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Wall Street Journal Argues Disparity Between Main Street and Retail Investors Smaller Than Perceived

Mar 01, 2019

Better Data for Better Investment DecisionsBetter Data for Better Investment Decisions
Better Data for Better Investment DecisionsBetter Data for Better Investment Decisions

 

  • Individual retail investors, dubbed as, “the dumb money,” by Wall Street, are nowhere near as naive as professional investors and money managers, self-proclaimed as, “the smart money,” make them out to be, a Wall Street Journal article published late last week argues.  In fact, the Wall Street Journal discusses that the concept of dumb money has been, “one of the most cynically lucrative propaganda campaigns in history, with billions of dollars in fees and commissions flowing to people who didn’t turn out to be smart at all.”  
  • The Wall Street Journal article begins by discussing a survey conducted by Yale University finance professor James Choi and University of Toronto law professor Adriana Robertson of over 1,000 individuals, 59% of whom said they own stocks.
     
  • According to the article, when choosing how much money to hold in the stock market, investors should consider job security, the stability of family health, and the likelihood that their home will retain value -- approximately 1/3 of survey respondents answered that those points are highly important in their investment decisions.   
     
  • Investors should also consider their retirement horizon when considering their investment allocation, a point which the survey found between 36% and 48% of respondents consider when investing.  
     
  • Additionally, the article highlights that 46% of those surveyed consider the risk of an economic disaster, like the Great Depression, when determining how much money to risk in the stock market.
     
  • All of the points discussed above imply that a notable portion of individual investors take into consideration important details about their unique situation when making investment decisions.  
     
  • The Wall Street Journal article then goes on to highlight a survey of more than 600 financial economists, 44% of which responded that they believe markets are efficient.
     
  • Among the 600 surveyed, about 25% of financial economists agree with the statement, “When I invest, my goal is to beat the market.”  
     
  • The survey also found that many leading portfolio managers develop, “a sense of truth based on narrative.” Essentially, these investors are ones that combine, “emotion and fact,” to develop, “a sense of truth based on narrative.” This is otherwise known as informed guessing!
     
  • The Wall Street Journal article concludes that many professional investors invest with similar practices to those of individual retail investors. The article ends by declaring, ”The smart money isn’t as smart as it fancies itself, and the dumb money isn’t as dumb as everybody thinks it is. The only smart money is the money that knows its own limitations.”

 

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Global Top Stock IdeasTOP LONG & TOP SHORT STOCK IDEAS FOR GLOBAL MARKETSMONTHLY TOP IDEAS FROM OUR MULTI-FACTOR QUANTITATIVE MODELS