You and Your Dumb Money

Why you picked the wrong mutual funds—again.
By Daniel Gross
Posted Thursday, Aug. 11, 2005, at 1:04 PM PT

On Wall Street, there's smart money and dumb money. You (and I) are dumb money. Smart money (big-time hedge-fund managers, private-equity honchos, leveraged buyout kings) reliably outperforms the market. Dumb money (individual investors, the sort of people who casually watch CNBC for stock tips) generally fares poorly. Individual investors—that is, we—are considered such dumb money that many professional investors regard us as contrary indicators. The lemminglike masses get excited and overly optimistic when the market's about to top, and they tend to get fearful and overly pessimistic when the market's about to bottom. So, if you could just figure out what the dumb money is doing and zig when it zags, that may be a path to easy profits.