There is a news that Tesla has invested $1.5 billion in Bitcoin. Soon after release of such news, rate of bitcoin skyrocketed to an all-time high, breaching the $44,000-mark for the first time.
This phenomenon reminds me of a story of one of the greatest scientists of the world – Newton.
In February of 1720, Newton invested a modest sum of his substantial wealth in shares of the South Sea Company. This British joint-stock company, founded in 1711, was granted a monopoly to trade in Spain’s South American colonies as a part of a treaty from the War of the Spanish Succession.
In three months, Newton’s shares had tripled to £300 and he decided to sell. Had the story ended here, all would have been well. But Newton could not stay away from the South Sea Company. He watched anxiously as friends who still held their shares continued to get rich as stock price kept rising. By July, Newton could no longer resist the temptation of missing on the rally that he reinvested in the company, paying £700 for each share he had sold earlier for £300. However, this time he did not invest a modest amount—it was a substantial chunk of his entire net worth. By November, it was all over. The “South Sea Bubble” had popped. Like a raging fever, speculation in shares of the company had quickly come and gone. Newton scrambled to sell his investment, eventually exiting just north of £100 per share. Had he not held the post of Master of the Royal Mint, with its guaranteed salary, Newton’s remaining life would have been a financial struggle.
(Source Book – Investing: The Last Liberal Art by Robert Hagstrom)
Here, we are not recommending whether one should invest or not in the bitcoin. The point we are driving is, that investor should not get swayed by what smart people are doing. It is helpful to understand what they are doing. But, sometimes it is difficult to understand why they are doing it. Also, they may change their opinion without intimation.
Investors need not jump to invest in Bitcoin immediately unless they have their own conviction and thesis for investing.
Don’t succumb to FOMO.