Newton lost his retirement on a stock bubble

In 1720, Isaac Newton was in his late seventies, Master of the Royal Mint, one of the most famous intellectuals in Europe, and a reasonably wealthy man. He was also about to lose most of his money on a stock he had already been smart enough to sell.

The South Sea Company had been chartered in 1711 with a theoretical monopoly on trade with Spanish America. The trading business was largely fictional. The actual business was a scheme to convert British government debt into company shares at inflated prices, with insiders promoting the stock and selling into the mania they helped create.

Newton bought twice

Newton bought South Sea shares relatively early, watched them rise, and sold in April 1720 for a handsome profit of about seven thousand pounds. That should have been the end of the story. It was not.

Over the next few months the stock kept climbing. Newton watched his friends get rich while he held cash. He bought back in near the peak in June or July 1720, at roughly five or six times his earlier exit price. Then prices collapsed. By December the stock was back near its starting point. Newton's losses were estimated at around twenty thousand pounds, a sum that would be several million in 2020 money.

The quote that may or may not be real

He is often credited with saying 'I can calculate the motion of heavenly bodies, but not the madness of people.' The quote cannot be traced back to Newton himself. It first appears in writings about him decades later. What is well documented is that Newton refused to discuss the South Sea investment for the rest of his life.

Why it keeps mattering

The Newton story is cited so often because it punctures a tempting idea. Smart people are not immune to bubbles. Technical skill in one domain does not transfer. Being right once (the early sale) is not the same as being disciplined. Newton understood calculus better than anyone alive. He still bought back in at the top because his friends were getting rich and he was not.