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This “smart” money is supposed to be invested by those who are highly experienced or knowledgeable
Buy low and sell high.
If there is something that marks the day to day of the financial markets, it is this principle that all big or small investors look forward to.
Greater profitability, greater profit.
But if some win, it must inevitably be because others lose.
And in this crisis, as in all, there will be those who make money or even make fortunes.
Experts say it will probably be those those who play against, do not get carried away by fear or have made a more detailed analysis of what the situation is and which companies will be driven in this crisis.
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“You will not know anyone who has made as much money as I have,” an investor who, taking advantage of the coronavirus health crisis, had bought shares in an ecompany that manufactures of N95 masks.
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Medical masks like N95 should be reserved for healthcare workers.
He bet that when the virus reached the United States, that company would opt for government contracts that would increase its production and profits.
In this case, the investor had studied in depth the consequences that previous pandemics such as SARS, N1H1 or Ebola had on the economy.
So he had more information than anyone else and could get ahead to what was going to happen.
So when in December it began to be heard that there was a new coronavirus in China, he made some investments that have brought him 2,000% profit, he told the magazine.
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That in a market that in recent weeks has fallen sharply and has risen with equal momentum in a very short space of time.
What the history of this Australian teaches us is that in the markets there are some forces have more power than others.
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“Smart money” is sometimes identified with a higher volume of operations than usual
In fact, the money that manages to predict what will happen and stay ahead of the market is called “smart money”. Especially when someone does it consistently for a long time.
They are the investors who stay when everyone else runs away and usually have a professional profile and years of experience in the market.
Hans-Jörg Naumer, market analyst at Allianz Global Investors, affirms that the pronounced movements we are seeing on the stock markets these days are due to the fact that the market is dominated by those players, Although achieving profitability in times of widespread panic is extremely difficult.
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“Although there is little empirical evidence to support that investments by smart money obtain better returns than investments made by less expert investors, the movements of these investors have a lot influence when speculating on the market“, says Alfredo Álvarez-Pickman, manager of the Key Capital Echo fund.
Only those who have sophisticated technologies, with patience, experience or liquidity they can take advantage of price movements to benefit from them.
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Investors with more training or better skills tend to detect where the opportunities are faster.
“Silly money“
They’re a invisible market force because they concentrate large amounts and one of their operations moves everything.
Investors who do not detect or predict investment trends – that is, those who attempt to follow the trend after smart money has already made the most of its profits – are called “stupid money“ or “dumb money“. Alvarez-Pickman adds.
Information is key too.
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In fact, the term “Smart money” comes from professional players who had a deep understanding the sport they bet on
or internal knowledge that the public could not take advantage of.
“The world of investments is similar. The general public perceives that this money is invested by those who have more complete knowledge of the market or with information that a private investor cannot access, “says fund manager Key Capital Eight.
Amplify movements
“Now we find many investors who have lost their jobs or who have to face extraordinary expenses,” Juan Pedro Gómez, associate professor in the Finance department at IE Business School, tells BBC Mundo.
As a consequence they look forced to sell their shares or their holdings, for example in pension funds, at a time when the market is falling.
“What this does is amplify the effect and keep the action going down more, “says Gomez.
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For there to be “smart money” someone has to assume the position of “dumb money”, which is the opposite.
Who can benefit from this are two types of investors: those who have nerves of steel and also don’t care about the money right now, they don’t need liquidity.
“These are the investors that can be used, precisely because they have a longer-term investment horizon. They think it will come back and they can wait long enough to get a substantial or juicy return. ”
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For Álvarez-Pickman it is important not to go against the market by system, but “the pack mentality it is what makes the bags get out of control in extreme moments. ”
However, everything seems to indicate that until investors have clear estimates of the economic damage caused by the new coronavirus pandemic, the nerves will continue to flourish in the markets and experts do not end the stock roller coaster.
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