The Problem Isn’t “Mentality,” It’s Patterns
You’ve heard the phrase “herd mentality.” The idea is that people mimic the crowd without independent thought. It’s not really mentality (which suggests thinking), but patterning (which suggests mimicking).
The point of joining a herd is precisely to stop thinking. Just follow. Safety in numbers, right? Except… not really.Because most of what feels like “thinking” in a herd is actually emotional reflex dressed up as logic.
Why Investors Love the Herd
When people stop asking, “Does this make sense?” and start asking, “What’s everyone else doing?”, things go south fast. Bubbles, manias, panics are all born from herds. The crowd stampedes because it feels safer to run together, even if the cliff edge is right ahead.
There is also an element of comfort in numbers. That one’s failures are more easily assuaged by seeing the same failures in the crowd. Of course, there is little “safety” to be had din numbers.
What Herds Actually Do
“Herd mentality” is really pattern-avoidance of hard things. Herds offer supposed safety in numbers. (“Everyone’s doing it, so it must be safe.”). They promise short-term thrills. (YOLO.) Novelty over proven wisdom. (“New and unique” beats “tried and tested.”) And more often than not, herds usually have a shepherd figure. Someone to follow (who mysteriously disappears when the trouble starts).
But the reality is that comfort evaporates when markets become volatile. Short-term thinking robs you of compounding. Herds make it harder to exit because its like you are tied as much to the group as you are to the investment.
In short, herds present false security.
A Better Frame: Pay Now, Buy Later
Not surprisingly, BNPL (buy now, pay later) is growing in popularity. That’s exactly what herd investing is: grab the thrill now, deal with the pain later. But what is we look at the other side. Flip it over.
PNBL: Pay Now, Buy Later.
Pay up front with discipline, patience, and long-term goals.
Buy your financial freedom later with compound returns.
It’s not very exciting. But neither is rebuilding your net worth after following the crowd off a cliff.
Why Smart People Still Join Herds
Herding isn’t stupidity. It’s humanness. Even smart people fall for it. Nobody likes missing out on a chance to increase their wealth (FOMO). Social “proofing” draws in the brightest of investors (if everyone’s in, there has to be something to it.)
Most tempting is shortcut thinking. This idea that the herd knows something I don’t. Whereas in reality, the herd rarely knows anything. And especially not how they became a herd.
Inverting the Herd
Breaking patterns isn’t easy. There’s no final exam. It’s more like graduating grade by grade. But undoubtedly, the main way to break the pattern is by inverting the herd.
When everyone’s rushing one way, pause and consider the opposite.
Slow Down Decisions → Use rules that prevent snap buys/sells.
Check the Source → Fundamentals or crowd chatter?
Pre-Commit Rules → Allocation, risk tolerance, rebalancing. Stick to them.
Build Awareness → FOMO and panic are red flags. Pause, don’t act.
Eliminate Envy → Congratulate others when they get lucky. Don’t follow.
Reflexes need to be rewired.
Case Study: Tesla’s Stampede
In less than 18 months between 2020–21 Tesla’s stock surged 700%! Friends, coworkers, baristas were all clamoring to get in. The “logic” behind it was “Elon is unstoppable. This is the future. Everyone’s getting rich.”
But valuations implied Tesla would dominate all global automakers combined. It was simply an impossible proposition. Only hoards of herds had piled in.
Eventually, reality intruded and the stock corrected over 60%. The anti-herd didn’t necessarily short Tesla. They just avoided the frenzy or trimmed exposure when prices looked frothy or maybe reinvested later when value returned. Those who watched the ride weren’t necessarily smarter, just calmer.
The Real Lesson
The point is that herd behavior is a behavioral problem. The herd runs on reflex, which feels safe, until it isn’t. Herds make you feel comfortable right up until the stampede.
The “winners” are those who manage behavior as much as they do their portfolio. The difference is being as active as needed, when the temptation arises to react. And often that action has more to do with being able to identify herds.
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Hi, to me, your analogy suggests a tension between safety and insight. How do you personally balance those instincts when making decisions? 🙏
A wealth of information evidence and data! I am sure I will come back with some questions! Thanks for sharing your wisdom🙏