Once upon a time, a learned man watched his friends grow rich by investing in a company that promised to revolutionise trade. Attracted by the prospect of easy riches, he joined the party, but was cautious at first, investing only small amounts. He even sold his shares for a tidy profit when he felt their price could no longer be rationally justified.

But, as the mania grew and the share prices kept increasing, he couldn’t resist… he bought back in, this time with more money, more conviction, and more confidence.

The bubble popped. He lost a fortune. The man was so shaken that he declared he could ‘calculate the motions of the heavenly bodies, but not the madness of people’.

This story of Sir Isaac Newton and the South Sea Bubble of 1720 offers a cautionary tale about speculative excess, even among the most brilliant minds. But why is it so difficult, even for one of the smartest people ever to have lived, to resist the lure of financial bubbles?

Human nature fuels the hype

Betting against a bubble is structurally hard

Contrarians need saintly patience (and patient saints)

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