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We all hear this advice with setyourclock regula

first_imgWe all hear this advice with set-your-clock regularity: “Follow the smart money.” But who or what is this so-called smart money? Why is it smart? How do we find it—let alone try to determine where it’s headed? And how can we take advantage of it? Taking it from the top, what is “smart money”? It’s money put into companies by the top tier of experienced investors, hedge fund managers, and/or institutions. The opposite of it is “dumb money”—the cash that pours in once the investment gets touted front and center in the financial press as “the latest hot secret” for the naïve millions to read—commonly followed by the investing herd stampeding into the sector and driving prices up into a bubble that bursts and leaves heavy losses in its wake. Obviously we want to follow the smart money and avoid getting swept away with the dumb money. But what makes the smart money smart? It’s simple, really. 1. Those in the know have better access to information—and access to better information. If your job were to find the best investments and manage millions, perhaps billions, of dollars, wouldn’t you try to take every advantage the law allows (and maybe even exploit some of the legal gray areas)? This could mean gaining access to policymakers, personally getting to know company management and technical experts, or just immersing yourself in how the market is moving and why. Honestly put, the smart money may know important news hours or even days before it hits the newswires, due to a level of access unavailable to the average retail investor. Using this information, the smart money is able to make better-informed decisions, and make them faster. Sticking with the buy low/sell high mantra is easier when you’re in that position. 2. Serially successful people tend to continue to be successful. The Pareto Principle posits that 80% of an event’s effects often arise from 20% of its causes—or in financial terms, 20% of the people working in a given sector generate 80% of the wins. Being a math guy, I’ll take it one step further. If the top 20% of that group again generates roughly 80% of the wins, this means the top 4% of entrepreneurs generate 64% of the wins. Those who have previously demonstrated that they have what it takes are the ones most likely to do it again. I call it the “4-64” rule. Pay attention to what these folks are doing. 3. They don’t allow the herd to trample them. When you hear about the latest investment fad in the news, you can be pretty sure that idea has passed through hundreds of thousands of hands on its way to you. By the time it hits the airwaves, it’s usually too late: The real money, based on the company’s real value, has already been made. Herd investing is one of the most dangerous threats to your net worth. As the dumb money flows in and the share price begins to climb, it’s easy to get complacent and think that the shares will keep going higher. But that’s when the smart money strikes, pulling out their investment at the expense of the dumb money, taking its profits and leaving the field. Sooner or later, the price takes a nosedive under the selling pressure. It’s the herd that always ends up holding the bag. How to take advantage? Well, let’s take Warren Buffett for example. I have no hesitation labeling him and his group of companies and funds as very smart money. It’s also no secret that Buffett has a cult following, and after it becomes public that he owns a stock, that the “not so smart” money rushes in and pushes that stock even higher. So, the ideal is to get into an investment before the smart money… or at least at the same time. Then, when the involvement of someone like Warren Buffett gets noticed, the herd will drive the price upward, and you will reap the rewards. Of course, you also want to get out before the inevitable decline arrives, which may mean you exit a little early. No problem. You want to preserve your winnings, and no one ever lost money by taking profits. The nice thing is, if it’s basically a sound company, you can ride this cycle multiple times. That’s exactly what we did with ExxonMobil. We got in low, booked our gains, and moved on. It’s now pulled back enough once again that we saw another good entry point, and we jumped back into the stock. But what about our final question? How do you figure out where the smart money is headed next, so that you can get in with or—better yet—just ahead of them? Answer: you do a lot of hard work. There are no shortcuts. You have to ferret out the small number of solid companies that are selling at a discount—and discard all the rest. History is also your guide. It shows that energy stocks move in cycles. We’re somewhere in the trough of a long down cycle, which is exactly the time to go bargain hunting. To maximize our chances of finding the most compelling buys, we’ve now completed a major analysis of the best oil producers and service companies in North America. We’ve locked in our gains before the market selloff on many of the producers, and we believe now is the time to start buying and start building your position in the right companies, during market pullbacks and market weakness. Oil has dropped $15 per barrel in the last year, and majors are sale. Fortune favors the bold, and the key to buying is to do so when others are fearful. This is as true in the oil sector as any other. Buy before the smart money becomes comfortable to stake out major positions. Way before the herd takes notice. And that time is now, in my opinion. Readers who want to make money as the energy sector turns higher—and who want to understand, hedge against, and even profit from the ensuing decline of the petrodollar—are advised to sign up for my Casey Energy Report. For most readers, this is literally a once-in-a-lifetime opportunity. Test my newsletter for the next 3 months, and if you don’t like it or don’t make any money, just cancel within that time for a full and prompt refund. Upon signing up, you’ll receive the September issue of the Casey Energy Report, which will provide you with an in-depth analysis of my favorite companies, including dividend-paying and small-cap companies ready to profit from the Russia/US confrontation that I’ve termed “the Colder War.” So if you want to get behind the real winners, be a part of the “smarter money,” and book some serious profits from the inevitable coming bull market in oil, click here to get started now.last_img

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