ALERT: Fear And Greed Index Warning, Plus Sir Isaac Newton And The South Sea Bubble

Wednesday, November 4, 2015
By Paul Martin
Nov. 4, 2015

With continued uncertainty in global markets, today two legends in the business sent King World News powerful pieces that covered everything from Sir Isaac’s experience with the South Sea Bubble to the Fear & Greed Index.

“I can calculate the movement of the stars, but not the madness of men.” — Sir Isaac Newton, The South Seas Bubble

November 4 (King World News) – From Jeff Saut’s note today: The South Sea Company was a joint stock company created in 1711 to help fund Britain’s war debt. The company received a monopoly to trade with South America, hence its name. Over the years the stock price soared. Even Sir Isaac Newton had shares in the company and he watched his wealth compound immensely.

Wanting to be somewhat conservative he sold all of his shares only to see the share price trade ever higher. Like a moth to a flame even Sir Isaac could not resist the speculative bubble and rebought his shares at ever higher prices. And then, around 1720, the speculative fever broke wiping out not only Newton’s wealth, but that of many of Britain’s finest families. And that is when Newton wrote, “I can calculate the movement of the stars, but not the madness of men.”

I recalled this quote as I watched stocks streak higher over the past two sessions, as I haunted New York city in the past few days wishing I could tell accounts that I had predicted the nearly 300 points “Dow Delight,” but alas I did not. Subsequently, I received this quip from one of our financial advisors, “Is there a point where we have to call clients and eat crow, in regard to a pullback, we have exercised patience (a rare commodity on Wall Street) and have felt the pain of holding some cash?”

My response read, “I am holding 20% cash and feel perfectly comfortable doing so. I did, however, buy some stocks around the lows, as well as some mutual funds. I wrote about those investments at the time.” As for the here and now, I am not going to go against my discipline, as Isaac Newton did, and attempt to play a game I do not currently understand. Yes, I continue to think we are in a secular bull market that has years left to run. If that is true there will be plenty of opportunities to invest in good companies. But, when the weight of the evidence, and my models, are telling me to continue in a cautionary manner, I am not about to go contrary to them.

The Rest…HERE

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