Isaac Newton was one of the smartest genius people to ever live.
"Back in the spring of 1720, Sir Isaac Newton owned shares in the South Sea Company, the hottest stock in England. Sensing that the market was getting out of hand, the great physicist muttered that he 'could calculate the motions of the heavenly bodies, but not the madness of the people.' Newton dumped his South Sea shares, pocketing a 100% profit totaling £7,000. But just months later, swept up in the wild enthusiasm of the market, Newton jumped back in at a much higher price — and lost £20,000 (or more than $3 million in [2002-2003's] money. For the rest of his life, he forbade anyone to speak the words 'South Sea' in his presence."
Without further ado, the morals of the story go something like this:
1. If you are early on something and sell or don’t go heavy, then it does really well, you are almost certainly going to do what Newton did. You can either sit out of the asset forever, or you’ll have to figure out your entry and exit. Good ideas include buying right back in as soon as you realize this or making a promise you’ll sit out and find other assets. Don’t let it eat at you until you Newton-in at the top and hold all the way down.
2. If you miss the bubble, wait for the next uptrend. Buying into the downtrend after you miss the bubble is bad news. Many assets bubble once and then vanish like South Sea Company stock.
3. Buying into a bubble, getting FOMO, etc are not necessarily bad… if you are willing to sell when the trend turns against you. There is no wrong time to buy into a bull market if you are a trend trader… because you won’t hold on the way down.
4. Betting more than you can afford to lose is never a good idea, but most people will do it.
5. Doubling down on a loss should be avoided. Newton would have been worse off had he done this (although him not selling was a bit this).
6. You are less likely to be satisfied with small gains or to take small losses if you wait out a bubble and watch others get rich only to get in late. You want your 10x – 100x like they had, you won’t settle for modest gains and losses. Thus you will likely take heavy losses.
7. It is better to hold and buy in a bull trend and sell in a bear trend. If you can’t identify a trend, take the time to learn.
8. Being happy with modest gains is a good way to avoid heavy losses.
9. Newton is said to have said, “can calculate the movement of the stars, but not the madness of men.” Despite what Newton says, we can for sure calculate the madness of men and markets. It isn’t that we can’t calculate it, it is just that with all the excitement it can be hard to pay attention to the math over the emotion is all.
Keep learn, beat your self in discipline and patience is the key.
Giving an opinion is an easy thing but at the time of experiencing it is not necessarily able to think positively.
