From Zero to Millionaire: A simple, effective and stress-free way to invest in the stock market by Nicolas Berube

CHAPTER 1: EXPLOSIONS AND
CONTRACTIONS
Thinking is easy.
Acting is difficult.
But the most difficult thing in the world is to act in accordance with
one’s thinking.
Johann Wolfgang von Goethe, novelist and scientist
“The madness of people”
Sir Isaac Newton was not going to let the opportunity of a lifetime slip
away.
The summer of 1720 was about to begin, and the mercury was over 70
Fahrenheit in the streets of London when Newton, the genius behind the
theory of universal gravitation and one of the greatest scientists of all time,
decided to invest most of his fortune in shares of the South Sea Company.
Founded nine years earlier by members of the London intelligentsia, the
South Sea Company had been given a monopoly by the British government
on trade routes to the Spanish colonies in America to transport slaves and
gold.
George I, the king of Great Britain at the time, was one of the directors of
the company, which inspired confidence in the eyes of investors. In truth,
the company was making little profit, but that did not prevent the public
from seeing an opportunity to invest in a business that was sure to do well
with the expansion of international trade. The subject was so exciting that it
monopolized much of the conversation in London.
Sir Isaac Newton had first invested in the shares of the South Sea Company
in February 1720. Within a few months, his investments had doubled in
value. Convinced that the company was in the grip of a speculative mania,
Newton decided to realize his profit and sell his shares on April 19 of the
same year.
Far from falling, the price of shares continued to rise. Newton was no
longer getting rich, while his friends and acquaintances continued to see
their fortunes grow daily.
Two months after selling, Newton abandoned his reserve. On June 14, he
decided to invest again by putting most of his money into the company’s
stock.
In September, a fraud scandal at the South Sea Company erupted, and its
shares quickly lost 90% of their value. Many of the company’s top
executives were imprisoned in the Tower of London, including members of
parliament, and they had their assets confiscated. The scandal was so
resounding that it plagued the British financial markets and undermined
business formation for generations.5
By some accounts, Newton lost 20,000 English pounds in the collapse of
the South Sea Company, the equivalent of 20 million in today’s dollars.6
“I can calculate the motions of the heavenly bodies, but not the madness of
people,” the physicist is claimed to have concluded.
It is said that Newton was so affected by this debacle that, until his death,
he was unable to bear the mention of the South Sea Company’s name in his
presence.

From Zero to Millionaire: A simple, effective and stress-free way to invest in the stock market by Nicolas Berube