| "I can calculate the movement of stars, but not the madness of men." - Isaac Newton If you've ever lost money on a trade because you got caught up in the hype... Know that you're in good company. We've all been there. And even the most brilliant minds of the world have blown everything on a single trade. Amongst those brilliant minds is the late and great Sir Isaac Newton - creator of the laws of gravity, inventor of calculus, and overall genius. His genius even applied to finances. He was appointed Master of the Royal Mint of England and acquired a diverse stock portfolio valued in the millions. But at one time he lost a huge fortune just because he made a stupid bet in the markets. A Harsh Reminder About Market Timing... In the early 18th century, The East India Company was on its way to becoming the best thing since sliced bread. As an investor, you'd be trying to find the next big thing. Enter the South Sea Company - a company designed to set up trade with South America. Unfortunately, all of South America was owned by Spain, which was at war with Britain. So the company wasn't actually doing much business at all. But that wouldn't stop it from garnering interest in its stock, no sir! For its first eight years of existence, the South Sea Company had focused on domestic affairs like handling government debt. It finally got its breakthrough in 1719 as it exchanged over £1 million of government debt for newly issued stock. This kickstarted a bidding war from investors all across the UK, including the Bank of England itself. And the company bribed members of parliament (and possibly King George himself) with stock options so they would pass a bill in the company's favor. Early on, Isaac Newton possessed 10,000 shares of South Sea stock and decided to sell 8,000 of those shares around £350 each. His profits on that trade were valued at $4 million in today's money. After he sold, the stock took off again, leaving Newton in the dust and making all of his friends rich. Newton, feeling left out, bought back into the stock at around £700 per share. However, when the company's finances were finally opened, and everyone realized it was completely worthless, the stock tanked. Newton eventually exited his position at a third of what he initially paid. And he turned his initial $4 million profit into a $3.1 million loser. You can see the exact action in the chart below. The question is, if Newton was such a genius - and very well versed in finances as mentioned before - what happened here? Let's just say he would have really benefited from The Oxford Club's Pillars of Wealth. Always Have an Exit Strategy The second and third pillars of the Club's investment philosophy involve your exit strategy and position sizing. Newton had done a fine job with his first trade, earning nearly $4 million in today's currency. He then re-entered later on, still believing in the momentum and the hype. And if you look at the chart, he still could have won big - but only if he timed his exit perfectly. More importantly, he could have avoided such hefty losses if he just had a solid exit strategy. If he set a mental trailing stop at 25% (like we suggest at the Oxford Club), Newton would have been stopped out at just below break even. A modest loss is better than a catastrophic one. His other big mistake was betting the farm on one trade, rather than sticking to the principled diversified portfolio approach that helped him amass wealth in the first place. The Club's third Pillar of Wealth encourages you to never let a trade eat up more than 4% of your portfolio. When you include the 25% trailing stop, that means you'd only lose 1% of your portfolio in a worst-case scenario. Unlike Newton, who had a third of his account tied up in one silly trade. Bottom line: Even geniuses can make horrible bets without the right investing principles guiding their way. If you want a ton of great stock recommendations - all carefully chosen using The Oxford's investment philosophy - I suggest checking out The Oxford Communiqué. More specifically, go watch this presentation, which discusses a group of stocks that our Chief Investment Strategist Alexander Green calls the "Next Magnificent Seven." Good investing, John | 
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