Arbitrage: For Building Wealth

Arbitrage is one of those words that sounds technical, intimidating, and reserved for hedge funds and traders in glass towers. In reality, it’s one of the most ordinary and powerful wealth concepts in existence. You may already be using it without realising it.

Recently, a comment by Michael Saylor brought it back into the spotlight. But while his example involved Bitcoin and company shares, the principle itself is far older and far more widely used than most people think.

This article explains arbitrage in plain English and shows how it already operates in everyday business, pensions, property, and investing — not through speculation, but through structure.

Key Takeaways

• Arbitrage is not about predicting prices or market timing
• It exists wherever the same asset is valued differently in different systems
• Most opportunities come from rules, access, and structure, not risk
• Examples include pensions, property, businesses, and public markets
• Understanding it changes how you think about money, not just where you put it

What Is Arbitrage (in Simple Terms)

At its core, it means: Taking advantage of a difference in value between two systems. That’s it. It’s not:

• Market timing
• Guessing price direction
• Chasing trends

It exists when:

• The same thing is treated differently depending on where or how it sits

Why Does Arbitrage Exists at All

Because systems are not perfectly aligned. Different systems value things differently:

• Markets value convenience
• Governments value behaviour
• Tax systems value structure
• Institutions value compliance and access

When those values don’t match, gaps appear. Those gaps are where arbitrage lives.

Michael Saylor: Corporate Strategy Explained

Michael Saylor described selling company shares backed by Bitcoin, then using the proceeds to buy more Bitcoin capturing a large gain without trading Bitcoin itself.

What happened was not price speculation.

It was Premium Arbitrage

• The company’s shares traded at a higher valuation than the Bitcoin backing them
• Investors paid a premium for easy, regulated exposure
• The company sold what was overpriced (shares)
• And bought what was comparatively underpriced (Bitcoin)

The result wasn’t created by price movement, it was created by structure.

SIPP and Commercial Property: Pension Arbitrage in Plain Sight

A less dramatic but equally powerful example exists in UK pensions. Consider a business owner with a Self-Invested Personal Pension (SIPP):

1. The SIPP is allowed to borrow within defined limits
2. It purchases a commercial property
3. The owner’s business leases the property
4. Rent is paid by the business and claimed as an expense
5. Rental income flows into the pension environment

What’s happening underneath:

• The same money reduces tax and builds long-term wealth
• The asset serves two purposes at once
• The structure creates value not the property itself

This is arbitrage created by pension rules and tax treatment, not risk.

Property Refinancing: Using the Same Asset Twice

Property investors often miss that refinancing is a form of arbitrage.

• A property increases in value
• Equity is released
• The property is retained
• The capital is reused

The same asset:

• Continues producing income
• While funding another investment

This works because:

• Lenders value stability and collateral
• Investors value liquidity and growth

That difference creates opportunity.

Income vs Growth: Valuation Arbitrage

Markets frequently undervalue income. Dividend-paying shares often trade at lower multiples than growth stocks even when the income is stable and reinvested.

Investors who:

• Focus on cashflow
• Reinvest consistently
• Compound monthly rather than annually

Are using valuation arbitrage choosing what the market currently ignores.

Business Structure Arbitrage: Expenses, Tax, and Cashflow

Businesses naturally operate within a different financial rulebook than individuals.

Examples include:

• Claiming legitimate expenses
• Timing income and costs
• Choosing company vs personal ownership
• Using allowances and reliefs

This isn’t aggressive planning — it’s simply operating within the system as designed. Those who don’t understand this effectively pay a premium to those who do.

The Common Thread Across All Examples

Every example shares the same foundation:

• The asset doesn’t change
• The system around it does

Arbitrage isn’t rare. It’s everywhere. Most people don’t see it because they look at assets, not structures.

Risks and Limitations

Arbitrage is not permanent. It relies on:

• Rules staying in place
• Behaviour remaining predictable
• Premiums continuing to exist

When conditions change, opportunities close.

Good strategists:

• Use arbitrage when it exists
• Don’t assume it lasts forever

Wealth Building

Arbitrage is not a trick. It’s not cleverness. And it’s not speculation. It’s the result of understanding how money moves between systems.

Once you learn to see it, you stop asking: “What should I buy?” And start asking: “Where is value being mispriced — and why?”

That shift alone changes everything.

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Glossary

A definition of words and phrases used in this blog can be found in the glossary

Karen Newton

Karen Newton is a Business and Wealth Strategist, 3x International Bestselling Author, and founder of Karen Newton International. She combines practical experience with AI-Powered Entrepreneurship to help smart entrepreneurs build online income, invest strategically, and create long-term wealth through business growth, investments and joint ventures.

karennewton.co.uk