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    Don’t Make the Same Investment Mistakes Isaac Newton Did!

    Transcript

    Mar 23, 2023
    3 Mins Read
    Amrita Panja

    Listen to Article

    Did you know there is an interesting story on investment behaviour with renowned scientist Isaac Newton at its centre?
    The year was 1720. South Sea Company was among the hottest stocks in England and Isaac Newton had made over 100% returns on his investment in the company. As their stock prices continued to appreciate, Newton, with an eye on more, invested an even larger amount in the same company. Unfortunately, the stocks collapsed a few months later and Newton lost his money, including the previous profits.


    Herd Mentality and Speculations


    Despite being one of the greatest minds of his time Newton acted out of herd mentality – behaviour not uncommon among stock market investors. Throughout history such fads have held investors in their grip. Be it the Tulipmania of the early 17th century, the dot-com boom of the late 1990s, or even the recent Crypto market bust.
    Investment fads attract investors solely based on the possibility of exorbitant returns on a particular asset class in a relatively short period of time. Average retail investors enter at a time when the prices have already run high, and make decisions without knowing the fundamentals of the company, only to lose their money in a matter of days. This is counter to the rationale of investing for long-term wealth creation.


    Putting all Your Eggs in One Basket


    Diversify your portfolio. Newton had a significant portion of his wealth tied up in the South Sea Company, and when the company's stock price plummeted, he suffered significant losses. Diversifying your portfolio across different asset classes and industries can mitigate risk and protect your investments.


    Emotions over Rationale


    Don't let emotions guide your investment decisions. Newton was a victim of the "fear of missing out". When the South Sea Company's stock price began to soar, he bought in because he didn't want to miss out on potential profits. He then held onto his shares even when the stock price began to decline, hoping it would rebound. Emotions can cloud your judgment and lead to poor investment decisions. It's important to have a solid investment strategy and stick to it, regardless of market fluctuations.

    Newton may have been unable to resist the temptation, but you can learn from his mistakes. So, keep calm and invest wisely; avoid market fads, instil discipline, align your investments with your goals, and diversify your investments across asset classes.


    The views expressed in this article are for knowledge/information purpose only and is not a recommendation, offer or solicitation business or to buy or sell any securities or to adopt any investment strategy. Aditya Birla Sun Life AMC Limited (“ABSLAMC”) /Aditya Birla Sun Life Mutual Fund (“the Fund”) is not guaranteeing/offering/communicating any indicative yield/returns on investments.


    Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

    Amrita Panja

    About Author

    Ms. Amrita Panja is Head – Knowledge Centre at Aditya Birla Sun Life AMC Limited. She brings with her over 15 years of rich experience in communications, content strategy and curating corporate thought leadership. In her current role, she leads the ABSLAMC Knowledge Centre initiative, which is the thought leadership arm of the company.

    In her earlier role with the ABSLAMC, Amrita was leading the Corporate Communications practice between December 2017 to February 2022. During this period, she conceptualised an award-winning content property named ‘WoMoneyKiBaat’ that put the spotlight on money conversations and investment among women. The campaign won a Bronze at the Maddies 2019 in the Gender Equity Category and the Grant Thornton Sabera Awards 2020 in Gender Equality category. She is winner of the PR & Corp Communications 40 under 40 title from Exchange4media and Young Achiever 2022 from the World Marketing Congress.

    She began her career as a broadcast journalist. She has worked with leading news channels such as Times Now, CNN IBN (now CNN News18) and CNBCTV18 and has been at the forefront of reportage on some significant news breaks and large format features.

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