The Madness of Markets, by @ajkeen keenon.substack.com/p/the-ma… @aedmans Isaac Newton might be able to foresee the movement of the stars, but he couldn’t foretell the madness of men. It was a lesson that cost the great physicist £4 million (in today’s money) when he threw his fortune into the South Sea Bubble. This priceless parable in Newtonian psychology opens The Madness of Markets, the new book by Alex Edmans — London Business School finance prof, old friend of the show, and author of the bestselling May Contain Lies. Dr Edmans’s prognosis is bracingly unflattering to guys like Isaac Newton and Mark Twain who splurge their fortunes on speculative ventures. Intelligence, he reminds us, is domain-specific, but many smart people simply aren’t intelligent enough to realize this. So, in the age of Robinhood — when we can all trade anything from stocks, options, crypto to NFTs — the supposed wisdom of crowds is sometimes driven over the cliff by the irrational exuberance of dumb individuals. Speaking of driving off the cliff, ninety percent of us think we’re above-average drivers, Edmans jokes, and this same delusion applies to markets. Unfortunately, such stupidity can be expensive for big brain types like Newton or Twain. “When people trade, even before fees and commissions, the average trade loses money,” he warns. So close your Robinhood account and stick your cash in the bank? No, not quite. Know your edge, Edmans reminds us. And when it comes to making sense of the current AI boom, Edmans offers some particularly wise words. The AI sector trades at 25 to 30 times earnings rather than Cisco’s bubble-era 190, he notes, so it’s unlikely anyone will lose their life’s savings on Anthropic or OpenAI. That said, the good doctor Edmans advises, don’t confuse your self-worth with your net worth. That’s a rookie conceit that only somebody as smart as Isaac Newton would fall for.