Learn From The Mistakes of Geniuses

Albert Einstein and Sir Issac Newton are still considered the greatest scientists. They both were geniuses.

Einstein developed the theory of relativity and published more than 300 scientific papers.

Sir Issac Newton discovered the laws of motion and did path-breaking work in gravity, optics, mathematics etc.

They both are considered as extraordinary geniuses. But even they have lost money in the stock market!

Learn From The Mistakes of Geniuses

(maybe he said this after he lost money)

Sir Issac Newton invested in South Sea Company. He made a handsome profit initially – He invested when prices were low and sold at a good price. But when the price continued to rise, he bought them again close to the peak price. When the bubble burst, the price collapsed to a price much below the purchase price and Newton had to exit at a very low price. He lost £20,000 which is equivalent to £3,000,000 in today’s prices.

Albert Einstein squandered most of the money earned from the Novel Prize win in the 1929 stock market crash!

But Does Low-Risk High Return Investment Possible?

Important Learnings For Us

As you can see even geniuses are not spared the wrath of the stock markets. We can learn from the mistakes of these great men  –

1) Anyone can lose in the stock market –

It does not matter if you have the highest IQ or are a stock market expert. You have to be careful while investing. You need to research and analyse and make the right moves in the market. Buy at the right time and sell at the right time. (don’t even think of this as strategy)

Remember that the stock market is subject to many factors – people’s behaviour, economic conditions, political events etc. So you are not immune from making a loss. You should work towards making the right investment decisions that can help you achieve your goals in long term.

Must Read – The Art of Thinking Clearly

2) Keep out emotions –

Emotional bias results in wrong decision making. Newton had made profits in the South Sea company. But he saw that his friends sold at a higher price than him and earned more. He bought the stock again at a high price. The stock then collapsed.

When the price started falling, he did not sell it immediately. He sold it when it was reaching towards the initial price at which it was floated.

There are many emotional biases at play here. Greed to make more profits, envy of profits of other investors and loss aversion. He held on to the stocks for too long thinking the price will rise again. One has to be objective and rational while making investment decisions.

3) Focus on your goals –

Set a goal when you are investing. I don’t have to repeat every time that investment returns can’t be your goals.

4) It is okay to make losses –

It is a human tendency to avoid loss as much as possible. A loss of Rs. 1000 gives us much more pain than the joy we derive when we gain Rs.1000. Stock markets rise and fall. If you made losses in an investment do not dwell on it too much. It is part of the game. Read – Does loss aversion impact my investments?

Learn from your mistake and move on. In some cases, it might not have been your mistake too! If you think too much about it, it will do no good.

Keep in mind the following to be a successful investor –

  • Diversify your investments across different assets to minimize risk and maximize returns.
  • Keep working towards increasing your learning and skills to improve your investment strategy.
  • Work constantly towards managing the portfolio so that the financial health is closely checked.
  • Rebalance your portfolio regularly.
  • Keep emotional bias away while making investment decisions.

This post clearly suggests us to be humble, if such geniuses were not spared by the markets – we are no one to make big claims.

Please share one key financial or personal lesson that you have learned this year  – it will be an awesome learning experience for everyone 🙂

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