Joe Kennedy's Smartest Move Ever

Sometimes, the only difference between the “smart money” and the rest of the crowd is simply knowing when to walk away.

Probably the most famous illustration of this concept came from one of the most iconic figures of the 20th century: investor, bootlegger, and patriarch of the Kennedy dynasty, Joe Kennedy Sr., himself.

As the story goes, in the winter of 1928, Joe Kennedy was getting his shoes shined when the teenager doing the job gave Kennedy a surprise stock tip.

“Buy Hindenburg,” the young man told the multimillionaire during one of their daily interactions.

Kennedy’s response wasn’t to buy Hindenburg. Not by a long shot.

What he did instead was immediately start liquidating his holdings and moving everything back into cash.

The reason for this drastic step?

The way Joe Kennedy figured it, the day a shoeshine boy starts doling out information on where to invest marks a very important milestone for what was then an historically active bull market.

It was the point where the market was overbought.

And his reasoning was as simple as it was potentially offensive to those who do not believe in the natural chasm between “smart money” and everyone else… Kennedy understood that to remain in a rarified category, he had to do the opposite of the prevailing wisdom.

So he sold.

Prophecies From a Shoe Shiner… Come True

Less than a year later, on October 29, 1929, the biggest economic downturn in the history of modern economics struck.

Wealth evaporated. Millionaires became paupers. Money managers took to the skies en masse, leaping from windows as their clients, careers, and net worth all came crashing down.

And the cause of this meltdown, unlike the cause of our far more intricate, complicated bubbles of today, was a simple matter of over-speculation driven by manic bullishness across all sectors.

Kennedy came out of the worst years of the ensuing depression richer than he’d ever been… and the influence his family would soon have over the nation and the world as a whole became an inevitability.

And it was all thanks to that single chance encounter with an individual whose only distinguishing character trait was that he was an average retail investor.

As much as the world of investing and trading has changed over the years since this event took place, with all of today’s electronic brokerage accounts, the instant dissemination of news, and a vastly expanded list of publicly traded companies, that one fundamental truth about the proverbial haves and have-nots has not changed at all.

Today, there is no less risk in going the well-beaten path when it comes to investing. In fact, with the way automated high frequency has changed the nature of the markets today, going the way of the established trend has arguably never been less profitable or more potentially disastrous.

A good example of what not to do, unfortunately, comes from a character much closer to home for me.

Stock Chasing Mania: A Recipe for Disaster

A few weeks ago, my uncle Tony, a business owner and self-proclaimed day trader, was boasting at a family gathering about the great position he’d just initiated through his Scottrade account.

His stock? Apple. The price he’d paid? Somewhere just south of $125 per share earlier this spring.

My immediate response was to ask him why he thought $125 was a good place to get in — considering that after the stock’s reverse split, this was only a few dollars off the company’s all-time high.

“You know how hard it is to get shares today at a bargain today? I was lucky to get them when I did.”

The truth is, he wasn’t. He wasn’t lucky in the price he got, nor was he lucky in his timing, and truth be told — and I hope this doesn’t get back to him — he may have not been too lucky when it came to trading instinct either.

Thankfully, Tony married into the family and shares no common genes with me.

Unfortunately, it’s exactly his mindset that distinguishes him from the stoic, emotionless Kennedy-style trading practices. To him, Apple wasn’t a company whose stock was trading at historic highs…

It was a company he wanted to own at that moment, come hell or high water.

And it’s a recipe for trading failure if done enough times.

Sometimes, even just one such misstep is enough to drain resources and significantly impair your ability to continue profiting from your nest egg.

Now, I’m sure I’m not discovering America for many of you. The bane of emotional trading has destroyed many an investor.

However, it’s no less prevalent today than it was back in the days of Joe Kennedy, over-speculation, and shoe shiners posing as financial analysts.

Amateur Advice… Amateur Results

Again, thanks to social media and all the free flow of information today, I guarantee more than a few of you will be shocked by just how many people pose as financial analysts these days… and not all of them are as qualified as a shoe shiner to give financial advice.

Which leaves the modern investor with many choices to make, but only within a fairly limited band of alternatives.

And that’s the point I’ve been trying to get to.

You don’t need to be a Kennedy, or even a millionaire, to enter the ranks of the smart money.

All you need is the basic understanding that to be in that category, the first step is to leave mainstream investments where they belong — in the portfolios of fund managers who profit whether their clients win or lose.

Fortune favors the bold,

Alex Koyfman

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