What is smart money?

Smart Money refers to investments or transactions made by ‘expert’ investors who are said to have a comprehensive understanding of financial markets – they can identify or foresee trends before others.

Smart money also implies a strategic timing of market entry and exit, with ‘expert’ investors not only recognizing early signals of market movements but also knowing the optimal moments to act upon them.

Investors who do not spot or predict investment trends, i.e. those who try to ride the trend after the smart money has already made most of its profit, are called ‘stupid money’ or ‘dumb money’.

Many people believe the whole thing is a myth. They say that wealth managers – people who manage and advise on clients’ portfolios – perform no better (and in a surprising number of cases worse) than the overall stock market’s average trend over any given period.

Smart Money
Smart money may refer to either clever investors who can spot market trends before others, or the collective impact of big money that can move markets.

The Cambridge Dictionary has the following definition of smart money:

“Money that is bet (= risked) or invested (= put into something in order to make a profit) by people who know a lot about a subject.”

Smart money can also mean the collective force of big money that can move markets. When it has this meaning, the primary force behind smart money is the central bank.

Smart money in venture capital

In the venture capital world, smart money is an investment term that includes money people invest in a business, plus the time, advice and know how which they put into the company. It is called ‘smart’ because the business receives the investors’ wisdom as well as funds.

In venture capital terminology, when just money is invested without the investors putting in any of their know how or time, it is called ‘dumb money’.

Smart money in gambling

In the betting world, smart money refers to gamblers who know what they are doing and manage to earn a living on their bets. Many use historical mathematical algorithms to decide where to place their wager and how much to bet.

Many gambling websites and individuals claim they have the best smart money system, with some saying their bets are over 90% accurate.

Smart Money Index

The Smart Money Index (SMI), also known as the Smart Money Flow Index, is an indicator of investors’ sentiment. SMI was invented by money manager Don Hays.

The SMI is based on price patterns that develop during the trading day (intra-day price patterns).

Most traders tend to overreact at the start of the trading day because their impulses are driven by overnight news and economic data.

Experienced (smart) investors begin their trading closer to the end of the trading day, after they have had a good look at market performance. The strategy is to bet against what happened in the morning, and follow the evening price trend.

Smart money investors often exhibit disciplined risk management, avoiding emotional decision-making and instead relying on objective, analytical assessments to make their investment choices.

Smart money compound phrases

In the world of smart money, there are many compound phrases. A compound phrase is a term consisting of at least two words. Let’s have a look at some of them:

  • Smart Money Moves

Financial decisions or strategies considered to be wise or shrewd.
Example: “Making regular contributions to a retirement fund is one of the smart money moves financial advisors recommend.”

  • Smart Money Capital

Investment funds from knowledgeable and typically successful investors.
Example: “Startups often seek smart money capital for both the financial investment and the strategic advice that comes with it.”

  • Smart Money Crowd

A group or community of investors known for making informed and profitable investment choices.
Example: “The smart money crowd started to invest heavily in renewable energy sectors this year.”

  • Smart Money Decisions

Choices related to finance that are made with a high level of understanding and insight.
Example: “Her smart money decisions allowed her to become financially independent by the age of 40.”

  • Smart Money Trends

Patterns or directions in investment that are predicted or set by financially astute investors.
Example: “Analysts keep a close watch on smart money trends to forecast the next big market shift.”

  • Smart Money Index

A stock market indicator that gauges the activity of experienced investors.
Example: “The Smart Money Index showed a sharp divergence from the broader market, indicating savvy investor behavior.”

Video – What is smart money?

This video presentation, from our YouTube partner channel – Marketing Business Network, explains what ‘Smart Money’ means using simple and easy-to-understand language and examples.