Avoid the Herd


Shutterstock photo

By nature human beings are drawn to a Herd Mentality. It can be evidenced in new fashion trends, technology, social norms, and even the stock market. Ideas and trends start small with only a few early adopters jumping on board. Then as acceptance grows the new trend starts to become the new norm. It is this inherent need to follow the herd that prevents some people from joining trends too early on.

Think about where you would be now if you would have joined in on the mobile phone and Apple technology boom early on? Or if you would have been the first on the scene during the internet boom of the nineties? These were incredible trends, but only a few people joined the movement early, why didn't everyone jump on board when these ideas first came out? Looking back on it now they seemed so obvious.

The stock market can be viewed in the same context. More often than not it's the disciplined investors that ignore and often go against market sentiment that make the most money. For example look at the cover of Barron's from just before the market bottom in March of 2009.

During the time this magazine was published the markets were full of hysteria and many investors were running for cover. Everywhere you looked there was negative news and a recovery seemed far off. The Herd Mentality was telling investors that it was not socially acceptable at the time to be buying stocks. As a result nervous investors sat out of the major rally that was to ensue. Since the bottom in March of 2009 the Dow is now up over 90%.

Emotions, not logic, typically regulate the average investors' decision making. If the hot investment of the day is gold or annuities, then average investors will follow suit since there is a perceived safety in numbers. Investor psychologists and financial behavioral scholars have confirmed this phenomenon in countless case studies. Better investment decisions require you to understand and control your emotions allowing you to avoid becoming your own worst enemy. In other words, in order to be a successful investor you have to stay out of your own way.

The best way to take your emotions out of investing is to adopt a strict investment strategy. This strategy should guide you through your investment decisions, and not allow for you to get caught up in the dangerous herd that surrounds investing.

The intent of this article is to help expand your financial education. Although the information included may be relevant to your particular situation, it is not meant to be personalized advice. When it comes to investing, insurance and financial planning, it is important to speak to a professional and get advice that is tailored to your unique, individual situation. All investments involve risk including possible loss of principal. Investment objectives, risks and other information are contained in the Snider Investment Method Owner's Manual; read and consider them carefully before investing. More information can be found on our website or by calling 1-888-6SNIDER. Past performance is not indicative of future results.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Personal Finance Retirement
Referenced Stocks:

More from Snider Advisors


Snider Advisors

Snider Advisors

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by BankRate.com