‘Smart’ money is capital run by professionals in the investment community and ‘dumb’ money is referred to capital invested by people who have a day job that’s not in finance. It’s not the nicest way of putting it, but the moniker makes sense. If you review consumer sentiment surveys, consumers are the most bullish near tops and the most bearish near bottoms. The main problem is the recency bias. In everyday life when a trend occurs people react to it. For example, if you eat at a restaurant a few times and keep getting sick, you’ll stop going to it. However, with stock investing negative performance for a few quarters can make stocks a better value. You need to add investments when it’s painful and sell investments when it feels euphoric.
Hedge fund and mutual fund managers have had a bad run which explains the huge influx of capital into low-cost ETFs. There’s no debating the results. Regardless of what they show, the Bank of America Merrill Lynch fund manager surveys we will review in this article have been good indicators. Let’s recognize the possibility that an investor can time the cycle correctly, but still underperform because the vehicle used to make the bet fails.
For example, an investor could decide to go long technology stocks if he/she is bullish on economic growth. However, the industrial and financial sectors could outperform tech because of a reason outside of the economy. This shows the importance of refining your investments. It also shows how sometimes an investor can be wrong even when the prediction was correct. That’s why the phrase ‘it’s better to be lucky than good’ is popular. An investor would rather make money than being right. If you obsess about being right, it could lead to stubbornness and losses. The reality is the best investors make mistakes often. It’s important to accept mistakes as part of the process.
Fund Managers Are Bearish On Global Growth
