The phrase "smart money" can bring several images to mind.
Yet in the financial profession, the phrase usually refers to professional money managers.
Many people think it would be nice to know how they manage the assets under their control, so that they could do the same thing! If you've ever had that thought, you might re-consider in a moment.
As a group, mutual fund managers often have the lowest percentage of their funds assets invested in stocks near market lows. At market tops, they're usually almost "all in."
Consider this comment from the March 2010 Elliott Wave Theorist:
"...mutual funds now carry only 3.6% cash on average. This percentage is lower than that at the 2000 high and nearly matches the all-time low of 3.5% registered at the 2007 high. In other words, stock fund managers today are as certain about continuously rising prices as they were at the two biggest tops of the past 80 years. This is another time-proven indication of a major top in the making."
How about recently? The percentage is even lower. The Investment Company Institute states that liquid assets of stock mutual funds in July was only 3.4%.
As far as we know, that percentage of cash in mutual funds is as low as it has ever been!
Moreover, these funds were practically fully invested right before the worst performing August for stocks in nine years. The Wall Street Journal online reported September 1:
"Stocks limped to their worst August since 2001...The blue-chip index's 4.3% drop for the month was the worst since a dismal May, and the measure's first down August in five years...The Standard & Poor's 500-stock index fell 4.7% for August, while the Nasdaq shed 6.2%."
Is that 3.4% cash level of stock funds a flashing contrarian indicator -- saying the "smart money" is on the wrong side of the market -- again?