Editor’s Note: I recently watched a movie called Dumb Money, a 2023 biographical comedy-drama the describes the GameStop (NYSE: GME) short squeeze of January 2021.

This “meme” investing incident, fueled by social media hype, led to extreme volatility and quick profits for early investors. However, many latecomers bought at inflated prices, only to see the stock crash when momentum faded, leaving them with heavy losses. The movie inspired me to write this article.

The stock market has a way of exposing human folly like no other institution. As a tumultuous 2025 unfolds, I’m watching the same parade of suckers march into financial ruin. In the investing world, they’re known as “the dumb money.” Here’s how to avoid joining their ranks.

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The Macro Headwinds

First, some timely context. With a second Trump administration in full disruptive mode, tariffs battering supply chains, the Federal Reserve frozen like a deer in the headlights, and inflation giving working-class wallets a painful squeeze, you’d think investors would be a tad more cautious. Nope. The stock market hovers at record highs, even though warning signs of an impending correction abound.

Investors are convinced that sheer momentum and “animal spirits” will overpower macroeconomic headwinds.

Should you stay invested in equities? Yes, of course. Don’t run for the hills. But you should exercise caution and watch out for these six common errors.

1. Buying the Hype (and the Dip, and the Next Dip, and… the Bankruptcy Announcement)

The dumb money loves a good story. The problem is, Wall Street sells fairy tales at premium valuations. Whether it’s an overhyped artificial intelligence (AI) startup that promises sentient robots or a “meme stock” rallied by Internet revolutionaries, the dumb money laps it up like a dog that just discovered antifreeze.

And when the stock starts plummeting, do they cut their losses? Of course not. They double down, convinced that their “diamond hands” will pay off. But as the resurgence of inflation squeezes margins and speculative bubbles burst, the only thing dumb money will be holding is a bag—an empty one.

The Psychology: Greed mixed with a desperate need for validation. Resist the thrill of a sexy story. Dig deeper; do your homework.

2. Chasing Rockets…Until They Run Out of Fuel and Crash

The dumb money sees a stock soaring and assumes it’s destined for the moon. Indeed, the crypto bros love the expression “to the moon.” Fundamentals? Who cares! Valuation? Irrelevant! As long as everyone’s buying, they’re buying too.

Whether it’s the latest AI darling trading at 50 times revenue or a biotech stock with zero earnings but a “game-changing” drug in early trials, the lemmings pile in at absurd prices, convinced they’re catching the next big thing.

Then reality hits. Growth slows, insiders cash out, and the stock nosedives. But instead of recognizing the warning signs, gullible investors hold on, convinced that stocks only go up. By the time they realize the hype train has derailed, their portfolio is wrecked.

The Psychology: Fear of Missing Out (FOMO) overrides logic. Don’t mistake price momentum for a guarantee of future gains.

3. Confusing Politics with Profits

In a world where every election is “the most important in history,” dumb money investors let political beliefs hijack their portfolios. Trump 2.0 means new tariffs, tighter immigration laws, and a White House that governs by social media decree.

Regardless of your political beliefs, never assume that your ideological side will win economically, too. Don’t pile into stocks you think the administration will favor or dump anything remotely “woke.”

News flash: The market doesn’t care about your politics. The smart money watches balance sheets…not Fox News, not MSNBC, and not even CNBC.

The Psychology: Confirmation bias. Your worldview doesn’t dictate financial reality. Stay focused on the cold, hard market fundamentals.

4. Timing the Market Like a Drunken Vegas Gambler

Novice investors think they can outwit the market, buying just before the next rally and selling right before the next crash. Spoiler: they can’t.

With inflation still lingering, interest rates uncertain, and consumer sentiment at historically miserable levels, don’t mistake a rip current for a profitable wave.

The Psychology: Overconfidence bias. You can’t outwit an army of quants on Bloomberg terminals. Heed the algorithms, not your gut instinct.

5. Ignoring Fees (a.k.a. Death by a Thousand Cuts)

The dumb money loves flashy investments but ignores the fine print. They happily sign up for high-fee mutual funds, trade on platforms that skim off commissions, and rack up capital gains taxes through excessive trading.

These investors get sucked into expensive, actively managed exchange-traded funds (ETFs) that underperform simple index funds.

The Psychology: Inattention to detail. Don’t get blinded by the juicy 12% yield and ignore the 3% management fee eating away at your gains.

6. Selling in a Panic

When the market drops, foolish investors impulsively sell. Maybe it’s a 5% dip, maybe 10%. Either way, they convince themselves that this is the start of a 1929-style crash. So they rush to liquidate their holdings, right before the market inevitably rebounds. They lock in losses, miss the recovery, and then buy back in at higher prices.

In 2025, as tariffs escalate, inflation stays stubborn, and the Fed wavers, market swings will be inevitable. The smart money? They see volatility as an opportunity. The dumb money? They treat it like an existential crisis.

The Psychology: Loss aversion. Humans fear losses more than they enjoy gains, and the dumb money reacts to short-term market noise instead of long-term strategy.

Final Thoughts

Investing isn’t about chasing trends, making impulsive trades, or betting on your political team. It’s about discipline, patience, and understanding that markets are cyclical. Those who stay the course—who focus on fundamentals, control emotions, and avoid the hysteria—will win. The rest? They’ll keep making Wall Street rich while wondering why they’re always on the losing side of the trade.

Introducing…the smart money!

There’s a colleague of mine who makes money for his followers, no matter what happens in Washington…and in bear or bull markets. He doesn’t give a fig about politics; his methods are immune from the daily headlines.

His name? Jim Fink, chief investment strategist at Investing Daily. If you’re looking for advice from the smart money, Jim’s your guy.

For most income investors, collecting quarterly dividends is the norm. But what if there was a way you could get paid each and every week, 52 weeks a year?

And what if, instead of getting $845 in dividends once every three months, you could get a $1,456 “paycheck” each week from the very same size portfolio?

Well, Jim Fink has developed an investment system that does all that…consistently. Click here to learn more.