Since the stock market's (SPY  ) low on March 23, a notable divergence has developed between attitudes of retail traders, and some of the most successful money managers in history. There's been an explosion in retail bullishness and participation in markets. No doubt, some of this has been fueled by people working from home and the lack of things to do. And, another contribution has been the number of brokerages offering commission-free trading.

This is in contrast to some of the most successful money managers who are not feeling enthusiastic about the stock market. This illustrious group includes Warren Buffett and David Tepper. It's also reflected in data which shows that many large funds continue to have heavy cash balances.

Typically, the smart money is right and deserves the benefit of the doubt, but for the last two months, retail traders have been right. Retail traders tend to chase returns, but there have been instances of retail money outperforming smart money. Notably, this happened from 1998 to mid-2000 during the dot com bubble. Currently, there is also a huge uncertainty based on what will happen in terms of the virus coming back, government response, and reopening. Right now, being long stocks is an implicit bet on the situation improving on a marginal basis.

Smart Money Thinking

The contrast is highlighted by Buffett dumping his airline positions at a loss, while retail traders have been aggressively buying and so far seeing handsome gains. Buffett's recent pessimism is striking given that he is notoriously optimistic about the U.S. economy. He has a unique insight given his numerous investments in a wide array of industries and his connections to other titans. This has translated into him being generally on the right side of the market cycle throughout his career.

While Buffett's record is the best over a 50-year horizon, the best money manager in the last 20 years has been David Tepper. He was bullish throughout the entire bull market from 2009 and took an aggressive stance, when retail traders were mostly out of the stock market. He piled into junk bonds and beaten-down stocks which are up many multiples.

He also started getting more bearish at the beginning of the year and was concerned about the coronavirus. On the current market in a CNBC interview, Tepper said it was the "one of the most overvalued market he's ever seen". He sees recent gains driven by Fed policy and that tech-giants like Amazon (AMZN  ), Facebook (FB  ), and Google (GOOG  ) are "fully valued".