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What is the concept of arbitrage? Arbitrage is most vaguely defined as an opportunistic mispricing in the markets. The concept of arbitrage can be applied in a lot of ways, but the one we are focusing on right now is time arbitrage.

What is time arbitrage? Time arbitrage represents the opportunity that arises when short-term trading in the markets presents the opportunity to buy a stock at a discount. This most often happens around earnings season because this is when companies report on the last quarter’s (the previous 3 months) performance. Short-term traders often pay a disproportionate amount of attention to negative short-term developments, particularly if they were unexpected, even when the long-term prospects haven’t changed in any significant manner. The short-term traders sell their shares, and that puts downward pressure on the price of the stock.

Why should you care? Time arbitrage represents an opportunity to buy a stock with great long-term prospects at a discount due to short-term traders causing the price to fall. Time arbitrage is a value investor’s best friend. It’s like a one-day sale on one of your favorite brands. You get the opportunity to purchase a lot of value at a lower price thanks to the irrational trading of short-term traders. Finding these opportunities can be highly profitable. One of the recommendations we gave some early adopters of our service actually recently gave everyone a GREAT opportunity to buy a great company at a discount. Short-term expectations

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weren’t met, but the long-term future of the company is super bright. It’s a classic time arbitrage opportunity.

How can you find these opportunities? Finding these opportunities can be a little tricky. It’s an absolute must to be able to discern between short-term missed expectations and a long-term problem coming to light. Sometimes, a sell-off is warranted because the company’s fundamentals have truly broken down. How can you discern between an opportunity and an impending disaster? You need to know the company (or have someone else know it for you). You need to know the long-term strategy of the company, and you need to know if they are still on track to carry out the strategy successfully. You need to know if the short-term bad news is a fundamental flaw or if it’s a minor hiccup. You need to know if the financials are still in great shape. In short, you just need to understand the company enough to see through the noise and make an objective decision.

Concluding thoughts. Time arbitrage is a phenomenal opportunity to make money from the irrationality of short-term traders. Earnings season is a great time of the year to find time arbitrage opportunities. If you take advantage of these opportunities when they present themselves, it’s highly likely you will be a successful investor! Buying great companies at a discount is the best way to invest intelligently, and time arbitrage creates ample stock price discounts.

This document is for educational purposes.

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