Is There Such a Thing as Smart Money?

  • Posted by
  • on June 4th, 2009

I love this topic.

There really is no answer, but I hate the term. I think there are bull markets and bear markets and great traders and great investors, but there is no Smart Money.

If you are into the stock market like me, you are inundated with this theme.

The stock market is a giant ponzi scheme. It is all about supply, demand and mood.

Is Goldman Sachs just smart or are they corrupt and connected? I guess that’s a title for a different post :) .

Fred Wilson has a fantastic post up for aspiring entrepreneurs and venture capitalists entitled ‘Leap of Faith . The gist:

You need a lot of things to be a successful venture capital investor. You need to understand the market you invest in. You need great networking skills. You need to be able to add value to your investments. You need an understanding of financial markets and how companies are valued. Those skills are neccessary but not sufficient. Because most of all you need to be able to make leaps of faith. And the right ones, of course.

Great traders and investors make these leaps of faith all the time. Great entrepreneurs and VC’s make them all the time too. If they have success, it is because they work harder than anyone else, know more about their niche and than focus on it more than anyone else.

I was with Fred in Vegas this weekend and we hit the crap tables together for a few hours. There were many entrepreneurs and VC’s at the table with us and each of us had different styles. Fred and I are not the cheapest guys, but we hate losing even $100 gambling. Although we might not believe in ‘Smart Money’ we definitely believe in ‘Dumb Money’ and in Vegas, at ANY table you play, YOU are the ‘Dumb Money.’

Yesterday I had the pleasure of grabbing dinner with Brad Feld @bfeld and Amy Feld (the smartest of us all) with my genius son Max tagging along. Brad is the Leap of Faith king. At Mobius (his earlier fund) he learned that no matter how smart you were, you needed to have a theme, a focus. That meant just saying no to deals and not worrying if you missed the next great retailer or shipping company, because if you are smart, you focus and excel in one area. Your ‘Leap of Faith’s’ should get better…or at least make it easier to explain why you were wrong to your investors :) .

I don’t believe that there is Smart Money in stock markets. I do believe there is dumb money galore. As @milktrader so eloquently ‘tweeted’:

Smart Money is money made from making dumb people believe you are smart.

If you don’t think that is how CNBC and the Stock market works – as perfectly stated in less than 140 characters – than YOU are the dumb money.

@MrUnexpectedly disagrees with me and states his thinking:

The idea of smart or dumb money is dumb. There is only greed money and fear money. Smart and dumb don’t create themselves or disappear.

His next tweet:

On the other hand, people who make money by being obsessed with it like to think they are smart. This is an example of idiocy persisting.

What do you think?

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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