There is a popular phrase in investing terminology called the “smart money.” Typically this phrase is used to describe the investors that are ahead of market sentiment. These are the people with the foresight to sell before the market crashes and buy before the market booms. The critical question to ask is how we can become part of the smart money?
Smart Money Investing
Beliefs on where the “smart money” span the gambit. Some see it as simply doing a little research to make prudent investments. Some believe in a vast conspiracy of industry insiders that monopolize all of the best business opportunities. My perspective is that the reality probably lies somewhere in the middle. Getting ahead of the market certainly requires some sharp analysis. However, I find it unlikely that it is limited to an exclusive club. If so, why is there is a constant churn of insiders who fail to predict the market accurately?
One of the easiest ways to move toward the “smart money” is to avoid buying into markets while they are inflating (i.e. Stocks in the late ’90’s and Real Estate between 2005 and 2007) then selling out when they hit bottom. The easiest way to accomplish this feat is to internalize the fact that once an investment type becomes “hot” it is probably too late for you to capture the big returns. Simple avoidance of stepping off the cliff of market crashes will catapult you a lot closer to the smart money.
The Next Step
The next step is to determine what emerging areas of opportunity will create the greatest gains. This is where things become much more difficult, as it is extremely difficult to determine when down markets will bottom, and start climbing again. One thing is certain. If a new opportunity is being reported on the television, the “smart money” is already gone.