When Smart Money Isn't So Smart

We often hear pundits on TV talking about what the “Smart Money” is doing. Who are these smart people? What makes them so smart? And if they are smart, what are we?

Defining “Smart Money”

Terms that Wall Street throw around such as “smart money” and “expert” can sound very alluring to us. Before we jump and listen to what they have to say, we should first find out more about what makes them so smart or deemed an expert. The truth is there is no standard definition.

In my 30+ years in the industry I still don’t know what makes someone a media proclaimed “expert” or “smart”. Based on my experience, an expert is someone who makes confident predictions and is right only about half the time. “Smart money” generally refers to a person/institution with a lot of money, but it can also be used to describe people who run complex investment schemes (so complex that we common folk can’t understand it).

Forget Smart Money; Be a Smart Investor

Historically, “Smart Money” has not translated into outsized returns. Their returns are often in line with straightforward (not complex) investment strategies. In fact, the Barron’s Roundtable of Smart Money in 2018 handily underperformed the markets (and that was not an anomaly).

Jason Zweig recently opined, “the only smart money is the money that knows its own limitations.”

Warren Buffett said, “What counts for most people in investing is not how much they know, but rather how realistically they define what they don’t know.”

Smart investors recognize that it’s OK they don’t know everything. And neither does the “smart money” nor “experts”.  Once we define the limits of our knowledge and understanding, we can focus our time and energy on what matters most – those things we can control.

As investors, we can control our decisions and reactions to uncontrollable market events. Following a disciplined and deliberate decision-making process is one of the smartest things investors can do. And I am here to help you!  

 

 

 

©2019 The Behavioral Finance Network. Used with Permission