Why I Look for Friction

Most investors spend their time chasing clarity. They want clean data, instant pricing, and simple narratives. I understand the appeal. I came up in a world where information moved fast and markets rewarded speed. Over time, though, I learned a different lesson. The most attractive opportunities often live where things are not clean, not fast, and not easy to explain.

Inefficient markets exist because friction exists. That friction might be legal complexity, operational burden, long timelines, or plain confusion. When everyone can understand something instantly, it gets priced efficiently very quickly. When understanding takes work, opportunity lasts longer.

What Inefficiency Really Means

Inefficiency does not mean chaos. It means that prices do not fully reflect value because something gets in the way. That something might be lack of data, limited liquidity, or specialized knowledge requirements.

In today’s world, information is everywhere. Public markets adjust almost instantly to news. Algorithms scan filings faster than any human ever could. As a result, traditional alpha is harder to find.

Inefficient markets survive because they resist that speed. They slow things down. They require interpretation instead of reaction. That is exactly why they still offer room for disciplined investors to earn excess returns.

Complexity as a Filter

Complexity scares people. That is its power. When a market is hard to understand, fewer participants compete in it. Fewer participants means pricing stays wider and mistakes persist longer.

This is not complexity for its own sake. It is complexity that demands effort. You need to read contracts. You need to understand processes. You need to know how cash actually moves from point A to point B.

Most investors do not want to do that work. They would rather stay in familiar territory, even if returns are compressed. The investors who are willing to lean into complexity gain access to opportunities others ignore.

Litigation Assets as a Case Study

Litigation-linked assets are a perfect example of how complexity creates opportunity. A legal claim is not a ticker symbol. You cannot look it up on a screen and see a price. You have to understand the legal framework, the strength of the case, the jurisdiction, and the expected timeline.

That alone eliminates a large portion of potential investors. Add in the need to manage claims administration, documentation, and compliance, and the pool gets even smaller.

The payoff is that pricing remains inefficient. Claims often trade at discounts because claimants want liquidity now and because few investors are equipped to evaluate them properly. Those who can do the work and diversify intelligently can earn returns that are not tied to market cycles.

The risk is visible. The complexity is manageable. The opportunity exists because not everyone wants to deal with either.

Specialty Finance and Operational Demands

Specialty finance markets operate on similar principles. These are financing arrangements that fall outside traditional banking. They might involve unusual collateral, niche borrowers, or non-standard repayment structures.

Banks avoid these areas because they do not scale easily. They require hands-on monitoring and custom documentation. Large asset managers avoid them because they do not fit neatly into standardized products.

That leaves room for focused investors. If you understand the asset, the borrower, and the contract, you can price risk accurately and get paid for it. The operational demands become a moat rather than a burden.

Information Saturation Has Limits

People often say that in the age of data, inefficiency is gone. I do not agree. What is gone is simple inefficiency. Complex inefficiency remains.

Information saturation actually makes this more pronounced. When everyone has access to the same headlines and dashboards, differentiation moves elsewhere. It moves to areas where information exists, but interpretation is hard. It moves to places where knowing what matters is more important than knowing everything.

In litigation assets, the key information might be buried in court filings. In specialty finance, it might be in loan covenants or servicing reports. The data is there, but extracting insight takes time and experience.

Why Operational Skill Is the Real Edge

In inefficient markets, operational skill matters as much as analytical skill. You can be right about value and still lose money if you cannot execute.

That means understanding timelines. It means managing counterparties. It means tracking payments and resolving issues when they arise. Many investors underestimate this part because it is not glamorous. It does not show up in pitch decks the way projected returns do.

In my experience, operational discipline is what separates sustainable performance from one-off wins. If you can handle complexity consistently, you build an advantage that compounds.

Risk and Reward in Context

Complex markets are not risk-free. They can go wrong in very specific ways. Legal cases can be delayed. Borrowers can default. Administrative errors can create headaches.

The difference is that these risks are usually identifiable. You can ask what happens if this takes longer or if this counterparty fails. You can plan for those scenarios.

In highly efficient markets, risk often hides in correlations and sentiment. Everything looks fine until it is not. When stress hits, exits disappear. That kind of risk is harder to manage because it reveals itself all at once.

The Behavioral Advantage

Complexity also creates a behavioral edge. Many investors struggle with patience and discomfort. They want constant feedback. They want to know where they stand every day.

Inefficient markets rarely provide that. Cash flows are delayed. Valuations update slowly. Progress feels invisible for long stretches. That discomfort drives people away and leaves opportunity for those who can tolerate it.

The edge is not just intellectual. It is emotional. If you can stay disciplined while nothing seems to be happening, you can earn returns others leave behind.

How I Think About Building Exposure

I do not believe in complexity without purpose. The goal is not to be different for the sake of it. The goal is to access return streams that improve portfolio outcomes.

That means starting with a clear thesis. It means understanding the full lifecycle of the asset. It means partnering with people who have proven they can operate in that environment. Most importantly, it means sizing positions so that complexity does not become fragility.

Investor’s Edge

Inefficient markets exist because not everyone can or wants to operate in them. That is what keeps them attractive. In a world where information is instant and competition is intense, complexity remains one of the last durable sources of alpha.

Litigation assets and specialty finance are not easy. They demand work, patience, and discipline. For investors willing to embrace those demands, they offer something increasingly rare. They offer opportunity that lasts longer than a news cycle.

The investor’s edge today does not come from knowing more headlines. It comes from understanding fewer things more deeply. In inefficient markets, that depth still gets rewarded.