Who’s the Smart Money
Meristem insight
Institutional investors are often referred to as the “smart money.” These are enormous pools of capital controlled by the likes of pensions, insurance companies, endowments, and foundations. Though a smaller portion of the capital markets, the “retail money” of individuals has been growing in volume and importance.
Institutional investors are often referred to as the “smart money.” These are enormous pools of capital controlled by the likes of pensions, insurance companies, endowments, and foundations. Though a smaller portion of the capital markets, the “retail money” of individuals has been growing in volume and importance. This was evidenced in the “meme stock” phenomenon of 2021. Beaten down companies, such as GameStop and AMC Entertainment, gained cult-like followings on online message boards, and prices shot to the moon. Typically, the sentiment and flows of large institutions and individual investors is not too dissimilar.
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However, the chart above illustrates there has been a sharp divergence between the two cohorts in the last few months. Institutions, represented by the gold line, have been net sellers of equities, while retail investors, represented by the blue line, have maintained a much more bullish stance. Institutions are not infallible and there are countless examples of when the “smart money” of institutions has looked to be anything but smart. Retail investors have certainly had their fair share of black eyes as well. It is impossible to have perfect foresight and be on the right side of the market all the time. The “smartest” thing that we can all do as investors is to maintain a long-term perspective, sticking to a well-thought-out plan around diversification.
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