The Scottish Lion and George Soros

During my finance studies in the 80-ies, I learned about the Efficient Market Hypothesis. This Hypothesis is about the reflection of market information in prices of securities traded on the financial markets. After Fama’s publication, his hypothesis has been subject of many debates.

During my first job on the ABN Amro Bank dealing room as corporate sales advisor, I realized that financial markets are not academic places. Financial markets are a rough places where you can almost touch emotions by looking at a Reuters trading screen.

Efficient Market Hypothesis or not, most financial market traders behave as a herd of antelope that is driven by two emotions:

  1. Fear = Run for your life = ? default
  2. Greed = Eat and drink as much as you can = ? $$

To survive it is safe to stay in the herd if they start running after spotting a lion. If you don’t run, you are an easy prey.

The fear of an independent Scotland drove the herd to sell the pound sterling, UK bonds and stocks. Prices went down. But the Scotts voted for a UK stay: the lion is back to sleep. Time to buy, buy, buy. You guess, prices go up.

We saw this lion coming. But of course there will be another lion somewhere and can strike anytime. Are you brave enough to stay put? George Soros did. Was he a fool or a genius? Now he is a rich fool or genius.