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I’ve never really liked the term “smart money.”
I find the term both misleading and rather annoying. “Smart money” implies there is a select group of all-knowing investing elites who never get it wrong. They somehow always get it right.
The added implication is that they should lead and the rest should follow. There is no sense in you investing on your own, they’ll have you believe, because you’ll get it wrong more than right (though it’s untrue).
The reality is that “smart money” is a unicorn.
The “smart money” billionaire investor so frequently fawned over and coddled on CNBC isn’t a billionaire because of investing. He’s a billionaire through the business of investing. There is a difference.
The great “investing” wealth you encounter in Barron’s, The Wall Street Journal, and Forbes is the product of cobbling together large sums of money to manage. Once large sums are brought in, the “investor” takes a significant cut. It’s frequently as much as 20% of the returns earned that year. In other words, no billionaire investor on the Forbes 400 “invested” his way to great fortune.
I’m not saying that members of the “smart money” set aren’t competent investors. Many are, but everyone is fallible. No one times the market perfectly. Everyone, regardless of reputations, suffers losses, and frequently deep losses.
I recently scanned 13F filings from a few “smart money” investors. Everyone suffered losses, and sometimes the losses were significant. In some cases losses were as high as 80%.
Even the best of the best aren’t immune. Investment firms run by David Einhorn, Leon Cooperman, George Soros, Joel Greenblatt, Prem Watsa and Ken Fisher have taken positions – in some cases multiple positions – in stocks that dropped 30% to 60% out of the gate. This isn’t to say the investments won’t work out in time, but there is no guarantee. Everyone’s history is peppered with irretrievable losers.
There are a few points worth emphasizing. First, everyone suffers losses. More importantly, it’s never a good idea to blindly follow and buy what “smart money” buys. For one, you could buy investments unsuitable to your temperament and goals. You could also end up buying one of their biggest losers.
No one knows you as well as you. You might subscribe to High Yield Wealth, Personal Wealth Advisor, or one of our other publications. We obviously think that’s a good idea, because it’s to help you become a better manager of your money. We want to help you become the “smart money” manager for you.
A few weeks ago, I featured self-made “smart money” in Income & Prosperity. You can read my musings here.
In short, the featured investor worked as a janitor and a gas station attendant. Through his meager earnings he amassed an $8 million fortune investing mostly in income stocks of his own selection.
Here’s the most intriguing and most encouraging aspect: His millionaire status was achieved by investing, not by the business of investing, like the billionaires mentioned above. His success was achieved by patiently investing in income investments that best suited his temperament and need.
Not so coincidentally, the High Yield Wealth portfolio is peppered with many of these same types of investments.
Successful investing is within the purview of every investor, and that includes you. The key is to develop the skills, instincts and confidence to become “smart money.” The good news is that we are here to help.
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