Isaac Newton: Smart Guy. Bad Investment Manager.

by | Jun 22, 2012 | Asset Management, Point and Figure

Sir Isaac Newton was a pretty smart guy.

Well, being a financial advisor, I can’t vouch for that statement. But it’s pretty well regarded he was a smart dude, just not the best investment manager. After all, the guy discovered the laws of motion and inertia. And the apple falling on his head, helped describe gravity. Newton is considered one of the greatest scientists EVER.

Smart guy.
Bad investment manager.

Around the year 1720, there was a bubble in the UK markets: the South Seas bubble. If you don’t know what a bubble looks like, ask your financial consultant, or think back to the dot-com stocks ten-twelve years ago. Or home prices in your neighborhood, five or six years ago.

That’s a bubble.

So, the South Seas Corporation was granted exclusive trading and shipping rights to — get this — the entire area we call South America.

Pretty big.
And the price of South Seas stock, starts to take off.

Sir Isaac Newton, one of the smartest guys evAH, and in 1720, he certainly is in a brainiac division all by himself, decides to plunk down 3500 pounds (which is the equivalent of about $500,000 today) in South Seas stock.

Newton doubles his money and sells it all, for a quick, tidy profit.

But a few months later, the stock price is still rising. Newton decides he has made an error by selling. He invests all of the money he took out in April BACK into the South Seas stock.

The next year, when the bubble popped, Newton lost everything, the entire investment.

Newton was quoted to have said, “I can calculate the motions of the heavenly bodies, but not the madness of people.”

First: Investing can be VERY emotional. Have someone do it for you.
Second: Make certain your investment manager has a plan, based on emotion-free indicators.

The point and figure charts I use to manage your money simply measure the supply and demand of prices. These charts can be used to track stock prices, mutual fund prices, commodity prices, changes in the housing market — anything with a number.

When too many sellers show up, prices will fall.
That is an economic LAW (not a theory).

It does not matter the REASON behind the selling.

And it’s not like I came up with point and figure charting last week. This method of analysis was created by Charles Dow, back in the 1880’s. Very few people in my line of work use point and figure charts… because these charts are a LOT of work.

And most folks don’t want to do hard work.
— They might break a nail.
— Or miss an episode of “Jersey Shore.”
— Or they were told to “buy the dips” or “buy and hold.”

There are times to buy, and times when you should sell.  A decision easily made by a well trained financial advisor in your area. Fortunately for us, the point and figure charts we employ when managing your money give us clear signals when to take action.

If you are relying on a blog post for specific investment advice, you are making a huge mistake. Please speak with an investment adviser before making ANY investment decisions.

If you do not have an investment adviser, we encourage you to contact Mullooly Asset Management at 732-223-9000, or through our website. Under no circumstances should the content discussed here to be considered specific investment advice.