Isaac Newton
Sold Too Early, Bought Back In
What hurts most after a good sale is having sold early
The South Sea Bubble, 1720; Andrew Odlyzko's study of Newton's investments
I sold and it kept rising. Newton shows why a well-timed sale is what most often sends people back in.
What actually happened?
In the spring of 1720 Newton sold his South Sea Company stock and made a few thousand pounds. The price did not stop. All summer it climbed, and people around him grew rich. He could not sit still, bought back in, and this time put in more. In the autumn it collapsed, and he lost about twenty thousand pounds in all. He was Master of the Mint and had spent his life doing sums.
The first sale was right
He got out in spring at a good price, and at the time that was no mistake. The mistake came after: he treated everything the stock rose from then on as money he had left lying on the table.
You sell the fund at a high, it climbs another twenty per cent, and what you remember is the twenty per cent, not the gain already in your hand.
Regret pulls the leaver back in
After you sell, every day shows you what you might have made. It hurts more than a loss, because the loss never happened and has nowhere to go, so it goes into buying back.
You cash out, a friend says over dinner that he has doubled up, and the first thing you do at home is open the account.
The second stake is often the biggest
Someone who has won once has a success to lean on and thinks the earlier call proved sound, so the second bet is heavier. He mistook one good judgment for a gift for judging.
The person who got it right once is the one most likely to borrow to buy more. He is not wiser then, only more sure.
How do I use it today?
Where you are: you sold, you made money, it has gone up since, and you want back in.
Ask first: am I going back because I have seen something new, or because I cannot bear others earning more than me? Which of the reasons I wrote down the day I sold has changed?
Where it goes wrong: reading it as never look back after selling. His fault was a bigger bet with no new reason, only regret. With new evidence and a limit set beforehand, going back is not a mistake.
Lines to keep
After selling, do not keep the books on the rise.
Going back in needs a new reason, not regret.
After one win, the next stake should be smaller.
Same situation, other people are asking
Everyone agrees it's a good bet. Is that already in the price?It's obviously overheated. Why does it keep going up?Am I early, or am I just the last one in?Someone I know got rich on this and I can't sit still.Everyone is piling in · all 8 questions →If this one named what you are going through,
send it to someone who needs it, or keep it somewhere you will find it again.