(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.
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?)
Updated February 6, 2012 and originally published August 11, 2005. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @flexo on Twitter and visit our Facebook page for more updates.