The Market Doesn’t Care How Smart You Are
Isaac Newton lost a fortune in the South Sea bubble. Not because he lacked intelligence, but because he let emotion take over
In 1720, Isaac Newton made a decision that cost him his fortune.
The South Sea Company was the hot stock of the day. Newton bought in early, made a solid gain, and got out. A disciplined move.
Then the stock kept going up. Friends and colleagues were getting rich.
Newton couldn’t stand watching from the sidelines. So he jumped back in, this time with a much larger investment, near the peak.
The bubble popped. Newton lost most of what he had made, and then some.
Later, he reportedly said:
“I can calculate the motions of the heavenly bodies, but not the madness of people.”
What Actually Happened
Newton’s original investment was rational. He saw a good opportunity, took a profit, and exited cleanly.
His second trade was driven by envy.
He couldn’t stand watching others win bigger. So he overrode his better judgment and bought back in. There was no plan, just a reaction.
That’s the essence of a shakeout: emotional money replacing disciplined money, usually near the top.
It’s not a South Sea story. It’s a human one.
Why This Keeps Happening
Markets change. Psychology doesn’t.
Whether it’s meme stocks, crypto, SPACs, or AI, the pattern is always the same. People don’t get hurt because they’re uninformed. They get hurt because they abandon their process.
And smart people are often the worst offenders. They think their intelligence is a shield. But the market doesn’t care about your IQ. It cares about your behavior.
What Works Instead
You don’t need to be a genius to build wealth in the market. You just need a framework—and the discipline to stick to it when things get loud.
That means:
Having rules before you act
Ignoring what everyone else is doing
Staying grounded when prices get unhinged
Resisting the temptation to “catch up”
Takeaways
Smart investors lose when they let emotion override process
You don’t need to time the top—you just need to avoid chasing it
Intelligence isn’t an advantage if it leads to overconfidence
The best investing edge isn’t brilliance. It’s consistency
Talk soon,
Karl Kaufman
American Dream Investing
From First Trade to Family Fortune
PS: Newton had brilliance. What he didn’t have was discipline.
At American Dream Investing, we share the actual trades we make in our family’s real-money portfolio—what we’re buying, what we’re selling, and why.
It’s not about being perfect. It’s about being prepared.
You don’t need to outsmart the market. You just need to stop letting it outsmart you.
Excellent article showcasing how feelings interfere with strategy!
The content is gold, keep it coming!