I decide to take the events of the past two weeks to reflect about the mis-priced events and expectations. This year has seen two such situations present themselves – namely Brexit in the UK and the Presidential Election in the United States.
Both situations had binary outcomes. Markets mis-priced the outcome wrongly in both instances, and reacted violently initially when it became apparent they had misjudged the situation.
There are a couple of points I like to draw from these two events.
Firstly, predicting the outcome of major events and taking huge directional bets on it is a very tough to get right consistently. One not only has to be right on the outcome, but also the reaction of the markets.
I remember the night when it became apparent Trump was clearly winning. Futures in the US plunged precipitously and fell 5%. In Asia, markets were open and sold …