The writer is chair of Rockefeller InternationalThe new movie Dumb Money tries to turn Wall Street’s pecking order on its head, casting professional investors as the dummies and amateurs as the smart ones. Set during the meme stock craze of 2021, the plot ends before the real life story did — with losses for the retail investors who tried to outsmart big hedge funds. Sorry Hollywood, the underdogs did not win. The movie did, however, leave me pondering a bigger question: is there such a thing as “smart money”?

Certainly, most pros don’t beat the market either, and this has been true for decades. Since 2000, there have only been three years in which a majority of large cap funds outperformed. In the 2010s, on average, 8 out of 10 mutual funds and 9 out of 10 institutional funds underperformed in the US markets, after fees. The share of pros who beat the market was only slightly better before fees and was equally low in the stock markets of Europe, Asia and the rest of the world.

Still, the pros do better than retail investors, who make every mistake in the book, and more regularly. They trade on “noise” rather than information, a phenomenon that has probably been exacerbated by rumours flying on online trading sites. The amateurs succumb to familiarity bias, leaning to names they know rather than names they research. They trade on sentiment rather than fundamentals and follow the herd, which tends to stampede towards losses.