How Not To Be Dumb Money
Why believe a title that says I’d know how to tell dumb from smart money? Because I’ve been both and learned from financial scars accumulated since 1987. I’ve also taught a behavioral investing course called “The History of Human Financial Stupidity — Including Mine”. I had no shortage of my own dumb money cases to give students.
In Liar’s Poker Michael Lewis defined Wall St as a system designed to transfer money from the weak to the strong. Inserting dumb and smart money into this definition makes sense. My dumb money cases have certain features in common. So do the smart money cases.
Dumb Money Features:
Overconfidence 1.0: Starting on Third Base and Thinking You Hit a Triple
After a series of winning trades you feel like a genius with financial testosterone surging within (or financial viagra if you’re old enough). This is why women are better at greed control and risk management and make better fund managers (https://www.ft.com/content/564bc758-1f45-4937-9406-6ad2d4ee48f7 , https://www.ft.com/content/5aa6f6e9-ce55-477b-920b-0a099fc0642b ). But we’ll cover this story of free feminine financial market alpha later. The best thing you can do at such moments is to sit on your hands — literally. That way you can’t click anything.
