History Does Not Repeat Itself, But It Often Rhymes
October 30, 2023
9 min read
History Doesn't Repeat Itself, But It Often Rhymes
Would you allow a doctor to operate on you without using the necessary tools? No. Why would you do it then when investing? Even Isaac Newton fell victim to his emotions — from the Tulip Mania of 1636 to today, speculation patterns rhyme. Our original analysis for The Market by NZZ plus the extended investor's view on historical investor psychology.
In 30 seconds — the core thesis
- Emotions are the investor's greatest enemy — and that's not a modern observation. Four centuries of documented speculation bubbles show the same pattern: greed → hype → valuation overshoot → crash → loss for emotionally driven investors.
- Even the greatest geniuses aren't immune. Isaac Newton — perhaps the greatest scientist of all time — lost his fortune in the South Sea Bubble of 1720, because he regretted his early disciplined sale and re-entered with a large bet at the peak. The lesson: intellect doesn't protect against emotions.
- History doesn't repeat itself — but it rhymes. Tulip Mania 1636, South Sea Bubble 1720, Railway Mania 1840s, Roaring Twenties, Dot-Com 2000, Crypto 2017/2021, Meme Stocks 2021. The surface changes, the psychological mechanics remain identical.
The original analysis — the opening
Emotions.
They are an essential part not only of life, but also of capital investing. When it comes to investing your hard-earned income, emotions are something like your greatest enemy. There is data going back to the first recorded speculation bubble in 1636 — the Tulip Mania — and the first stock market bubble ever — the South Sea Bubble — in 1720. In both cases, nerves were on edge.
In the latter bubble, even one of the greatest geniuses of all time, Isaac Newton, fell victim to his own feelings. He sold the shares of the South Sea Company early at a profit, then had to watch the price keep rising. So he re-entered with a large bet — and lost his fortune.
→ Read the full article on The Market by NZZ
Chart 1: Isaac Newton and the South Sea Stock Bubble, December 1718–1721
Source: NZZ The Market
01The uncomfortable question: why are even the most intelligent investors emotionally vulnerable?
Newton wasn't just any investor. He was one of the greatest scientists in human history, the inventor of modern physics and the director of the Royal Mint — a man with deep understanding of mathematics, probability and money. Yet he lost his fortune. That's the uncomfortable truth that can only be hinted at in an NZZ column: intellect and investing discipline are independent variables. Both must be trained separately.
Three psychological mechanisms explain why even highly intelligent investors systematically fall into emotional traps:
- FOMO (Fear of Missing Out) is evolutionarily anchored. The brain has been optimised over hundreds of thousands of years to process socially relevant information — anyone who didn't notice in the Stone Age that the tribal majority was reorienting itself was often dead. This evolutionary wiring makes it psychologically almost impossible to resist the hype dynamic of a speculation bubble when everyone else is swimming in it. Newton saw his friends getting rich with South Sea stocks — the FOMO dynamic overwhelmed his discipline.
- Regret over early discipline hurts more than loss through indiscipline. Anyone who has realised a disciplined gain and then sees the asset rise further experiences psychological pain («I would have earned more») often stronger than the mathematically larger pain of later losses. That was Newton's specific trap: he sold rationally early, saw the stock rise further, and emotionally returned at the peak.
- Social validation in boom phases is overwhelming. In speculation peaks, sceptics are isolated and mocked as backward. This social dynamic makes discipline psychologically very expensive. Disciplined investors must learn to accept social isolation in hype phases as the price of their discipline — and to be rewarded long-term for it.
Newton's lesson — three centuries later still relevant
Newton is said to have later remarked that he could calculate the motions of celestial bodies, but not the madness of men. This statement is the condensed investing wisdom of the last 300 years: rational analysis of business models, valuations and returns is feasible — but predicting human behaviour in speculation phases is not. Disciplined investors accept both: that valuation discipline is possible, and that short-term market movements often run beyond all rationality. They respond to the first with selection discipline, to the second with patience.
02Four centuries of speculation pattern — the mechanics remain
The history of documented speculation bubbles shows a remarkably constant pattern mechanic. Surface themes vary — tulips, South Sea trade, railways, internet, crypto — but the psychological dynamic remains identical:
1636
Tulip ManiaTulip bulbs at house prices
In Holland, prices of individual tulip bulbs reached levels equivalent to houses. The «greed phase» took years. The crash came in weeks. Investors who entered late lost their entire fortunes. First documented manifestation of the pattern.
Pattern: Greed → Hype → Crash1720
South SeaEnglish stock mania with Newton victim
The South Sea Company promised exorbitant gains from trading monopolies. Stock prices multiplied in months, then everything collapsed. Newton lost his fortune because he regretted his discipline-sale and re-entered at the peak.
Pattern: identical to 16361840s
Railway ManiaBritish railway speculation
Hundreds of railway companies were founded based on the real technological revolution. Valuations reached extreme levels, the 1845-1850 crash destroyed wealth. The pattern: real technology disruption + speculative overshoot.
Pattern: identical, with technology wrapper2000
Dot-ComInternet bubble and its lost decade
The internet was a real revolutionary technology. But valuations of individual companies were psychologically driven, not fundamentally justified. Crash 2000-2002, long recovery phase. Same pattern as 1720, with Microsoft instead of South Sea Company.
Pattern: identical, with internet wrapper2017
2021
Crypto + Memes2021
Most modern manifestations
Crypto hype 2017 and 2021, meme stocks (GameStop, AMC) 2021 — all show the Newton pattern in modern form. FOMO, social validation in online communities, regret-pain at discipline, speculative overshoot. Four centuries later, identical psychology.
Pattern: identical, with Reddit wrapperWhat this overview shows: the mechanics aren't time-dependent. Disciplined investors learn from this that behavioural finance isn't a modern concept but a timeless human constant. Anyone building their investment discipline on «but today's time is different» arguments ignores four centuries of consistent evidence.
Today's pattern manifestation
Current mega-cap concentration (cf. «What keeps me awake at night» companion), AI hype valuations of individual stocks, periodic crypto waves — all show the structural pattern elements: revolutionary real technology + valuation overshoot + social consensus + FOMO dynamic. Where this pattern ends isn't predictable — when it ends isn't either. But the pattern itself is recognisable, documented and repeatable. Disciplined investors accept the recognisability and respond with structural diversification and valuation discipline — not ignorance.
03What this means for your quality portfolio
Historical pattern recognition is the foundation of disciplined investing. Three strategic implications:
| Implication | What to do |
|---|---|
| 1. Written investment thesis as anti-emotion tool | Before every purchase: written investment thesis with concrete fundamental assumptions, valuation logic and sell triggers. This written discipline helps to remain objective in emotional hype moments — it is the «necessary tool» without which one shouldn't invest (opening: «would you allow a doctor without tools to operate?»). |
| 2. Valuation discipline against hype overshoot | Even in real growth areas (today: AI, cloud, biotech) valuation limits must be respected. A revolutionary business at extreme valuation is still speculation — the Newton trap. Disciplined investors combine quality recognition with valuation discipline, both simultaneously. |
| 3. Structural diversification against single-pattern exposure | Anyone who concentrates 100% of their wealth in a single hype-pattern story (even if the story is real) plays against the historical pattern. Structural diversification across sectors, geographies, business-model types significantly reduces pattern vulnerability. |
| Investor behaviour | Pattern-vulnerability status | What to review |
|---|---|---|
| "This time is different, AI changes everything" | Classic Newton-regret pattern activatable | Hold written valuation limits, consciously override FOMO reflex |
| "I am disciplined because I am smart" | Newton trap: intellect doesn't protect against emotions | Understand discipline as separate skill, written rules |
| "I'm waiting for the crash, then I'll buy" | Other trap — market timing fails statistically almost always | Quality selection and holding, instead of timing speculation |
| "I have written investment thesis and valuation limits" | Structurally pattern-resistant positioned | Hold discipline, periodically refine |
How investors can systematically train their emotions is deepened in our Emotions pillar. The structural concentration trap of current markets is treated by the «What keeps me awake at night» companion. Valuation discipline against hype overshoot is deepened in our Safety-Margin analysis.
04Three scenarios — how the current pattern manifestation could end
If the current mega-cap and AI hype concentration is a pattern manifestation, then there are three plausible resolution paths:
Bull Case
«This time it's really different» — gentle valuation normalisation
AI and global platforms deliver real transformative value creation. Valuations normalise gradually through operational growth instead of through crash. Investors with valuation discipline miss some performance of the last phase, but avoid no catastrophic crash scenario. Possible path, but statistically the more rarely historically documented one.
Base Case
Sector rotation and mixed valuation compression
Individual mega-caps experience significant valuation compression (-30% to -50%) while others continue to perform. Market concentration resolves gradually, without classic crash pattern. Investors with diversification discipline benefit from sector rotation. Our base case.
Bear Case
Classic Newton pattern repeats
Current hype manifestation collapses in crash-like pattern as 1720, 2000, 2008. Highly valued mega-caps lose 50-70%, broad market 30-50%. Long recovery phase. Investors without diversification discipline or valuation limit experience Newton-like losses. Statistically more likely than the «this time everything is different» scenario.
05What you should review now
A pattern-vulnerability inventory of your portfolio and your investment discipline takes 60 minutes. Four concrete checks:
1. Hype-concentration inventory. What share of your portfolio is concentrated in current hype themes (AI mega-caps, crypto, specific thematic ETFs)? Above 30% in a single hype theme is structurally pattern-vulnerable.
2. Written investment thesis per position. Do you have written fundamental assumptions, valuation logic, sell triggers for each position? If no — define today. Before the next hype or crash phase.
3. Valuation-limit self-diagnosis. Which of your positions are currently at extreme historical valuation levels (P/E in top 10% range of sector)? These are pattern-consistently vulnerable, even if the business story is real.
4. FOMO-reflex self-diagnosis. Have you made purchases primarily out of FOMO in the last 24 months (because other investors win, because the hype is large)? These purchases are statistically below average. Honest self-diagnosis is the starting point for discipline improvement.
What disciplined investors do
They take history seriously, not as argument for permanent crash expectation, but as evidence for the persistence of the pattern. They write investment theses before every purchase. They set valuation limits that are respected even in hype phases. They diversify structurally against single-pattern exposure. They accept in hype phases social isolation and sub-optimal performance against hype-chasers as the price of their discipline. Over decades they are systematically rewarded for this discipline — not because they are smart (Newton was also smart), but because they have cultivated a separate discipline skill. This insight — that discipline and intellect are independent variables — is the most important insight from 400 years of investor history.
06Frequently asked questions
Why do speculation bubbles always come back, although they are historically documented?
Because the pattern is anchored in human psychology, not in the respective business models. The mechanisms (FOMO, social validation, regret pain, loss aversion) are evolutionarily wired and don't change through education about history. Disciplined investors accept that and work with tools (written rules, valuation limits, diversification) instead of just intellect.
Aren't real technological revolutions different from pure speculation?
The underlying technology can be real — the railway was real, the internet was real, AI is real. That doesn't change the valuation pattern mechanics. Real technology + speculative overshoot produces the same crash pattern as pure speculation. The lesson: don't ignore real technology, but apply valuation discipline anyway.
How do I distinguish «quality growth at reasonable valuation» from «hype overshoot»?
Three filters help: (1) valuation relative to historical range — top 10% level is warning signal, (2) market consensus strength — when almost all investors believe the same, caution is warranted, (3) underlying fundamental data — operational performance must mathematically justify the valuation, not just narratively. Quality growth at reasonable valuation meets all three. Hype overshoot typically meets only (3) partially.
How does arvy handle historical pattern risks?
arvy holds disciplined valuation limits and structural diversification as protection against single-pattern exposure. Concrete diversification logic and current sector distribution you find transparently documented in the arvy Quarterly Report Q1 2026.
Further reading — the thematic anchors of this analysis
Master Your Emotions
Pillar on investor psychology
What keeps me awake at night
Current concentration pattern
The Great Paradox
Buy high, sell higher
The Safety Margin
Valuation discipline as protection
When to sell — 12 rules
Sell discipline against Newton trap
arvy Quarterly Report Q1 2026
Disciplined diversification in practice
Four centuries of evidence — and yet human nature doesn't change
Newton calculated the motions of celestial bodies with precise mathematics — and lost his fortune because he could not also calculate «the madness of men». This statement is the condensed investing wisdom of the last 400 years. It doesn't say that disciplined investing is impossible. It says that discipline is a separate skill — one that even the greatest intellects don't automatically master. This insight is intellectually trivial and psychologically transformative.
What separates disciplined investors from average ones is not superior market forecasting or higher IQ. It's the honest acknowledgment that historical patterns don't repeat, but rhyme — and that personal vulnerability to these patterns must be systematically trained. Written investment theses before every purchase. Valuation limits that are respected even in hype phases. Structural diversification against single-pattern exposure. Acceptance of social isolation in hype phases as the price of long-term discipline. These tools are the «necessary tools» without which one shouldn't invest. Anyone using them systematically builds wealth over decades that overcomes the Newton-pattern vulnerability. Anyone ignoring them repeats the most expensive mistakes of 400 years of investor history. The choice is personal — the consequences are mathematical.
Original written by Thierry Borgeat, Co-Founder of arvy, for The Market by NZZ. The extended arvy companion piece reviewed by Patrick Rissi, CFA and Florian Jauch, CFA. Last updated: April 2026.
Disclaimer: This article is for general educational purposes and does not constitute personal investment advice. arvy is a FINMA-supervised asset manager with a CISA licence (Art. 24). Imprint & Legal Notice.
