The facts and fictions about “smart money”
In the first half of 2021, the US economy and equity markets continued to recover the COVID-19 pandemic. As of this writing, the S&P 500 is at 4,367, nearly double the COVID low point of 2,200. This is an artificial crossing point, but one that is sure to generate power. buzz in the media with the standard gossip that the markets have gone too high and too fast and what “smart money” is doing about it.
It’s an easy-to-sell story – secrets that knowledgeable insiders make you and I as outsiders miss. There was a time when research and access to information could give you an advantage, but those days are past. If you need information, google it. To know is to know that a tomato is a fruit. The wisdom is knowing not to put it in a fruit salad.
Wisdom alone is not enough.
Consider Alan Greenspan’s speech on December 5, 1996, where he notoriously warned the markets with his “irrational exuberance” statement. I would say that there are only a few people on the planet who have the same access to the information and the wisdom to assess it. as chairman of the US Federal Reserve. That day the S&P 500 was at 744 and it was going to almost double in the next three years before we had the 2000 Tech Wreck – which never dropped until one day it did that. prophetic phrase.
There are a lot of smart people telling us what to do and backing up their arguments with compelling data. If only intelligence, analysis and a good story were enough.
But I would take Mark Twain’s advice: “It’s not what you don’t know that’s getting you in trouble. This is what you are sure it is not. As a corollary, it is often what we do not know and could not know who becomes the problem. For example, no one was speaking or predicting the global coronavirus pandemic.
Who is “smart money”?
You have to ask yourself if what “they” claim is in their best interest is also in your best interest. Wall Street brokers make money when people trade securities. The idea that you can shorten success by staying ahead of market fluctuations is very profitable for these companies.
When it comes to the markets, there are usually two sides to every trade. Traders try to take advantage of short term pricing errors in order to build wealth. This is often in stark contrast to investors – who also want to make money – but are focused on longer-term capital appreciation.
Creating wealth and preserving wealth require different skills. Building wealth is exciting and usually involves taking a high degree of risk. Concentration, hard work and constant reinvestment are necessary to build wealth. The key to staying rich, however, is to allocate resources in a broad and diverse way. On the other hand, staying rich can be boring and tedious.
Wealth is often created by controlling variables and making tough decisions. Diversification, on the other hand, requires you to give up control of the things while you manage the process: your retirement income, your investment portfolio, your taxes, and your asset protection strategy. If your focus is on preserving wealth, your best bet is to focus on long-term investments and ignore information about short-term trading patterns.
Smart money is all about process
In one December 31, 2013, article in the Bradenton Herald I’ve written about Nick Saban and his relentless focus on “The Process”.
Nick’s Paradox: “The more emphasis you put on winning, the less he or she is able to focus on what really causes success.” Alabama football, the most successful program of all time, wins by focusing on what they can control – their plan.
Stephen Covey speaks to Circles of Influence and Concern. Focusing on our concerns is a reactive process that can reduce our ability to influence results. By focusing on our influence, we are more proactive and have the greatest impact on things under our control.
Smart money therefore acts constantly on a rational level – as opposed to a reaction to current events. Thanks to this proactive approach, we have the best chance of successful long-term investments. As we move into the second half of 2021, now is a good time to reassess your priorities and organize your business. Focus on what you can control and measure your progress. In summary, plan your work, work your plan.
Gardner Sherrill, CFP®, MBA, is a CERTIFIED FINANCIAL PLANNERTM professional from Sherrill Wealth Management. To learn more, visit sherrillwealth.com, a Bradenton wealth management company specializing in retirement living. This information is not intended to replace specific and individualized tax or legal advice. Individual circumstances will vary. Please consult your tax advisor regarding your specific situation. The opinions expressed in this document are not intended to provide specific advice or recommendations to an individual. Securities and advisory services offered by Commonwealth Financial Network®, a registered investment adviser. FINRA / SIPC member.