“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.” [Emphasis ours.]
- Warren Buffett in the preface to the fourth edition of Ben Graham’s ‘The Intelligent Investor’.
“If you have formed a conclusion from the facts and if you know your judgment is sound, act on it – even though others may hesitate or differ. You are neither right nor wrong because the crowd disagrees with you. You are right because your data and your reasoning are right. Similarly, in the world of securities, courage becomes the supreme virtue after adequate knowledge and a tested judgment are at hand.” [Emphasis ours.]
- Ben Graham, ‘The Intelligent Investor’. Again.
For practitioners of Schadenfreude, seeing high-profile investors losing their shirts is always amusing. But for the true connoisseur, the finest expression of the art comes when a high-profile investor identifies a bubble, perhaps even makes money out of it, exits in time – and then gets sucked back in only to lose everything in the resultant bust. An early, and fine, example is the case of Sir Isaac Newton. As any fule kno, the South Sea Company was established in the early 18th Century and granted a monopoly on trade in the South Seas in exchange for assuming England’s war debt. Investors warmed to the appeal of this monopoly and the company’s shares began their rise. Although its management team was inexperienced, they were not inexperienced enough to prevent further shares being issued to a frenzied public developing a taste for rapid returns. Britain’s most celebrated scientist was not immune to the monetary charms of the South Sea Company, and in early 1720 he profited handsomely from his stake. Having cashed in his chips, he then watched with some perturbation as stock in the company continued to rise. In the words of Lord Overstone, no warning on earth can save people determined to grow suddenly rich. Newton went on to repurchase a good deal more South Sea Company shares at more than three times the price of his original stake, and then proceeded to lose £20,000 (which, in 1720, amounted to almost all his life savings). This prompted him to add, allegedly, that
“I can calculate the movement of stars, but not the madness of men.”
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