[Desire and Jealousy] The Surprisingly Great Person Who Took a Huge Hit in a Surging Market

Hello, this is Kudou Yamashita.



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According to the Tokyo Stock Exchange,

the number of individual shareholders in fiscal 2019 was a total of 56.72 million, the highest ever.

2020/7/6 11:00 From Nikkei Asian Review, electronic edition
https://www.nikkei.com/article/DGXMZO61174710U0A700C2000000/

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and it was in the Nikkei, but

indeed, those who start investing seem to be increasing year by year.



Even when teaching at Stock Academy, I feel that in my bones.



Even beginners enroll in large numbers.



By the way, for those starting investing for the first time

one big hurdle is

irritation.



Irritation at moves you did not expect.



“Mr. Kudou, during trading,

how do you control irritation or anger

and keep calm?”

I sometimes get asked, but



I, for one, do not get irritated in trading.



Profits in trading come naturally for me,

and it isn’t a contest where someone wins or loses against me.





Moreover, I don’t crave material possessions very much,

and

I just think, “If I’m making a profit, that’s fine,” and trade with that stance,

so I basically never get discouraged and irritated.



In particular, for beginners,

irritation is often the cause of failure, but

first you need a mindset shift.



Many people cannot feel satisfied unless they make a huge amount of money, but



it is important to have the mindset, “Regardless of the amount, if I am making profits, I am somewhat satisfied.”

That attitude is important.



With that mindset,

if you trade without ever taking losses in your daily routine,

occasionally you will be blessed with large profits.



Conversely, if you are always aiming for a one-shot windfall,

you may trip yourself up and lose more than you need.



Looking back through history, many people left the market due to greed...







No matter how smart you are, if you cannot manage desire and jealousy well,

you will ultimately fall from the market.





For example, Isaac Newton.



The man who reportedly saw the apple fall and discovered the law of gravity.





Even the genius Newton left with substantial losses in stocks,

there are records of that.



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The South Sea Bubble caused great turmoil in Britain

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In 18th-century Britain,

one of the world’s three major bubbles

the South Sea Bubble occurred.



In this bubble

Newton also suffered enormous losses,

but first, a concise introduction to what happened.



At the time, the British government was mired in debt.



They had spent heavily on wars.



To escape debt, the government devised a plan,

to transfer the government's debt to a company called the South Sea Company.



The idea was to take the debt from the government and move it to the South Sea Company,

so that it would be erased.



When the debt was moved to the South Sea Company

and wiped clean,

this already dubious plan seemed even more questionable.



Then, in reality the government’s debt was transferred to the South Sea Company,

and if we summarize the outcome: the South Sea Company's stock price

surged, then rapidly plummeted.



It rose eightfold in six months,

and then dropped by 75% in just four weeks.

Truly a bubble.



As a result, many Britons who invested in the South Sea Company

were left penniless,

and in their anger, turned into rioters,

throwing Britain into chaos.



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Why did the South Sea Company stock skyrocket?

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Why did the stock price soar?Was it because the company was profitable?





Of course not.



In a word,

it created a frenzy of “Buy the South Sea Company’s stock and you’ll profit!”

that overwhelmed many and led to widespread buying.





So specifically, how did they stimulate people's desires?





Explaining everything would be lengthy, so I’ll give the key points.





The South Sea Company devised a plan.



“If you are allowed to exchange South Sea Company stock for British government bonds, you’ll profit!”



For example,



exchanging a South Sea share with a face value of 100 pounds for bonds with a face value of 100 pounds



could yield nothing by itself.



However, if the stock initially had a face value of 100 pounds and its price rose to 200 pounds,





the South Sea Company could receive 200 pounds in government bonds

in exchange for a 100-pound stock,



and thus, when the plan was announced,

the stock price began to rise on expectations.



Then, when the exchange between South Sea Company stock and government bonds was actually approved,











the company earned substantial profits by exchanging stock and bonds at favorable rates.







This is a greatly simplified explanation,

but essentially, the company profited by exchanging its own stock for government bonds.







Furthermore, to stimulate people’s desires and induce buying,

campaigns such as

“You can buy stock with installment payments if you pay 20% down”

were introduced.



As this continued, people were swept away by the fever,

and the seemingly nonexistent stock of the South Sea Company skyrocketed.



By the way, although the term “South Sea Bubble” is used,



have you ever wondered what “Bubble” refers to?



In fact, riding the South Sea Company craze,

many “bubble companies”

—essentially sham paper companies—were created, and

people who bought stocks were recruited.



All over Britain, stock trading fever spread,

and people’s desires reached a fever pitch.



Just like during Japan’s bubble period...“Just buy stocks!”



they cried.



However,

the stock price of the South Sea Company collapsed,

and everything burst in an instant.



Newton was swept up in that wave as well,

and suffered substantial losses.



I will quote a passage describing that outcome.




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In 1720,

the South Sea Company's stock began to rise,

and the excitement spread through London

(the South Sea Bubble),

and Newton’s mood grew unsettled,

as funds doubled in the South Sea Company stock trading.

By contrast, stocks other than the South Sea Company rose eightfold within six months,



and even after Newton realized profits,

there was no sign of a halt.

He could not restrain his frustration and

put three times his initial purchase amount into it.

However, because he entered near the market peak,

when the bubble burst,

the market plunged 75% in just four weeks.

Rather than doubling his funds,he lost most of them.


Michael Batnick
“Big Mistakes (Nikkei BP Marketing)”
September 24, 2019, 1st edition, 1st printing
P.63, cited

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Even geniuses cannot beat greed and jealousy.



Or perhaps, being a genius,

their pride would not allow them to be defeated by others.





Even as times change, human nature remains the same.



Even today,

when people’s desires are stirred, bubbles occur.



Recent memory includes

the surge of Bitcoin.

The rest of the story is as you know...



Please make sure you do not fall for the“bubble trap.”

Please be careful.



Thank you for watching until the end today as well.






Keizo Kudou