Economic theory assumes markets tend toward efficiency—prices reflect all available information and opportunities get arbitraged away. This assumption roughly holds in stable conditions. But volatility breaks market efficiency in ways that create extraordinary profit opportunities.
When conditions change rapidly, several inefficiencies emerge:
Information Lag: Knowledge spreads unevenly. Those who recognize changes early can act while others still operate on outdated information.
Structural Rigidity: Large organizations can't pivot quickly. Their procedures, hierarchies, and commitments create response delays that agile players can exploit.
Emotional Interference: Fear and uncertainty cloud judgment. While others panic or freeze, clear thinkers can identify and capture mispriced opportunities.
Network Fragmentation: Established networks break down. New connections become valuable, and those who can broker relationships capture significant value.
These inefficiencies are temporary—markets eventually adjust. But during adjustment periods, those positioned to act can generate profits that would be impossible in efficient markets.
Take Carlos, who worked in commercial real estate. When remote work exploded, everyone focused on the obvious trend: office values would plummet. But Carlos noticed a second-order effect. Small businesses exiting expensive retail spaces still needed somewhere to store inventory and fulfill orders. Meanwhile, suburban homeowners had empty garages and basements.
Carlos created a simple matching platform connecting space-seekers with space-providers. No complex technology—just a spreadsheet and good communication. But he was solving an immediate inefficiency that traditional commercial real estate couldn't address. Within months, he was facilitating thousands of micro-transactions and taking a small fee from each. The opportunity existed only because volatility had broken traditional market structures faster than they could reform.