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, known for his contributions to physics and mathematics, was also an early investor in the South Sea Company, established in 1711 for trading with Spanish America. In 1720, when the company secured a deal to manage British government debt, the stock price surged significantly.

The renowned physicist, who had demonstrated prudence and success in his investments for many years, diversified his portfolio across stocks and government bonds, totalling about £32,000 by early 1720 (equivalent to roughly $7 million, today). Newton’s involvement in finance extended beyond investing; as master of the Royal Mint, he played a significant role in monetary policy.

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, realizing 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 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 today can be termed as FOMO (fear of missing out), the esteemed scientist deviated from his customary rationality. On June 14, 1720, Newton invested £26,000 into South Sea shares at a price of approximately £700 per share.

Unfortunately, Newton’s timing proved costly. Profits turned into losses as the stock price plummeted, leading to estimated losses of at least £22,600, or roughly £3.1 million 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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Posted In: EducationGeneralIsaac Newton