The Smart Money

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?

Beliefs on where the ‘smart money’ comes from span between simply doing a little research to make prudent investments and belief 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 of the spectrum, since getting ahead of the market certainly requires some sharp analysis. However, I find it unlikely that it is limited to an exclusive ‘club’ since there is a constant churn of executive ‘insiders’ that 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 over the last few years) and 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 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 though… if a new opportunity is being reported on the television, it is no longer an emerging opportunity and the ‘smart money’ is already looking for a new home.

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