is the crowd always wrong ??
- Thread starter marketsurfer
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The crowd was right up til late March 2000.
Smart money is simply a term for those who make it consistently.
Smart money is simply a term for those who make it consistently.
Questionable... maybe it was smart money that was right unloading into that vertical move? 
The real question is, who had profited eventually. Crowd certainly did not, or we woouldn't hear all the complaints about bubble bursting, money lost etc. I mean, being right about the direction at any given given moment still doesn't mean being right to the degree allowing to profit from that direction. Gotta also read the movement right and act when the time is right.
Let me show an example to illustrate the point... long ago I bookmarked this story: http://www.nytimes.com/library/financial/sunday/061800biz-hakim.html
As you can see, those guys actually started on the side of smart money. It was the crowd mentality that failed them at the end. The same player can act as smart money in one trade and as a part of the crowd in another. Even more than that, he can start the trade with smart money and exit it incorrectly, becoming the part of the crowd. What I am driving to is: do not try to put the label on any certain group - roles change depending on their action. The group that entered into parabolic move and didn't exit in time represented the crowd. The group that accumulated during slow move at the beginning and exited into euphoria represented the smart money.Thus, the crowd cannot be right by definition because it's crowd's action that makes it wrong, and if it (or part of it) acted right in given instance, it was smart money in that instance.
The real question is, who had profited eventually. Crowd certainly did not, or we woouldn't hear all the complaints about bubble bursting, money lost etc. I mean, being right about the direction at any given given moment still doesn't mean being right to the degree allowing to profit from that direction. Gotta also read the movement right and act when the time is right.
Let me show an example to illustrate the point... long ago I bookmarked this story: http://www.nytimes.com/library/financial/sunday/061800biz-hakim.html
As you can see, those guys actually started on the side of smart money. It was the crowd mentality that failed them at the end. The same player can act as smart money in one trade and as a part of the crowd in another. Even more than that, he can start the trade with smart money and exit it incorrectly, becoming the part of the crowd. What I am driving to is: do not try to put the label on any certain group - roles change depending on their action. The group that entered into parabolic move and didn't exit in time represented the crowd. The group that accumulated during slow move at the beginning and exited into euphoria represented the smart money.Thus, the crowd cannot be right by definition because it's crowd's action that makes it wrong, and if it (or part of it) acted right in given instance, it was smart money in that instance.
I pretty much agree with the gist of your response
The Crowd is the weight of momentum once the pendulum passes the center of its swing (180 degree vertical). Once that pendulum reaches half of the radius from the center to the edge of its swing, its weight is moving upward more than sideways, and it is destined to come back down.
Or: once the pendulum reaches the center, the flush handle has been pulled. You must wash your hands by the time it is half flushed, or you'll end up with crap on your hands.
Therefore, good investment hygiene will keep you financially healthy.
Then the crowd isn't always wrong. It's right half the time, and wrong half the time.
The most people. Warren Buffet is not the crowd, but he may be the most money.