.
- It is time in the market that matters. So, instead of timing the market or trying to guess when the market is at its lowest or highest point, determine to hold your assets for the long-term.
- The bear market is a period of financial opportunity.
“The servant who received the five bags of silver began to invest the money and earned five more.” Matthew 25:16
Credit (Isaac Newton’s story): Businessinsider.com
