An eBook from Money Examined
10 Disasters That Ruined Smart People
True stories of brilliant people, devastating money mistakes, and the mechanisms behind them.
By Robert Greenland
- Complete 64-page digital edition
- PDF format
- One-time purchase, secure checkout with Stripe
- Download link on the confirmation page and by email after payment
Why doesn’t intelligence protect people from this?
Isaac Newton. Ulysses S. Grant. Mark Twain. Two Nobel laureates in economics. The man who ran the New York Stock Exchange. Each was smarter, more experienced, or more accomplished than almost anyone around them. Each lost something large.
Each chapter tells what happened, as precisely as the historical record allows, explains the financial mechanism behind the loss in plain language, and ends with a short section called The Pattern.
What you’ll take away
The stories, told precisely
What happened, as precisely as the historical record allows — with the uncertain parts marked as uncertain.
The mechanism, in plain language
Leverage, concentration, bank runs, naked puts, total return swaps: each explained without jargon.
The questions to ask
Every chapter ends with The Pattern and one question. Together they form a checklist for your own decisions.
Ten stories, 1720 to 2021.
- 1Isaac NewtonThe Genius and the Crowd1720
- 2Ulysses S. GrantThe General’s Last Battle1884
- 3Mark TwainThe Machine That Ate a Fortune1894
- 4Irving FisherThe Permanent Plateau1929
- 5Jesse LivermoreThe Boy Plunger1934
- 6Richard WhitneyThe White Knight1938
- 7Victor NiederhofferPennies and a Steamroller1997
- 8Long-Term Capital ManagementThe Nobel Prize Hedge Fund1998
- 9Elie Wiesel and Bernard MadoffThe Myth of Exclusivity2008
- 10Bill HwangTwenty Billion in Two Days2021
Plus the introduction, The Seven Patterns, 97 endnotes, and a full list of sources.
The Seven Patterns, three centuries.
The ten stories in this book cover three centuries. The closing chapter connects them through the mechanisms that appear again and again.
- 1The crowd
- 2Borrowed money and financial leverage
- 3Concentration
- 4Unexplained returns
- 5Hidden or unaccepted losses
- 6Rare but devastating risks
- 7Misplaced certainty
Look inside the book.
Two real spreads from the eBook: a chapter opening and The Pattern that closes it.
Chapter Four · 1929
IV
“reached what looks like a permanently high plateau.”
Irving Fisher, October 15, 1929
Irving Fisher
The Permanent Plateau
IV · Irving Fisher
Irving Fisher: The Permanent Plateau
On October 15, 1929, Irving Fisher told an audience that stock prices had “reached what looks like a permanently high plateau.” The New York Times reported the remark the next day under the headline “Fisher Sees Stocks Permanently High.”
Nine days later, the market began to crash.
Fisher was not a promoter or a stock tipster. He was a professor at Yale and one of the most respected economists in the United States. His work on interest rates, money, and price levels is still taught today. He was also a successful inventor. In 1913 he patented an index card filing system, and in 1925 he sold the company built around it to the firm that became Remington Rand. The sale, and the stock investments that followed, made him wealthy. His holdings were reported at around $10 million before the crash.
Money Examined
A simple example, with round numbers chosen for illustration: suppose you have $10,000 and borrow $40,000, buying $50,000 worth of stock. If the stock rises 20 percent, your holdings are worth $60,000. You repay the $40,000 loan and keep $20,000. Your own money has doubled. But if the stock falls 20 percent, your holdings are worth $40,000, exactly what you owe. Your $10,000 is gone.
There is a second danger. Brokers don’t wait for your money to disappear entirely. When the value of your stock falls toward the size of your loan, the broker issues a margin call, a demand that you add cash or securities. If you can’t, the broker sells your stock, whatever the price. In a crash, many investors can receive margin calls at once. If enough of them must sell, those sales can put more pressure on prices. Borrowing doesn’t only increase losses. It takes away the option of waiting for prices to recover.
The Pattern
Fisher combined a confident forecast with borrowed money. Borrowing to invest magnifies gains and losses, and margin loans add a further danger: a lender can force you to sell at the worst moment, removing your ability to wait. Experts are not immune. A deep understanding of how markets work can create confidence about what they will do next, and public statements make that confidence harder to abandon.
If an investment bought with borrowed money fell sharply, could you be forced to sell before you had any chance to see whether it recovered?
Chapter One is free
Isaac Newton: The Genius and the Crowd
The South Sea Company was founded in 1711 to help manage Britain’s government debt. It also held exclusive trading rights in parts of the Americas, including involvement in the trade in enslaved Africans. But its main financial role was collecting government payments and passing them to investors.
In 1720, the company proposed to take over a large part of Britain’s national debt. People who held government bonds were invited to exchange them for South Sea shares. For the government, this promised lower interest costs. For bondholders, it offered shares in a company whose price was rising. For the company, it created a powerful incentive. The higher its share price, the fewer new shares it needed to hand each bondholder, and the more shares were left over for the company to sell for cash.
How this book is written
What this book will not do is predict the future or tell you what to buy.
But the mistakes in these pages were not made by fools, and that is exactly why they are worth understanding.
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The complete digital edition of 10 Disasters That Ruined Smart People: 64 pages in PDF, with the introduction, all ten chapters, The Seven Patterns, 97 endnotes and the full source list.
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10 Disasters That Ruined Smart People
The complete digital edition · 64 pages · PDF · $19