A writer in The Wall Street Journal yesterday called the money individual investors put in the stock market "dumb money". You can read the article here.

The article goes on to say that because earnings are up, optimism is up, and the economic numbers are improving that more and more regular people are putting their money back in the market.

The term "dumb money" in stocks is similar to the term "dead money" in poker tournaments. In a poker tournament, all contestants that are recreational players are thought to be buying in with dead money since they presumably have little to no chance of winning. Only the professionals put in the smart money because they have the best chance to win.

Dumb money in the stock market is similar in that it presumes that individual investors have no idea what they are doing and are incapable of analyzing stocks and making decisions based on fundamentals. It assumes people invest with their hearts because they like certain stocks but they lack any concrete data or reasons to pick those stocks. When individuals pick their own stocks and decide it is time to go back into the market, they are doing it with "dumb money".

Stock analysts and anyone in the industry have smart money because they presumably know what they are doing. It is their "job" to know what they are doing. I assume that if people put their money in mutual funds or any vehicle where a "professional" gets a commission it wouldn't be as dumb of them.

Wall Street has often been portrayed as a very exclusive "club" of young professionals who get paid millions and live the high life. Whenever there is a stock scandal of any kind, politicians spew on and on about how Wall Street needs to be regulated or controlled in some way. Wall Street is viewed as a haughty group by many and using the term "dumb money" doesn't help stop that perception.

Articles like this which propagate the myth that individual investors are dumb seems to me to be a dumb thing to print. Why insult people? Actually, why insult the very people that you are hoping will use your professional money management services? It sure doesn't make me want to run out and hire a financial expert to take my investing to the next level!

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