Jeff Cooper says >>>>> And, by the way, hedge funds are considered the public. <<<<<< Very true in the data released each week from the NYSE. And the rise of the hedge fund industry is precisely why there has been a secular trend towards more shorting by the public and why the specialist short sales ratio is trending lower and might not be as effective as a timing as in the past. I wasn't aware though that the hedge funds were the smart money. I thought they were just the big money, although just a fraction of the mutual fund industry. According to the services that track the hedge funds, they underperformed a passive buy and hold in the S&P during the 1990s and last year. The only time they beat the market was the bear of 2000-02. And according to the Commitments of Traders report in the S&P, they were net short just about every week of the entire decade of the 90s as the market marched steadily higher.
Ever since Wyckoff -- and more recently Weinstein and O'Neil -- explained how the accumulation-distribution cycle works, every pundit and guru seeks to find out what the "smart" or "big" money is doing. Discovering that trying to find out is a waste of time, they instead pretend that they know so that they can impress readers and potential subscribers. The individual investor, with his little laptop and online account, buys into all this, even to the point of believing that he too knows what the "smart" money is doing and trading (and, unfortunately, posting) accordingly. If one defines "big money" as some monolithic "they", there is, I'm afraid, no such thing. There are instead many "big monies". Bon chance to keeping track of all of them, if you can figure out a way to do it (bug the conference room, perhaps?). As for "smart" money, I've seen little evidence of smart behavior of any kind when it comes to trading. Those who refer to "smart money" seem to believe that there's a little man hidden 'neath Wall and Broad in an abandoned subway tunnel, like Lex Luthor, manipulating the financial markets for his own purposes, and if they can only figure out what he's doing, they'll have their long-sought ticket to Easy Street. Fact is that all of this is a waste of time. Fact is that it's a distraction to keep the trader's eye off the ball. Fact is that every participant is part of a herd, whether he wants to admit it or not. If he tries to be "smart" and trade against the herd, he finds more often than not that he's trampled. If he wants to be truly smart, he determines what the herd is doing, trades with it, then watches the herd around him to find out when everyone is getting tired, much less getting nervous, much less getting scared. There is no "big money". There are many "big monies", each of which is doing something different than each of the others. There is no "smart money", though some trader somewhere may be having a hot streak that he is in no way personally responsible for. But regardless of how smart he may be, he can't influence the market. There is no "they". There is only demand and supply. And where the demand and supply come from is completely immaterial to the individual investor (most of whom, after all, participate in the market through mutual funds, and, of those who manage any part of their own money, most are recreational "traders").] Trying to outthink, outsmart, outmaneuver is self-defeating. It anthropomorphizes what is more a force of nature than a global conspiracy to fleece the individual trader. Trying to understand just what it is that price is doing via its behavior and piggybacking its moves is far more productive than trying to read the minds of the "smart" money and obsessing over what "they" are going to do at some point in the future, even if the future is the next tick.
i found the member, specialist, and public info on the Barron's Market Lab pages to be a useful indicator, in conjunction with the chart, VIX, other markets, and other info that seemed to be affecting the market at the moment. As the pertinent data was released two weeks later than when it was recorded, I noticed a definite hindsight effect, and so when daytrading I lost interest in it.
Oh do you use metapsychic power to be able to read in crowd's mind of millions of people ? Zoran Gayer against Robert Prechter said and I agree since this is just common sense: "The twelve men in the monthly meeting of the central bankers (FOMC) have more effect than rest of the crowd combined." http://www.elitetrader.com/vb/showthread.php?s=&threadid=27512&highlight=zoran
Hi Gary, I have heard too that hedge funds were net short for just about every week of the entire decade of the 90's. My question too you is: is is possible for any net short fund or any exclusive short seller to consistently post profits every year in the 90's, even during the strong bull years of 1995-1999? Do you know of any short sellers who achieved consistent winning returns during the strong bull market years?
Hedge Funds are definitely not smart money. Most of them are started by traders who think they know what they are doing but in reality do not even bother to think what a task it is to run a profitable hedge fund. Hedge funds blow out at a high rate year after year, only a small percentage of them actually continue to make decent returns on a consistent basis. All funds in general seem to have their year where they make great returns, appear on CNBC and brag about themselves. In the long run, it seems like over 90% of funds (mutual, pension, hedge) lose money, blow out, close down. Think tech funds that had 300-600% returns in 1999. Hehe where are they now? I would definitely throw all the funds into the sheep category. Look, they take others money, charge a fee and play with it. I really doubt they will perform just because some of their investors have high net worth. Quite a few millionaires were turned into average Joes after the tech bubble burst. The market does not discriminate the rich from the poor. It's hard to figure out who the smart money is but to give an example, the smart money can be identified in the 1987 crash. I completely forgot the speculators' names that overlayed the charts of 1929 to 1987 and on the Monday morning sent in huge sell orders and shorts. These traders made out like bandits. Their revelations and advice to close ones literally moved the huge panic that ensued. I'm not sure, I think Soros was one of them. Basically, these were big guys that could move markets or at least initiate the move waiting to happen.
Smart Money is just a term used to identify the professionals from the "average joe investor". There are a lot of Hedgefunds, and not are all "smart" with their positions. I speak of the ones i know that are short, and they have a great track record. As far as hedgefunds net short for most of the 90s? Im unaware of "Most hedgefunds" being short during that time. Of course i get my data from www.hedgefund.net, however, i belive this site is the most accurate site out there. Since the first of the year, we are up 26% in our positions.....NGEN was a short, ZIXI was a short and RIMM is a short. Still holding..... So, i do belive the "Smartmoney" is short a lot of areas. I will remain short until i see something other than Greenspans Jedi Mind Trick, or the Capture of Osma....which may be even a better shorting opportunity.