The Bitter Story of Greed: Isaac Newton, the Ever-Genius Who Got Fooled by It

Vahid Chaychi

2 years ago

Today’s article is a must-read for most people, including myself. So far, I have talked a lot about making money and achieving financial freedom on this site. However, I have never discussed greed—the silent predator that waits along the path to wealth, ready to make you broke, scammed, and bankrupt. If you think this could never happen to you because you are smart, wise, intelligent, and experienced enough to control and ignore your greed, let me tell you this: No matter how smart or experienced you are, you are still far behind the ever-genius Isaac Newton, whose IQ is estimated to be as high as 190—an IQ level almost alien-like. So, take a few minutes and read this article to the end.

At the beginning of the 18th century, the United Kingdom’s government debt had skyrocketed due to several wars. During this time, there was a British joint-stock company called the South Sea Company, founded in January 1711. It was managed and owned by John Blunt, a man of humble origins who was extremely ambitious. In 1719, he came up with an idea that he believed would make him the most famous and outstanding businessman in history. He proposed taking on the responsibility of paying off the United Kingdom’s government debt in exchange for the exclusive right to trade in the South Sea. The government agreed.

He needed a lot of money to do this, right? He raised the funds by selling shares of the company to the public. John Blunt believed that this idea would not only pay off the government’s debts but also generate significant profits for the company through its exclusive trading rights in the South Sea. At the same time, investors would earn interest and profit from the appreciation of the company’s shares. It seemed like a win-win deal for everyone.

Although most people didn’t fully understand how this system was supposed to work, they eagerly invested in the company. Not only was it advertised that owning shares in the exclusive right to trade in the South Sea would be tremendously profitable, but many also saw it as their patriotic duty to help pay off their country’s debts. As a result, the value of South Sea Company shares skyrocketed. Even the king invested £100,000 of his own wealth. Everyone—from workers to servants—joined in, and before long, they became rich by selling their shares, which were increasing in value like crazy.

However, after a short while, even John Blunt realized that the system had turned into a fraudulent scheme. The value of the shares was rising not because of actual profits from trading in the South Sea, but due to buying pressure from the crowd, which had created a bubble. When share prices increase not because companies generate real profits through business, but simply because people rush to buy shares, it creates a bubble that will eventually burst.

The South Sea Company had effectively turned into a Ponzi scheme because it was not generating profits through its normal trading activities—something John Blunt had concealed from the public. Instead, the profits paid to investors came solely from the money contributed by new investors, which is the very definition of a Ponzi scheme. However, as more investors poured in daily, the bubble continued to grow larger and larger.

In 1720, some company managers who recognized the risk sold their shares. Word of this quickly spread among the public. When investors realized the mistake they had made, panic set in, and they rushed to sell their shares. That was the moment the bubble burst, and the company’s stock market collapsed.

Thousands of people lost their entire life savings, and many, including John Blunt’s nephew, took their own lives in despair. It took the UK nearly a century to recover from the financial devastation.

Ironically, John Blunt did achieve his goal of becoming one of the most famous figures in business history. However, his fame was far from positive—he became a symbol of disgrace in the world of business and investment.

This is where the most interesting part of the story begins:

Many famous individuals had invested in the South Sea Company, and among them was Isaac Newton—the ever-genius of physics and mathematics. When the project began, Newton invested his entire savings of £7,000. Within a short time, his capital doubled and then tripled.

However, being an exceptionally intelligent man, Newton understood that when something rises so rapidly, there is usually an underlying flaw, and a collapse can be even more dramatic than the ascent. Trusting his wisdom and foresight, he withdrew his money.

But the story didn’t end there. Greed—the central theme of this article—is always lurking, ready to deceive, distract, and make you ignore your own intelligence and wisdom. It will defeat you if you don’t recognize and control it.

When Newton sold his shares and exited in August 1720, the investment was still highly profitable. He watched as those who had held onto their shares continued to amass significant gains. This sight clouded his judgment, and for the first time, Newton allowed greed to overrule his intelligence. He decided to reinvest all his money.

However, this time, it was too late. A short while later, the bubble burst, and Newton lost everything. He was left broke and bankrupt at the age of 70.

After this disaster, people quoted Newton as saying, ‘I can calculate the motion of the stars, but not the madness of people.’

Newton was arguably one of the greatest scientific minds in history. He discovered and formulated the laws of gravity, calculated and mapped the motion of stars and planets, and analyzed light, formulating its fundamental behaviors. He achieved many things that perhaps no one else could have if humanity had never had Newton.

Yet, when it came to greed, even Newton struggled to think and decide rationally. When it came to understanding the behavior of the crowd, he let emotions take over and acted just like ordinary people—workers, servants, and common investors—instead of thinking and deciding as a genius scientist should.

Isn’t this shocking? Doesn’t this hold an undeniable lesson for us all?

Greed knows no limits. If you don’t recognize and control it, it will destroy you. This is especially important for those on the path to financial freedom.

Greed can easily prevent you from achieving financial freedom because it pushes you to take excessive risks and become impatient with slow, steady progress. It demands huge profits and rapid success, often at the cost of taking reckless risks. However, achieving financial freedom— as I have described in my articles on this site—is a continuous and consistent journey that works in the long term while remaining safe and risk-free.

You can reach financial freedom over time without taking unnecessary risks, following the method I have outlined on this site. But if you seek shortcuts, not only will you fail to achieve financial freedom, but you may also suffer devastating losses—ones you may never recover from.

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