Everybody is a genius, after the event.
— Prof. Apte, in class, while discussing speculation on the currency markets.
That innocuous remark was made by our director, while taking a lecture on International Finance. What he meant was that speculators sometimes take on risks for a firm, based on their views where the markets would go. But, often, their views would be wrong, and the firm would be left in hot soup. Which is when the bosses become geniuses and start pulling up the poor chap for overlooking the possibility of such an obvious outcome.
But funnily enough, such geniuses do really exist in the financial world. Of course, they do. How else do the others make money?
Twas’ during my summer internship, when the trading floor started buzzing because of a recent rumour. Reuters had just announced that somebody had made an anonymous bid on Reuters. (that somebody later turned out to be Thomson. Thomson subsequently bought Reuters for nearly 9 billion pounds).
Now if you know what its like on the trading floor, a few microseconds after such a tremendous piece of news, its nothing less than the mess after the Big Bang. People yelling, papers flying, calculators being tapped on, people running around like crazy headless chickens with their wireless headsets on. (Oh, these are about 5 odd people I am talking about.)
The rest of the floor just gives out a collective gasp, as they mentally calculate the amount of notional wealth that this piece of gossip on the market just created. To do that they would have to go on to the Bloomberg Terminal and tap out a few commands, namely (RTR LN GIP), and check out the price movement for the day for Reuters.
And, in this case, the jump was so large, that you can actually see the jump below in the image I captured 3 months later.
A Bloomberg snapshot of the Reuters price data, when the bid was made. Look at the huge spike (a little more than 20%) around 5th May in price and volumes being traded on the market.
So looking at the figure, we can see, if the company had been worth $1 billion on the market, the shareholders made a neat $200 million, without any effort at all.
We, being summer interns, were so overawed by the lightning speed with which the scheme of things happened. Obviously, all of us were blithering about this with each other, whenever we met in the aisles.
“Shit man, did you see that spike on CNBC?”
“Yeah man, f*&% man”
“Man, if I had known about that bid, I would have bought some stock before hand. I would have made atleast a cool 10 grand.”
“Yeah dude, I was just calculating the profits and all.”
“Yeah… sure… (mumble mumble)”