The Smartest Fool

In April 1720, Isaac Newton sold his shares in the South Sea Company. He walked away with roughly £20,000 in profit. A clean exit from what he recognized as a speculative mania.

Then he watched.

The stock kept climbing. Friends who held on doubled their money. Then tripled it. Dumber men were getting richer by the week.

By June, he was back in. He bought through the summer as prices rose past any rational valuation. When the bubble finally burst, Newton lost £20,000. Everything he'd gained, and more.

He reportedly said he could calculate the motion of heavenly bodies, but not the madness of people.

He was half right.

The madness wasn't other people's. It was his own.

Newton didn't lose because he was foolish. He lost because he was correct. Being right the first time was the problem. Every day the stock rose, his correct analysis felt more like a mistake. He had no word for what was happening to him. In 1720, nobody did.

Intelligence doesn't protect against bad decisions. It gives you better reasons to make them.

The mind that solved gravity couldn't solve the simplest problem in investing: doing nothing.

Go deeper: The Perception Engine