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It's the difference between dumb and smart money. Dumb money is passively invested, while smart money is actively invested into endeavors like startups, where t

by Hermel 11y ago

It's the difference between dumb and smart money. Dumb money is passively invested, while smart money is actively invested into endeavors like startups, where the investor can make a difference beyond merely providing money.

sokoloff 11y ago
That's not my definition (nor the typical definition I think) of "dumb money". To me, dumb money is late money chasing a piece of the action at stratospheric valuations, or chasing a scheme the investor has no hope of understanding. Money invested in AAPL/AMZN/FB is no more or less passive and no more or less "dumb" than money invested in VTSAX, IMO. In other words, I can "hire" the active managers of those companies on my behalf as an investor.
kyleblarson 11y ago
And lose 100% of their "smart money" invested in said startup about 90% of the time.
- verbify 11y ago
  But because of biases, we usually focus on the 1% of the time they make an absolute fortune. Usually more due to dumb luck than actual savviness.
tbrake 11y ago
So - and I'm only halfway facetious here - an entropy tax? I wonder if it's useful or interesting to think about markets in terms of energy but confess to not having the economic or physics background to make it a reality.
morgante 11y ago
That's not the typical definition of dumb money. Dumb money is money from people who actively invest it dumbly. For example, buying into pets.com because the internet seems cool.
allengeorge 11y ago
I think the connotations you're ascribing to "dumb money" and "smart money" apply only to investor financing in startups. IIRC, active investing is an overwhelmingly "dumb" way for the average individual to invest their own cash.
UK-AL 11y ago
Didn't venture capital and angel investors have terrible returns for the average investor? Might be different now.
douche 11y ago
That would be the exact opposite of my definition of smart and dumb money. How many people have lost their shirts actively investing in business ventures, versus people who invested in boring, long-growth dividend-paying stocks?

by Hermel 11y ago

sokoloff 11y ago

That's not my definition (nor the typical definition I think) of "dumb money". To me, dumb money is late money chasing a piece of the action at stratospheric valuations, or chasing a scheme the investor has no hope of understanding. Money invested in AAPL/AMZN/FB is no more or less passive and no more or less "dumb" than money invested in VTSAX, IMO. In other words, I can "hire" the active managers of those companies on my behalf as an investor.

kyleblarson 11y ago

And lose 100% of their "smart money" invested in said startup about 90% of the time.

verbify 11y ago
But because of biases, we usually focus on the 1% of the time they make an absolute fortune. Usually more due to dumb luck than actual savviness.

tbrake 11y ago

So - and I'm only halfway facetious here - an entropy tax? I wonder if it's useful or interesting to think about markets in terms of energy but confess to not having the economic or physics background to make it a reality.

morgante 11y ago

That's not the typical definition of dumb money. Dumb money is money from people who actively invest it dumbly. For example, buying into pets.com because the internet seems cool.

allengeorge 11y ago

I think the connotations you're ascribing to "dumb money" and "smart money" apply only to investor financing in startups. IIRC, active investing is an overwhelmingly "dumb" way for the average individual to invest their own cash.

UK-AL 11y ago

Didn't venture capital and angel investors have terrible returns for the average investor? Might be different now.

douche 11y ago

That would be the exact opposite of my definition of smart and dumb money. How many people have lost their shirts actively investing in business ventures, versus people who invested in boring, long-growth dividend-paying stocks?