Do you have smart money or dumb money?
In this issue:
» Warning signals from RBI's rate hike
» Why capex has slowed down considerably?
» How will the new savings deposit rate affect banks?
» Southeast Asian economies dump the US dollar
» ...and more!
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The concept of smart money can be easily understood with Ben Graham's theory of Mr Market. The typical nature of Mr Market is to get investors to follow the herd mentality when others are getting greedy. Or to get them develop cold feet when other investors too are shying away. You follow Mr Market's advice and end up with the best recipe for losing money. This is what investors with 'dumb money' do!
Those with smart money, however, defeat Mr Market in his own game. In Graham's words, they are "greedy when others are fearful and fearful when others are greedy". So they buy the stocks that markets have written off. Or those that have their negative near term prospects clouding market sentiments. These investors buy gold when no one is if the precious metal shows the potential to beat stock returns. These investors ignore advice on business channels and do not bother about notional gains and losses. All said the smart moneyed investors are those who take decisions based on an independent evaluation of fundamentals. And believe us, that is the best and only way to build long term wealth.
What else do you think differentiates smart money from dumb money? Let us know your views or post them on our facebook page.
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Chart of the day | |
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01:55 |
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Nationwide data available with CMIE shows that new investment announcements slowed down drastically in the past few quarters. And there has also emerged a significant delay in commissioning of new projects. What more, number of projects abandoned have also doubled in value terms in the recently concluded March quarter. Shockingly, the reason for these delays is not some fundamental factors like availability of finance or interest rates. But it has more to do with issues related to proper land acquisition, environmental clearances and corruption. And the quickly the policymakers do something about this, the better it will be for country's long term growth potential.
02:35 |
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However, the nod comes with a caveat. The new agreement should not allow export of iron ore (raw material for steel) from India. There is already a 20% tax on material's export. This ban makes sense as such exports can have adverse impact on domestic steel manufacturing companies ramping up capacity. After a long time, the environment ministry is in news for the right reasons. We hope the trend continues.
Overall, the news is positive as it gives strong signals to global investors that environmental clearances won't derail necessary infrastructure projects in the country.
03:15 |
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This move will impact banks which have a high CASA (current account and savings account) base. The likes of SBI, HDFC Bank etc that have benefitted from a larger proportion of low cost deposits will be seeing some margin pressure. However, the same will only be temporary before the benefit of a larger account base catches up. However, the RBI has not ruled out deregulation of the savings rate, a move that may see banks trying to cannibalize market share of their peers.
03:55 |
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China in particular has been advised to start utilizing its huge quantum of reserves towards the health and education of its own people. China accounts for nearly half of the forex reserves of the region. It looks like these countries wish to limit the reign of US dollar. Something that China has been trying to do for quite some time now. Finally it appears to be gaining success in its motives.
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04:45 |
Today's investing mantra |
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4 Responses to "Do you have smart money or dumb money?"
SAKET OBEROI
May 4, 2011Hi Equity Master team,
The article "Do you have smart money or dumb money?" is thought provoking and worth persuading ordinary people to re-evaluate thier invetsmnet strategies.
But having said that, I personally feel that money,
per se, doesn't have a mind of it's own to be regarded as smart or dumb but it is the individual investor which renders it "smart" by making informed choices of investing in instruments that generate "smarter returns" and beating the easily accessible instruments that generate "dumb or negative returns".
But being a smart investor to deploy money in markets(buy)when others are selling and pull out (sell) when others are pouring in (buying) eventually turns out to be a matter of "timing".
And timing the market is like Obama chasing Osama (although he finally got it after 10 years!!)
However, even to time the market u need to know which stocks to catch and which to leave so having a knowledge of the fundamentals is equally important.
But it is inde[pendently not sufficient to renedr the investors as smart invetsors.
The crux is one needs to have fundamentals in place (i.e.,be ready) to enter the market in "time" and similarly exit the market in time(book profits).
Regards
Saket
Sthithapragnja
May 3, 2011Eq. Master Team,
After going through your article I am prompted to quote a phrase often repeated by my old time friend and (an erudite Police official)
He used to be on duty when the general public used to be enjoying their holidays !!
He used to quote so convincingly thus (from the Great Bhagavad Gita): "" Ya nisha sarvabhoothanam thasyam Jagrati Samyami, Yesyam jagrati bhoothani Thanisha pasyatho Muneh ""!!
( A rough translation would run thus : When it is night for the many ordinary folk, the Police have to be doing their (night Patrol) duty; and when it is daytime for the people, it is night for the saints !!
Your article on money(both "smart" and "dumb" ) also has similar connotations as well ! I hasten to conclude as I honestly declare that I am not at all an economist (neither smart nor dumb) !!
AML
May 3, 2011Predictions about GDP are futile.The policy makers draw rosy pictures for their own benefit (facts are not taken in to consideration).This is because 1.Absence of long term policy
2.Despite having "HARWARD" graduates with long experiance in economics one bad factor is POLITICS.3.. Lastly as you describe Curruption ! Less said is better on this .We Indians are now immune to these things . I dont think India as a subcontinebt will regain it's past glory in next 50-100 years.Temporary medicines will not work Drastic surgery is necessity of this hour & will nobody can think-due to becoming unpopular (Loose elections !)
Radhakrishnan.K.K
May 4, 2011As u said osama is a Bomb only. Excellent & a very good initiative.