Question regarding the phrase "smart money"

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dh
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Question regarding the phrase "smart money"

Post by dh » Wed May 29, 2019 5:48 pm

Greeting all,

I realize this may sound like a sarcastic message, yet I am truly curious what this means. I read that the "smart money" was going into cash at the beginning of the May. Is this a backward looking term meaning that now that the market has declined those who sold equities were "smart" (as if they knew what was going to happen). Or are people / organizations identified as "smart money" before anything happens. And do those individuals/organization know that they are part of this "smart money" concept.

If anyone has any idea, I would love to hear. Please reply below or private message me. Folks on this forum are so knowledgeable and I welcome learning from you. Thank you.

ionball
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Re: Question regarding the phrase "smart money"

Post by ionball » Wed May 29, 2019 5:59 pm

Money that has brains? Some in the business media also imply that market indices play on a team or have free will. I chuckle and give thanks for the free comedy.

pward
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Re: Question regarding the phrase "smart money"

Post by pward » Wed May 29, 2019 6:08 pm

Generally, the media refers to professional fund managers as "smart money" and retail investors as "dumb money". Though one look at active management's track record would really make one question the term "smart".

UpperNwGuy
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Re: Question regarding the phrase "smart money"

Post by UpperNwGuy » Wed May 29, 2019 6:45 pm

The smart money can be found in total market index funds.

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willthrill81
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Re: Question regarding the phrase "smart money"

Post by willthrill81 » Wed May 29, 2019 6:48 pm

If you believe in the EMH, then there's no such thing as "smart money."
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

esteen
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Re: Question regarding the phrase "smart money"

Post by esteen » Wed May 29, 2019 6:58 pm

Generally media says "smart money" to mean prescient money moves, i.e. looking backward and saying the "smart" move was to get out of stocks before a drop, so people who happened to do that at the time look smart. Then of course they use that "smart money" argument to say it will do such-and-such in the future. Which of course no one knows.

Agree with UpperNwGuy, the real smart money is in total market index funds.

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Re: Question regarding the phrase "smart money"

Post by mchampse » Wed May 29, 2019 7:15 pm

In the start up world, "smart" money refers to top tier VCs, angels, etc. Beyond money, these people can give founders valuable advice on how to help their companies succeed. There's also an assumption that top tier VCs are investing in good companies and can help persuade other investors to put in as well.

"Dumb" money refers to doctors, lawyers and other wealthy people who are looking to get on the ground floor of something big. These people can't offer anything but money to help the company succeed. Companies accepting "dumb" money investments are generally looked at with caution as most will only do so if they can't find any "smart" money.

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Re: Question regarding the phrase "smart money"

Post by DesertDiva » Wed May 29, 2019 7:28 pm

esteen wrote:
Wed May 29, 2019 6:58 pm
Generally media says "smart money" to mean prescient money moves, i.e. looking backward and saying the "smart" move was to get out of stocks before a drop, so people who happened to do that at the time look smart. Then of course they use that "smart money" argument to say it will do such-and-such in the future. Which of course no one knows.

Agree with UpperNwGuy, the real smart money is in total market index funds.
Yes, UpperNwGuy has the best post of the day.

<sarcasm>
I always thought that "smart money" referred to people who do whatever a certain fund manager (or newsletter editor) tells them to do
</sarcasm>

venkman
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Re: Question regarding the phrase "smart money"

Post by venkman » Wed May 29, 2019 9:35 pm

Assuming retail investors (non-smart money) did not change their buying or selling behavior, who bought up all those stocks that the "smart money" professionals suddenly decided to sell off?

gd
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Re: Question regarding the phrase "smart money"

Post by gd » Thu May 30, 2019 5:41 am

You are taking language in general and journalism (in a broad sense, anything published for the public) way too literally.

There are a few people who use language very precisely, and they often do not have smooth sailing in their interpersonal relationships. There are a few more people who use it primarily as an emotional message-- "this group is all criminals" = "I just don't like this group". Most people fall between, often using words and phrases that don't have explicit, perfect meanings, they just sound about right. Throw in modern sloppy journalism, cover with a slathering of click-baiting, and you're well into the weeds.
"When I use a word," Humpty Dumpty said, in rather a scornful tone, "it means just what I choose it to mean- neither more nor less."

"The question is," said Alice, "whether you can make words mean so many different things."

"The question is," said Humpty Dumpty, "which is to be master-that's all."

(edited to clarify)

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Spinola
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Re: Question regarding the phrase "smart money"

Post by Spinola » Thu May 30, 2019 8:30 am

A large amount of "Smart money" was invested in Bernie Madoff's scheme.. :oops:
I like to think that the BH, simple, stay the course, low cost investing philosophy is where the real smart money is at :sharebeer .

Andyrunner
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Re: Question regarding the phrase "smart money"

Post by Andyrunner » Thu May 30, 2019 8:46 am

As others said its a media term to catch people's attention.

Its referring to the funds and investment firms who have access to investments and analysis none of us have and the capital to steer the direction of those investments (get a CEO fired, change a company's business strategy, etc). Warren Buffet would be the household name example. The truth is they can be going into cash for many reasons and very well might be very temporary.

They probably know they are considered smart money because I'm sure are asked for interviews and advice from these media sources all the time. Of course they will only tell the media half the story because they don't want to give away their strategy.

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Re: Question regarding the phrase "smart money"

Post by Forester » Thu May 30, 2019 8:54 am

Reportables (Smart) vs Nonreportables (Dumb)

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bertilak
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Re: Question regarding the phrase "smart money"

Post by bertilak » Thu May 30, 2019 9:00 am

venkman wrote:
Wed May 29, 2019 9:35 pm
Assuming retail investors (non-smart money) did not change their buying or selling behavior, who bought up all those stocks that the "smart money" professionals suddenly decided to sell off?
I guess there are smart buyers AND smart sellers!

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bertilak
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Re: Question regarding the phrase "smart money"

Post by bertilak » Thu May 30, 2019 9:06 am

Definition od smart money from Investopedia: https://www.investopedia.com/terms/s/smart-money.asp

First sentence:
  • Smart money is the capital that is being controlled by institutional investors, market mavens, central banks, funds, and other financial professionals.
It is appropriate that the second sentence starts out:
  • Smart money was originally a gambling term...
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nisiprius
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Re: Question regarding the phrase "smart money"

Post by nisiprius » Thu May 30, 2019 4:59 pm

I'm pretty sure that "smart money" refers to the bettors on a fixed horse race or sporting event who know about the fix and are able to place their bets accordingly. An article that came up in a Google search mentions a bookmaker who would always worry that a pattern of betting against a favorite indicated the presence of "smart money."

It can also just mean savvy, "knowing how the game is played," "knowing how the world really works." Damon Runyon, riffing on the Book of Ecclesiastes, wrote: "The race is not always to the swift, nor the battle to the strong, but that's how the smart money bets."

In investing, to me it means investors with special expertise or knowledge. It means more than what you can glean from the fund's publications and required filings (prospectus, SAI, annual and semiannutal reports). I believe it carries or once carried the connotation of people who actually possessed inside information, but it an also mean investors with savvy, real Wall Streeters, people with special access to information that I don't have. For example, an advisor who has direct personal access with a mutual fund manager might claim to have insights not available to those of us who only read the prospectus and regulatory filings, and thus to be "smart money."
Last edited by nisiprius on Thu May 30, 2019 8:54 pm, edited 1 time in total.
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nisiprius
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Re: Question regarding the phrase "smart money"

Post by nisiprius » Thu May 30, 2019 5:36 pm

How Smart Money Moves Betting Lines
“Smart money” means money bet by “sharps,” those bettors who really know what they’re doing and are capable of coming out ahead over a sustained period. The opposite is known as “public money” — your casual bettors who help make that “the house always wins” cliché ring true.

The challenge is to identify where the smart money is going and act and react accordingly. For many bettors, that means being a “follower” — joining in on the fun when you see, for example, that the smart money is flooding in on the over in that Denver-Golden State game.
Note the ambiguity, which I think exists both in the betting and investing usage, as to exactly how these "sharps" can do this.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

desafinado
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Re: Question regarding the phrase "smart money"

Post by desafinado » Fri May 31, 2019 7:58 am

I've also heard people use "smart money" to refer to the options market, since you can roughly transform option prices into "the [options] market thinks there's a 10% chance of an earnings beat" or whatever.

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Re: Question regarding the phrase "smart money"

Post by Jack FFR1846 » Fri May 31, 2019 8:04 am

Smart money has a tiny Huawei bluetooth transmitter and it tells the Chinese government everywhere it goes.

The formal translation of "smart money" when talked about by someone who could profit from movements of capital into specific investments is "the money you put here in my pump and dump scheme will pump up this investment so I can dump it and leave you wondering how smart your money really is".
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groovy9
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Re: Question regarding the phrase "smart money"

Post by groovy9 » Fri May 31, 2019 11:06 am

willthrill81 wrote:
Wed May 29, 2019 6:48 pm
If you believe in the EMH
Or in virtually every study of active managers' forward-looking returns vs their past returns.

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Re: Question regarding the phrase "smart money"

Post by Stormbringer » Fri May 31, 2019 11:22 am

I think there is definitely "smart money" (e.g. Warren Buffett over the course of his career) and "dumb money" (e.g. my friend's brother who cashed in his 401k in early 2009).

But I think the terms are frequently used to pitch financial products of some sort. You don't want to be the dumb money do you? Well, all the smart money is buying into XYZ, and you should too.
"Compound interest is the most powerful force in the universe." - Albert Einstein

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vineviz
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Re: Question regarding the phrase "smart money"

Post by vineviz » Fri May 31, 2019 11:37 am

nisiprius wrote:
Thu May 30, 2019 4:59 pm
I'm pretty sure that "smart money" refers to the bettors on a fixed horse race or sporting event who know about the fix and are able to place their bets accordingly.
No doubt you are right. Interestingly, "Smart Money" was a 1931 film about gambling and con men that starred James Cagney and Edward G. Robinson.

At some point in the 1940s and 1950s, I think the term "smart money" increasingly was used in finance to refer to people who had personal connections with "people in the know" (like directors of public companies) and might be privy to inside information.

There was also, IIRC, a technical indicator called the "smart money indicator" which purported to leverage the idea that retail investors traded emotionally and in the morning whereas professional investors were more likely to trade rationally and later in the day. Mostly bunk, I'm sure.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Question regarding the phrase "smart money"

Post by goodenyou » Fri May 31, 2019 11:37 am

To me, the definition of smart money requires a time machine. One trip to go back in history to buy what you should have bought, and one trip to go into the future to determine what you should buy.
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Re: Question regarding the phrase "smart money"

Post by Reb Tevye » Fri May 31, 2019 5:47 pm

I’ve come to think that the term “Smart Money” gets used just for the purpose of making the average bloke feel like he’s the “Dumb Money” and so he must need help from the financial industrial complex.

Interestingly, maybe he is, and maybe he does.
Until he finds bogleheads.org.

Or she.
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