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Your Money Is Dumb

by Flexo on August 11, 2005

in Investing

(It’s all right, mine is, too.)

Here’s a lovely article from Slate, You and Your Dumb Money. The author succinctly explains the difference between smart investors and dumb:

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.

Basically, investors plow money into those mutual funds that have performed well recently, playing along with hype. Those same funds demonstrably perform poorly once they become overloaded with capital.

The recognition of this state of existence is based on a report for the National Bureau of Economic Research by two economists/professors from their respective universities.

Expanding on the article, are you tying your money up in investments that have had an incredible amount of inflow and hype lately? (Hmmm… housing, maybe?)

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Flexo, the owner and creator of Consumerism Commentary, has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow him on Twitter.

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