Definition
Arbitrage is taking advantage of price differences between identical assets in multiple markets. Those multiple markets could be different in identity or different temporally.
Example 1
You are at a garage sale and you see a lamp that costs 10 dollars. You know that lamp could be sold on craigslist for 15 dollars. So you buy the lamp, resell it online and you have a 5-dollar profit. You just engaged in arbitrage with markets of different identities.
Example 2
You are at the mall and you see a dress that costs 100 dollars. You know that dress is going to featured in a celebrity fashion show in 6 months and it then will be worth 500 dollars. So you buy the dress, resell it in 6 months and you have a 400-dollar profit. You just engaged in arbitrage with markets that are different temporally.
Example 3
Within the stock market, there are multiple stock exchanges (marketplaces) where a particular stock is put up for sale. Sometimes there are price differences between the listings. Stock x might be 10 dollars per share on the New York stock exchange, but 10.01 dollars on the London stock exchange. Arbitragers will buy stock x on the New York stock exchange and sell it immediately on the London stock exchange. They earn a one cent profit per share. Their efforts get rid of the difference. Buying stock x on the New York exchange makes the price of the stock there go up. Selling the stock on the London exchange makes the price of the stock go down. Eventually the stock prices are equal. The application is that price differences very quickly disappear.
Application
If you believe a stock with be worth twice as much in a month. You would want to buy as much of the stock as possible. However, you are unlikely to be the only person who thinks that. That temporal arbitrage opportunity would likely be eliminated by other people (with their high-speed computers) long before you have the opportunity to do anything yourself. The price of the stock would rise to that future expected value before you get there and thus you don’t have any opportunity to make profit. My point is no matter how strongly you believe that you can beat the market, I can almost guarantee you that you can’t. There are a lot of people within the stock market. Any profit-making idea that you have has likely already been taken advantage of. So instead of trying to pick stocks and time the market, simply be patient and stick to the plan. In the end, you’ll be better off.
Fee Structure
| Rate | Assets Under Management |
| 1.44% | Below $125,000 |
| 1.00% | Between $125,000 and $750,000 |
| .85% | Between $750,000 and $1,250,000 |
| .80% | Between $1,250,000 and $1,750,000 |
| .75% | Between $1,750,000 and $2,500,000 |
| .70% | Between $2,500,000 and $3,250,000 |
| .65% | Between $3,250,000 and $4,250,000 |
| .60% | Above $4,250,000 |
A single rate is applied to the entire account. So a person with a $750,000.01 account pays less than a person with a $750,000 account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.
As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. Please contact me if you would like to submit a post to my blog.
If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.
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Questions for the comments
Did my explanation make sense? Do you agree or disagree with what I said?
