How Winston Churchill's frenetic margin trading lost him a fortune

ELI5/TLDR

The Financial Times went digging through the actual trading records of history’s most famous geniuses to ask one question: does being brilliant make you good with money? The answer is mostly no. Isaac Newton timed a bubble perfectly, then jumped back in at the top and lost a fortune. Winston Churchill blew an enormous book advance day-trading on borrowed money. The few who did well — Charles Darwin, John Maynard Keynes — won by being patient and boring, not by being clever.

The Full Story

The premise is a jab at modern finance. Hedge funds and banks recruit physicists, mathematicians, and literal rocket scientists, betting that a high IQ will crack the market. So the FT team pulled the real portfolios of history’s heavyweights to test whether brains and returns actually go together. They mostly don’t.

Newton: right at the top, then ruined

Isaac Newton invented calculus and ran the Royal Mint, which made him a sort of finance minister. He was also rich, holding around 10,000 shares of the South Sea Company plus a large pile of government bonds.

The South Sea Company was an early-1700s firm handed a monopoly on trade with South America — a place few Englishmen had seen, rumored to be stuffed with riches. Nobody really understood it, which is exactly why the price went vertical. The hosts call it the original meme stock: a story too big and too far away to check, so everyone just piled in.

“I always think the South Sea bubble is a bit like the subprime mortgage bubble or even the AI bubble today… everyone gets wildly excited about, no one really understands.”

Newton did the hard part right. He sold near the peak, more than doubling his money. Then, a couple of months later, he watched everyone around him get even richer, sold his bonds, emptied his cash, and poured the lot back in at the very top. A year on, he was down roughly 40%. The famous line attributed to him — “I can calculate the movement of the stars, but not the madness of men” — turns out to be his answer when asked, near the peak, how much higher it could go. So he knew it was a bubble. He just thought he could ride it a little longer. (He still died, in today’s money, a billionaire — so save your tears.)

What margin trading actually is

Before Churchill, a plain explanation, because it’s the mechanism that wrecks him. Normally, if you spend 100 pounds on a stock, the worst that can happen is you lose 100 pounds. Buying “on margin” means putting down a sliver — say two or three pounds — and borrowing the other 97 or 98 from your broker. Think of it like buying a house with a tiny deposit and a huge mortgage. If the stock rises 5%, your tiny stake can double. If it falls 5%, your stake is wiped out completely, and you may owe more. The borrowing magnifies both directions. It turns small price wiggles into total wins or total losses.

Churchill: the meme trader of the 1920s

Churchill was a money machine and a money sieve at once. In the 1920s a single newspaper article paid him about 750 pounds — serious money then. His book advances, adjusted for the size of the economy, ran toward 80 million pounds in today’s terms. He left the cabinet partly to go earn more of it.

Then he went to America on a four-month book tour and, in the hosts’ phrase, “went on a bender.” In nearly every city he’d hear about some hot company and buy it. He stumbled into margin trading by accident, without really understanding the borrowing he was taking on, and fell in love with America’s go-getting, risk-loving spirit — even scolding Britain for being timid.

“There were these nine trading days ending the 18th of October where he really went into overdrive and he traded $620,000 worth of stock… that trading activity just saw him completely wiped out.”

The 1929 crash didn’t help, but it wasn’t the cause — the sheer frenzy of his trading did the damage. He came home with nothing, still owing a book he’d already spent the advance on, and stayed in debt for years.

Darwin and Keynes: the boring winners

The people who actually won look dull by comparison. Charles Darwin behaved like a textbook asset allocator — owned railway stocks when railways were the rage, then quietly rotated into government bonds in the mid-1860s, sidestepping the 1873 crash that vaporized railway debt. Over 42 years he compounded real returns of 8.6% a year. The only asterisk: a chunk of his wealth came from inheritances, so it’s hard to fully separate skill from luck.

John Maynard Keynes is the standout. Running the endowment at King’s College, Cambridge, he beat UK stocks by more than 5% a year for decades. For scale: Warren Buffett’s Berkshire has beaten the S&P by about 1.4% a year over the past 25 years. The lesson isn’t his brain — it’s that he changed. Early on he was effectively a day trader, holding stocks under six months. Blew up in the 1920s, learned, and slowed down: later his holding periods stretched past seven years, concentrated in a few companies he understood deeply. Adapting your entire style is one of the hardest things an investor can do.

“As time goes on I get more and more convinced that the right method in investing is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes.”

That’s pure Buffett and Munger, written decades before either. Two caveats the hosts add: pre-1980s there was no concept of insider trading, and the very well-connected Keynes likely used information that would be illegal today.

The wildcard: a painter doing bond arbitrage

The delightful surprise is J.M.W. Turner, the great British landscape painter, who turns out to have been a fixed-income arbitrageur. After the Napoleonic Wars, British government debt sat near 200% of GDP, mostly in “perpetual” bonds — you lend 100 pounds and collect interest forever, with no maturity date. In an 1829 debt swap, the Treasury let holders of certain old bonds exchange them into new ones. Turner spotted that one of them — a “long annuity” — was slightly mispriced, so you could swap it and pocket about 3.4 percentage points of essentially free money. Arbitrage just means buying the same thing cheap in one form and selling it dear in another, riskless. Today such a gap vanishes in seconds; back then it lingered. Turner pushed tens of thousands of pounds through it. A contemporary sniffed that he was “the only man of genius I ever knew who is sordid in these matters.”

The verdict

Across Einstein (data mostly an urban myth), Jane Austen (never paid enough to invest), Marie Curie (gave it all away), and the rest, the conclusion is “meh.” The takeaway: maths alone doesn’t make an investor. Fundamental analysis tells you what something is worth, but it can’t explain why a crowd keeps bidding a bubble higher. You need both the numbers and a read on the madness — plus enough risk to earn returns, but not so much you blow up like Churchill.

Key Takeaways

Margin trading: put down a small fraction, borrow the rest. It multiplies gains and losses alike; a 5% drop can wipe out a stake bought with 2-3% down.
Newton sold the South Sea bubble near the top, then bought back in at the peak and lost ~40% of his fortune — knowing it was a bubble didn’t save him.
A bubble is a story too big or too distant to verify (South Sea = South America’s rumored riches), letting price detach from reality. The hosts liken it to subprime and AI.
Churchill traded $620,000 of stock on margin in nine days in October 1929 and was wiped out; the crash worsened it but his own frenzy was the cause.
Darwin compounded 8.6% real annually over 42 years by rotating from railway stocks into government bonds before the 1873 crash — boring asset allocation, not stock-picking flair.
Keynes beat UK stocks by 5%+ a year for decades — versus Buffett’s ~1.4% over the S&P — largely by learning to slow from a 6-month to a 7-year holding period after blowing up in the 1920s.
Perpetual bonds pay interest forever with no maturity date; arbitrage means locking in a riskless profit from the same asset being mispriced in two forms — what Turner did in the 1829 debt swap.
Brilliance plus returns requires two skills: fundamental valuation AND a feel for crowd momentum. The first alone leaves you blindsided by manias.

Claude’s Take

This is the FT’s “Story of Money” series in its lighter register — three smart people swapping war stories rather than building an argument. It’s genuinely entertaining and the research (mostly Andrew Odlyzko’s archival work, plus David Lough’s Churchill book and Andrew Ross Sorkin’s 1929) is real. The structural honesty is refreshing: they flag up front that this is a parade of dead white men because those are the only records that survive, and they keep poking holes in their own conclusions — Darwin’s returns are muddied by inheritance, Keynes may have traded on what we’d now call inside information.

Where it’s thin: the “does brilliance equal returns?” framing is a survivorship-biased anecdote reel, not evidence. Five hand-picked geniuses can’t answer whether IQ predicts returns; you’d need the full distribution, including the brilliant people who quietly broke even. The hosts know this — Gillian calls the verdict “meh” — so it never overclaims, but don’t mistake the through-line for a finding. A 7: clean explanations of margin, bubbles, perpetuals, and arbitrage, a great Keynes nugget on changing your style, and the Turner story is a real gem. It loses points for being a clip-length episode that grazes each subject rather than landing on any one.

How Winston Churchill's frenetic margin trading lost him a fortune | The Story of Money