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The Informational Advantage- What do you Know that Other People Don't

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Bank of Japan Deputy Governor Kiyohiko Nishimura discusses "informational advantage" this week at the Lujiazui Forum on economics and finance in Shanghai:

"In my understanding, the Volcker Rule [proposed legislation restricting banks from making certain speculative investments] is designed to deter banks from taking excessive risk in capital markets, where volatility is inherently high and in which bankers do not necessarily have informational advantage in predicting market developments.

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Rather, the Volcker Rule urges banks to return to their traditional stronghold of commercial banking business, in which they can utilize their informational advantage based on long-term relationships with their customers."

Informational advantage is a key investment concept. What do you know that other people don't?

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If everyone knew everything, investment wouldn't exist. The market would price all investments (stocks, bonds, commodities) perfectly. There would be no room to buy something under-priced and then sell it at a profit after it goes up.

But (fortunately or not) we live in an imperfect world. Some people know more than others. Investment opportunities arise when people who know less dominate a market. The lack of knowledge causes an under-pricing, which more knowledgeable buyers spot. Eventually the wider market sees the unrecognized value and the price rises, making money for the early buyers.

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I have an interest in the financial markets, commodities and Geopolitics.
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