This is true, but it uses an unfortunate industry term that is more pejorative sounding than it actually is.
When people in the industry talk about 'dumb money' they aren't talking about how informed or intelligent the order flow is. They are talking about how likely the order relates to market structure.
An individual investor who has looked at their portfolio and decided that the best move for their investment horizon is to move a big component out of equities and into bonds is still 'dumb money'. Even though that might be the most intelligent option.
A bot that has a terribly performing algorithm that takes market structure into account is not dumb money though.
When people talk about 'the stock market' or 'the stock price' they are using a very coarse abstraction.
In reality for most trade-able instruments there are a variety of exchanges all operating at once. Further in each exchange there isn't a single price. There is a collection of buy and sell orders that combined together form the 'book'. For instance if you had 10 buy orders at $1 and 2000 sell orders at $1.10 what is the 'price' of that thing? The structure of the book and how all the exchanges relate (and Reg NMS in the US equities space) are all the 'market structure'.
In this specific case, it means that retail flow is much less likely to immediately move the market than flow from an informed (knows the market will move soon) or large (will trade so much that it will move the market) player, and is much more valuable to market makers who try to capture the spread on that order (and usually improve it) and hedge/trade out of that risk relatively soon.
When people in the industry talk about 'dumb money' they aren't talking about how informed or intelligent the order flow is. They are talking about how likely the order relates to market structure.
An individual investor who has looked at their portfolio and decided that the best move for their investment horizon is to move a big component out of equities and into bonds is still 'dumb money'. Even though that might be the most intelligent option.
A bot that has a terribly performing algorithm that takes market structure into account is not dumb money though.