The effectiveness of investing when the “smart money” does

The terms “smart” and “dumb” to describe the times in which institutional professional asset managers are buying stocks vs when individual retail investors are buying is built on a historical pattern of the “smart” money buying when stocks are cheap vs buying at market tops when it’s a “dumb” time to be buying stocks.

The following chart from illustrates the S&P 500 price chart against the “smart money” and “dumb money” confidence patterns over the last three years as an example. These same patterns exist over the last 30 years.

When we utilize these patterns to test a Dynamic Strategy that allocates to the S&P 500 only when the Smart Money does, we can see a clear material advantage on a return, risk, and risk-adjusted return basis.


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