Carl Richards is a certified financial planner. He writes regularly for the New York Times blog, Bucks, doing an excellent job of making financial principles more understandable via his musings and fabulously illustrated sketches. Yesterday, as I read his latest post, “When Your Money is the Dumb Money,” I couldn’t help but wonder what the equivalent of the dumb money phenomenon is when it comes to how you and I manage our careers.
On Wall Street money tends to be categorized in two ways: “smart money” or “dumb money.” The latter is a common sentiment expressed by Wall Street professionals to describe the typical behavior of individual (aka retail) investors. More so than Wall Street professionals (traders, investment bankers, hedge fund managers, portfolio managers, etc.), retail investors typically react to past performance than to anticipated growth. The result: They tend to buy high and sell low; when it is best to buy low, sell high. Every investor is aware of the buy low, sell high investment principle and discipline; yet not every investor follows this practice when it is most warranted. Why? Because they are allowing their emotions to dictate their reaction to the market’s volatility. (Read more…)