Is “smart money” all that different from retail investors?

In recent weeks there have been many quotes from institutions hinting that “the top is in” and that the market was overvalued. Many in the media took this to mean that the time to sell was now as retail investors were beginning to get back into the market, which historically has meant the market is closer to the end of a run rather than the beginning of a new one. Everyone wants to listen to the all-knowing, all-seeing “smart money” (even though the “smarties” have been getting their ass kicked this year).

So, just how different from retail investors are the institutions in recent times? Well, according to the ICI data on Money Market assets ….not very different at all. In fact, if institutions really believe the market is overvalued, it appears retail began collecting cash at a faster rate than they did. 

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Source: http://www.ici.org/research/stats/mmf

Now, I’m not going to go out on a limb and say retail investors are a great indicator for the markets, but it is interesting to see how similar the money market activity for these two classes has been as of late. It is my opinion that since the latest recession, retail investors have been much more cautious with their money and aren’t willing to just throw themselves into the ring and go on with their lives. This data tends to agree with that opinion for now. If this bull market continues, will we eventually see a divergence between the two investors? 

Have a great Monday!

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