Smart Money Fallacy

A discussion about how following "smart money" investors isn't always wise, using recent examples of high-profile investment failures and controversies.

Key Investment Failures

• FTX collapse

  • Perceived as "quant geniuses" but turned out to be fraudulent
  • Major investors and firms missed obvious red flags
  • Demonstrated that prestigious backing doesn't guarantee legitimacy

• SPACs

  • Promoted as "IPO 2.0" by Chamath
  • Initially seen as smart money innovation
  • Eventually collapsed, proving hype doesn't equal success

Why Smart Money Isn't Always Smart

• Portfolio Strategy
  • Large investors make many bets expecting some to fail
  • Can't look at any single investment in isolation
  • Making mistakes is part of their business model
  • Individual investments don't reflect overall strategy

Better Investment Approach

• Trust Your Own Research

  • Don't assume others know something you don't
  • Do your own due diligence
  • Follow your conviction and gut instincts
  • Consider your own research over prestigious names

• Context Matters

  • You don't know their whole portfolio
  • Don't understand their complete strategy
  • Can't see their risk tolerance levels
  • May have different goals than you

Key Takeaway

• Even the most prestigious names make bad bets
• Following "smart money" blindly is dangerous
• Trust your own research and conviction
• Don't assume others have special knowledge you don't have