Even Isaac Newton couldn't predict markets.

August 15, 2025

On any given Friday, it's not a great idea to label Isaac Newton a failure. I mean, the guy invented calculus.¹

But even Isaac couldn't predict the markets, and he got swept up in irrational exuberance and lost a fortune in the South Sea Bubble.² If you didn't like calculus in high school or college, this might make you somehow feel better. But I want you to remember this the next time someone opines to you on the level of the market: the guy who invented calculus had no insight into the great bubble of his day. Markets cannot be predicted.

But you have to know something, right? We can't all be Socrates walking around saying "All I know is that I know nothing." This Socratic Paradox is fun when you're a sophomore in college but no way to plan for retirement.

The market is close to its all-time valuation high, going back 230 years.³ We know this. We don't know whether it is worth this amount or not, as that requires a perfect prediction of the future business state of the United States and the world. With billions of "votes" per day, the markets have settled on the idea that the future looks bright. And the aggressive rise in the market could continue for some time. It could continue for a long time.

But we don't know, and optimism can fade to pessimism quickly. It would certainly be historically normal for the market to go flat or down for the next three to five *years*. Note that I didn't say "minutes" in this era of immediacy, I said "years." This is something you should think about now, as it almost certainly will happen. We just don't know when.

If you are reading this and thinking "this is not helping me, you just said two different things," you are correct. The point is that market predictions are worthless.

So what to do? We turn to what is controllable.

This is a critical thing to know about investing: whatever your risk allocation in your portfolio is, it is independent of time. In a well-structured portfolio, the risk you are willing to take now is the same risk you should be willing to take in a future time period, regardless of time, and regardless of what is happening around you.

If you are comfortable with, say, 70% of your assets in stocks now, and stocks decline 30%, you should still feel the same level of comfort with 70% of your assets in stocks after the decline. The frenzied activity of the business world, the markets, and the political world should not affect the asset allocation reasoning.

Life events, age, working status, and your capital level may change the risk profile of the portfolio (and we prefer to do this gradually, in a premeditated way). But the level of the market, and the events of the world, should not affect portfolio construction. If they do, you'll start to make decisions in hindsight, much like Isaac Newton.

Dan Cunningham

1. German mathematician Gottfried Leibniz was working on calculus at the same time as Newton, and arguably deserves more credit for the form used today.
2. Newton was rich before the bubble, and had been a cautious investor his entire life. But he lost a good chunk of his fortune, around $20 million today, in the collapse. He still died wealthy due to his prior success. Extended history.
3. Market valuation source: Burton Malkiel, NYT, 8/15/25.