Bertie misses the years he spent in a dorm room. His inability to remember anything that failed to interest him, combined with the preponderance of Greek-riddled finance and abbreviation-laden marketing courses, quickly convinced him that he was not destined for anywhere close to the top of the class. That eased a lot of the pressure and made life straightforward—just enough classes and assignments to earn a respectable marksheet and sovereignty over the rest of his time without any attendant responsibilities.

This was what he particularly cherished: reading things he liked irrespective of whether they would contribute to his grades; a cavernous library stuffed with all manner of texts; sundry sporting activities; and time spent shooting the breeze with friends he hoped would last him a lifetime. There were no finances to take care of, no office politics to navigate, and without a reality check from the outside world, no dream seemed too big.

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To relive those moments, Bertie looks forward to visiting college campuses and staying in a dorm room again. He got an opportunity to do so last weekend when he attended a history of investing course conducted by an old friend. The layout of the classroom, the simple mess food, and the hostel room, with a large study table and an almirah for books, took him back to the old days.

Dorm room reflections

Of the many investing truths that were discussed—sometimes with anecdotes and sometimes with data—the one that stayed with Bertie was the market’s obsession with big events and its attempts to predict their outcomes. The continuous news cycle provides fodder to this tendency, with even savvy investors getting sucked into the preoccupation.

Bertie’s friend made the point that for one to make money from a big event, one has to get two things right: the outcome of the event, and then the market reaction to that outcome, which may not necessarily be what one thought would happen. Numerous examples of this were cited. The effect of Brexit, which was supposed to spell doom for global equities, lasted for just about an hour before the markets resumed their upward march. Similarly, in November 2016, when Donald Trump became US President for the first time, the S&P was up every single day of the results week—the first two because the markets thought Hillary Clinton was a shoo-in, and the next three because the markets deemed Trump’s policies to be business-friendly.

Something similar has happened in India after the recent surprise 50 basis points rate cut by the Reserve Bank of India (RBI). On the eve of the cut, the government 10-year bond was trading with a yield of around 6.25%. If one had correctly forecasted the quantum of the cut, one would have been tempted to buy the bond. The yield today hovers around 6.40%, so bond prices have moved in the opposite direction of what one might have expected.

Several reasons are cited post-facto for such counterintuitive market behaviour, like pre-positioning, which is market speak for how investors are positioned in the run-up to the event. But the truth is that markets are rarely driven by a single factor, event, or narrative. Generally, when the bulk of participants decide to focus on just one thing, something is quietly shifting elsewhere in the landscape.

Bertie savoured the two days on campus, basking in the feeling of being a student again. Some old lessons were reaffirmed, some new ones learnt, and the wide-open spaces widened Bertie’s frame of thinking as well and reassured him once again that no dream is too big.

Bertie is a Mumbai-based fund manager whose compliance department wishes him to cough twice before speaking and then decide not to say it after all.