Distortions and Disgust equal Opportunity

Two quick notes on disruption and disgust:

1) The Japanese government plans outright purchases of industrial assets in order to inject capital into its economy and spur investment. Asset prices of industries that the government invests in will likely rise, but industries that are ignored by the government’s investment program may find their prices languishing or even falling. Opportunities may arise from these distortions with Japan’s equity markets becoming even less efficient than they already are.

2) A Wall Street Journal article details how retail investors have been fleeing actively managed funds in favor of passive strategies. This is a positive, as fewer assets under active management reduces competition for good investment ideas. Mispricing opportunities may become more extreme as the pool of “dumb money” that simply buys the index becomes increasingly larger.


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