Isaac Newton's Nightmare

Newton…made his first investment in the South Sea issue early, in 1713, and held it for several years, marking a modest paper profit. He held on through early 1720…That got the desired result, a sudden leap in stock prices. Starting at £128 in January, the price for South Sea securities rose to £175 in February and then £330 in March.

…Newton sold in April, content with his (quite spectacular) gains to date. But then, between April and June, share prices tripled, reaching over £1,000…which is precisely when he could stand it no longer.

Having “lost” two-thirds of his potential gain, Newton bought again at the very top and bought more after a slight decline in July.

The South Sea stock price held up through August 1720, and then the bubble led by over-expectations of huge returns was pricked in September.

…South Sea share prices collapsed to roughly their pre-bubble level. Newton’s losses totalled as much as £20,000, between $4 million and $5 million in 21st century terms…It was a terrific blow for Newton.