How Issac Newton Lost A Fortune In The Stock Market Due To 'FOMO'

Sir Issac Newton is probably one of the most well-known figures in human history, but what’s not well known is that the great scientist might have had one of the biggest losses in stock market history.

A research paper published in the Physics Today journal delved into how even a renowned scientist fell victim to financial pitfalls due to groupthink and collective delusions. The paper was written by Minneapolis-based mathematics professor Andrew Odlyzko.

Newton, celebrated for his groundbreaking work in physics and mathematics, was also an early investor in the South Sea Company. Established in 1711 to trade with Spanish America, the company caught Newton’s keen financial eye. In 1720, when the South Sea Company struck a deal to manage British government debt, its stock price soared to unprecedented heights.

Newton, known for his prudence and success in investments, had built a diversified portfolio of stocks and government bonds, amassing around £32,000 by early 1720. In today's terms, this sum would be equivalent to about $7 million (around ₹58 crore). Newton’s financial acumen was well-regarded, and his involvement in finance didn’t stop at investing. As master of the Royal Mint, he played a pivotal role in shaping monetary policy, showcasing his profound influence in both the scientific and financial realms.

Newton recognized the potential in the South Sea Company early on and began purchasing shares as early as June 1712. He sold a significant portion of his shares in April and May 1720, realising substantial profits. Yet, shortly after selling, the stock price soared even higher.

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As per Prof. Odlyzko’s findings, Newton, who possessed 10,000 shares of South Sea stock in early 1720, opted to sell 8,000 shares in April and May at prices hovering around 350, thereby realizing profits amounting to at least £20,000. This sum held significant value at the time, approximately equivalent to nearly $4 million (around ₹31 crore) in today’s currency.

However, contrary to Newton’s expectations, the share price experienced a remarkable surge shortly after he sold his holdings, reaching approximately 800 in late May and early June 1720.

Succumbing to what we would now call FOMO (fear of missing out), the esteemed scientist momentarily strayed from his usual rationality. On June 14, 1720, Isaac Newton made a bold move, investing £26,000 into South Sea Company shares at the steep price of about £700 per share. This uncharacteristic decision marked a significant departure from his typically prudent approach to investments.

Unfortunately, Newton’s timing proved costly.

Come September 1720, the inevitable disaster struck. The once-soaring stocks plummeted, crashing down to a dismal £124 by December, a catastrophic loss of 80% of their value. Investors watched in horror as their fortunes evaporated.

The genius’ profits turned into losses as the stock price plummeted, leading to estimated losses of at least £22,600, or roughly £3.1 million (around ₹32 crore) in today’s terms. Overall, Newton lost at least a third of his account value during this period.

Newton’s experience serves as a cautionary tale, illustrating how even the most brilliant minds can succumb to financial pressures and market frenzies. It highlights the importance of maintaining a diversified investment portfolio and avoiding speculative behaviour, regardless of one’s expertise in other fields.

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Disclaimer: This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.

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Posted In: EducationGeneralIsaac Newton