lutz logo
lutz logo
  • Services
  • News & Insights
  • About
  • Client Portal
Search
  • Services
  • Accounting
  • Advisory
  • Financial
  • M&A
  • Talent
  • Tech
  • Accounting Services
Services
  • Audit & Assurance
  • Client Advisory Services
  • Outsourced Accounting
  • Tax
  • Business Valuation
  • Litigation Support & Forensic
View All
Industries
  • Agribusiness
  • Construction
  • Family Office
  • Healthcare
  • Manufacturing & Distribution
  • Nonprofit
View All
News & Insights
Financial Access Checklist
Guide
Financial Access Checklist

Share this information with your spouse to assure you each have access to manage important financial tasks independently.

Read More
  • Advisory Services
Services
  • Accounting
  • Financial
  • M&A
  • Talent
  • Tech
View All
Resources
The Art of Budgeting
Recording
The Art of Budgeting + Smart Saving Strategies
Learn how to get your finances under control and increase your savings! Hear real-life examples and best practices to secure a successful future.
Watch Now
Business Insights
Comparing Business Valuation Methods
Blog
Comparing Business Valuation Methods: Which is Right for You?
Valuation experts rely on three primary approaches to determine the value of a business: income approach, asset approach, and market approach.
Read More
  • Financial Services
Services
  • Financial Planning
  • Investment Advisory
  • Retirement Plan Services
  • Pooled Employer 401(k) Plan
View All
Resources
  • Lutz Financial Blog
  • Our Team
  • Client Portal
  • Charles Schwab Login
  • Send Files Securely
Contact Us
NEWS & INSIGHTS
Website Featured Content Images
Market Commentary
Financial Market Updates

Read our latest financial market updates and sign up to receive them straight to your inbox.

Read More
  • M&A Services
Services
  • Sell-Side Representation
  • Transaction Advisory
  • Exit Planning
  • Business Valuation
View All
Resources
Selling a C Corporation
Blog
Factors to Consider When Selling a C Corporation

Understand the tax issues affecting both buyers and sellers involved in C corporation merger and acquisition transactions

Read More
Business Insights
Post-Acquisition Checklist
Guide
Post-Acquisition Checklist for a Seamless Transition
To help you navigate this critical period, we've compiled a comprehensive checklist covering key areas that demand attention after the deal closes. 
Read More
  • Talent Services
Services
  • Search & Staffing
  • Outsourced HR
  • HR Consulting
View All
Candidate Resources
  • Job Seeker Process
  • Current Opportunities
  • Lutz Internships
Contact Us
News & Insights
Overcoming Bias in Recruitment
Blog
Unconscious Bias in Recruitment: How to Overcome It
Learn how to take the bias out of recruitment and build a diverse, talented workforce with these tips.
Read More
  • Tech Services
Services
  • Outsourced IT
  • Data Analytics
  • Technology Strategy
  • Software Consulting
View All
Resources
When to outsource your IT
Blog
How to Know When It's Time to Partner with an IT Pro

One day your technology seems manageable, and the next you're wondering if you need more support. Here are the clear signs it's time to outsource your IT.

Read More
Business Insights
Untitled design (1)-Mar-08-2024-08-50-35-9527-PM
Video
Pella Client Testimonial
"I've used them for valuation work, stock transfers, hosting all of my technology, and now data analytics. I'd say they lead the pack in terms of anticipating what I'm going to need before I even know I need it."
View Now
Business Insights
BLOG
Explore Topics

Get the latest news and insights on relevant topics that matter most to you.

View All
Webinars & Events
Events
Register Today

Register for an upcoming event or access our library of on-demand recordings.

View All
Market Updates
COMMENTARY
Stay Informed

Catch up on market moves with our weekly update, featuring in-depth insights and analysis.

View All
Resources
EBOOKS & GUIDES
Download Now

Take a deep dive into challenging business topics with these free educational resources. 

View All
  • News & Insights
  • Business Insights
  • Webinars & Events
  • Market Updates
  • Resources
Business Insights
BLOG
Explore Topics

Get the latest news and insights on relevant topics that matter most to you.

View All
  • About
About

Lutz is a business solutions firm for people seeking a partner to help energize and heighten economic and organizational success.

Our Company
Our Team
Offices
Careers
Internships
Contact Us
  • Contact
Client Portal

Log in to your relevant client portal to access your account, upload documents, or make a payment.

Make a Payment
Accounting Client Portal
Financial Client Portal
Charles Schwab Login
Send Files Securely
Contact Us
  • Market Commentary

Isaac Newton and the South Sea Bubble + Financial Market Update + 11.10.21

Josh Jenkins, CFA, Chief Investment Officer, Principal
November 10, 2021
Isaac Newton and the South Sea Bubble + Financial Market Update + 11.10.21

Sir Isaac Newton is regarded as one of the most brilliant scientists of all time, making significant advancements to mathematics, optics, astronomy, and mechanics. His major accomplishments include the development of calculus, the three laws of motion, the law of gravity, the calculation of planetary movement, and the first reflecting telescope(1). While his numerous academic achievements are well known, many people do not realize that he is also remembered for his track record as an investor. Unfortunately for Newton, he was not nearly as inspiring in that arena. It is believed that Newton got caught up in one of the most infamous investment manias in history, losing an astonishing sum of money in the process.

The South Sea Company was founded in the early 1700s as a public-private partnership tasked with consolidating and reducing the national debt of England(2). The company went from earning a consistent but boring level of return in the early years to something much more exciting by the start of 1720. At that point, some innovative financial engineering and a concerted effort by stakeholders to pump up the stock began to push the share price rapidly higher.

As the chart below shows, the price of the South Sea Company’s shares started 1720 at about $128. By April, it had lurched higher to $320, capturing the imagination of the public and whipping investors into a full-fledged speculative mania. The price would eventually peak a few months later in July, around $950, before collapsing under its own weight and crashing back down to earth.

Source: Harvard.edu Frehen, Rik, William N. Goetzmann, and Rouwenhorst, K. Geert. “New Evidence on the First Financial Bubble.” Journal of Financial Economics vol. 108, Issue 3 (June 2013): 585-607. Available at SSRN: https://ssrn.com/abstract=1371007

It is said that Newton was an early investor in the South Sea Company. After seeing the value of his shares appreciate substantially, he correctly inferred that they were overvalued and sold them at a handsome profit. Unfortunately for Newton, that is not where the story ends. The feverish mood surrounding the company’s shares raged on, and it is believed that he capitulated and bought back in as the bubble inflated. Of course, the bubble ultimately burst, destroying vast amounts of ‘wealth’ in the process. Estimates of his losses in today’s dollars are as high as $20 million(3)! After the price crashed back down to earth, Newton is famously rumored to have said, “I can calculate the motions of the heavenly bodies, but not the madness of people.”

The point of this story is not to label Newton as a bad investor or to poke fun at another person’s misfortune. Instead, it is to demonstrate how powerful emotions can be when investors begin to herd together and act based on greed. Even an intellectual as gifted as Newton was unable to resist the temptation to get rich quick.

The South Sea Bubble isn’t the oldest example of a speculative craze. In the mid-1600s, Holland experienced ‘Tulipmania,’ where at its peak, a rare tulip bulb fetched the equivalent of six times the average person’s annual salary(4). It also would not be the last example. In the 1990s, optimism surrounding the widespread adoption of the internet led to the dot-com bubble. In the 2000s, innovation in the parceling of financial risk through instruments like collateralized debt obligations (CDOs) led to a bubble in real estate.

There are, of course, countless other bubbles that have occurred throughout history. People simply cannot stomach the sight of others getting rich quickly, and the fear of missing out (FOMO) has repeatedly demonstrated its ability to override rational judgment. Even today, there is evidence of bubbles in some obscure pockets of the market, particularly within cryptocurrencies and non-fungible tokens (NFTs). Dogecoin, for example, is a cryptocurrency that was developed as a parody of a popular meme featuring a dog. According to Cointmarketcap.com, its total value is currently $36.3 billion. More recently, Shiba Inu, a crypto that was developed to parody Dogecoin, has a total value of $30.1 billion.

Somehow the NFT space offers an even more egregious example of excessive speculation. Enter the CryptoPunks, where you can purchase digital ownership rights to a pixelated cartoon face. These images, which look like they were created on Microsoft paint, have been selling for millions of dollars!

Source: https://www.larvalabs.com/cryptopunks/forsale

The only possible way to make money on something like Dogecoin, Shiba Inu, or CryptoPunks is if a greater fool comes along to pay a higher price than you did. Investors should be fearful of being the one holding the bag when the price of this stuff crashes back to reality. To avoid that risk, learn a lesson from Newton’s past mistake. Avoid buying into an inflating bubble.

Sources:

1. https://en.wikipedia.org/wiki/Isaac_Newton

2. https://curiosity.lib.harvard.edu/south-sea-bubble/feature/the-founding-of-the-south-sea-company

3. https://royalsocietypublishing.org/doi/10.1098/rsnr.2018.0018

4. https://www.investopedia.com/terms/d/dutch_tulip_bulb_market_bubble.asp


WEEK IN REVIEW

  • According to Factset, 89% of the S&P 500 has reported earnings for the third quarter. The earnings growth rate of companies that have reported results, blended with the estimates from companies that have not yet reported, is at 39.1% year-over-year. This compares to the initial growth estimate of 27.4% as of 9/30. The stronger-than-expected earnings have been credited as one of the primary catalysts for the strong market performance thus far in the fourth quarter.
  • Major developments from last week include the formal announcement by the Federal reserve that tapering of the asset purchase program will begin this month. Additionally, a stronger-than-expected jobs report showed the economy added 531k new jobs in October, relative to forecasts of just 450k. The job figures from the two prior months were also revised upward.
  • Headlining this week’s economic calendar is the consumer price index to be published on Wednesday. Other economic data of note include initial jobless claims on Wednesday and the University of Michigan sentiment surveys on Friday.


ECONOMIC CALENDAR

Source: MarketWatch


HOT READS

Markets

  • Strong Jobs Report Shows Economy Back on Track For Stronger Growth (CNBC)
  • Fed Decision Taper Timetable as it Starts Pulling Back on Pandemic Era Economic Aid (CNBC)
  • Whoelsale Prices Rose 8.6% YoY in October, tied for Highest Ever (CNBC)

Investing

  • The Same Stories Again and Again (Morgan Housel)
  • The 3 Levels of FOMO (Ben Carlson)
  • Keeping It (Adam Grossman)

Other

  • The Boom of Dead Money in College Sports (ESPN)
  • Overused Words and Phrases that Make You Sound Weak Less Confident According to Grammar Experts (CNBC)
  • Why Your Car Will Become Even More Like an iPhone (WSJ)

MARKETS AT A GLANCE

Source: Morningstar Direct.

Source: Morningstar Direct.

Source: Treasury.gov

Source: Treasury.gov

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

IMPORTANT DISCLOSURE INFORMATION

  • Competition, Achiever, Relator, Analytical, Ideation

Josh Jenkins, CFA

Chief Investment Officer, Principal

Josh Jenkins, Chief Investment Officer, began his career in 2010. With a background in investment analysis and portfolio management from his previous roles, he quickly advanced to his current leadership position. As a member of the Lutz Financial Board and Chair of the Investment Committee, he guides Lutz Financial’s investment strategy and helps to manage day-to-day operations. 

Leading the investment team, Josh directs research initiatives, while overseeing asset allocation, fund selection, portfolio management, and trading. He authors the weekly Financial Market Update, providing clients with timely insights on market conditions and economic trends. Josh values the analytical nature of his work and the opportunity to collaborate with talented colleagues while continuously expanding his knowledge of the financial markets. 

 

At Lutz, Josh exemplifies the firm’s commitment to maintaining discipline and helping clients navigate market uncertainties with confidence. While staying true to the systematic investment process, he works to keep clients' long-term financial goals at the center of his decision-making. 

 

Josh lives in Omaha, NE. Outside the office, he likes to stay active, travel, and play golf. 

402.763.2967

jjenkins@lutz.us

Connect on LinkedIn

Recent News & Insights

Accounting
Tax Highlights of the Proposed “The One, Big, Beautiful Bill”
On May 22, 2025, the U.S. House of Representatives passed a sweeping 1,116-page bill titled ...
Read More
Recent News
Lutz Announces Redemption of Ron Nebbia’s Shares
Lutz, a Nebraska-based business solutions firm, announces the redemption of ownership held by ...
Read More
Market Commentary
2025 Has Been a Boring Year + 5.14.25
2025 Has Been a Boring Year Imagine you went to sleep on New Year’s Eve and just woke up ...
Read More
Job Seeker
5 Ways to Maximize Your Chances of Employment
Let’s face it, job searching can be a rollercoaster. One moment you're motivated, the next ...
Read More
module-bg-desktop module-bg-mobile

Let’s get you where you want to go.

We work to simplify complexities, help make critical business decisions, and confidently focus on the things that are truly important to you. We embrace your business as our own to spark the right solutions and help you thrive.
Contact Us
Lutz-Logo-white
  • Services
    • Accounting
    • Consulting
    • Financial
    • M&A
    • Talent
    • Tech
  • About
    • Our Company
    • Our Team
    • Offices
    • Careers
    • Internships
    • Current Opportunities
  • Client Portal
    • Make a Payment
    • Accounting Client Portal
    • Financial Client Portal
    • Send Files Securely
    Submit RFP
TOLL-FREE: 866.577.0780 | © Lutz & company, PC 2025 | Privacy Policy
Follow us on Facebook Follow us on LinkedIn Twitter - X Logo Follow us on Instagram Follow us on Facebook