In 1720, Sir Isaac Newton was the Master of the Mint – the most trusted and careful quantitative mind in Europe.

He was also an avid investor. He owned the SpaceX of his day – The Governor and Company of the Merchants of Great Britain, Trading to the South Seas and Other Parts of America, and for the Encouragement of the Fishery. (You can understand why most people just refer to it as the South Sea Company.)

It owned a royal monopoly on British trade with Spanish South America, which, most importantly, included the “Asiento de Negros.” That was the contract to supply enslaved Africans to the Spanish plantations in America. The money wasn’t in transporting the slaves. It was in smuggling sugar after gaining access to Spain’s ports. Back then, sugar was the most valuable commodity in the world, much like oil is today. In the early 1700s, sugar made up about 25% of all imports to Europe. It was Britain’s most valuable import for almost a century, before cotton finally surpassed it in 1825. There was a fortune to be made in sugar, and the South Sea Company was the best way to invest in the opportunity.

The stock became so popular that the company proposed to take over the bulk of Britain’s national debt – roughly £31 million of government annuities, by converting the securities into South Sea shares.

The company issued new stock at a face value equal to the debt it absorbed. Seems reasonable. But there was a very important wrinkle: if the share price rose above face value, the company could sell the excess shares and pocket the difference. Thus, every uptick in the price directly enriched company insiders. And that gave them every reason to drive the price up, by any means necessary, including bribes of stock to politicians, loans to buyers secured by the very shares they were buying, and using the company money to buy its own stock. A mania was born.

By the spring of 1720, Isaac Newton realized it was time to sell. On April 19, he sold 3,000 shares. Through May he sold more. And on June 14, he “puked” the stock, selling every share he owned. Newton walked away with a profit of roughly £20,000, which was an enormous fortune at the time.

But then… he watched the stock going higher and higher… without him!

After about six weeks, he couldn’t take it anymore. By late July, he was converting his safe government annuities back into South Sea stock, at twice the price he had sold! And, fatefully, on August 24, he subscribed to a new offering of shares. Four weeks later, the stock collapsed. He rode it into the ground, losing everything he’d made, and then some.

A mania doesn’t convert fools. The fools were always in. A mania converts the skeptics. And the top is in when the “last bull” finally buys.