Why Herds Are Terrible Investors

Herd Mentality is Totally Mental

📌 The Quick Hit

• Herd mentality isn’t thinking, it’s outsourcing thinking.

• Investors chase safety in numbers, but usually just find false security.

• Patterns, not logic, drive most decisions - and bad patterns repeat.

• Herd inversion = pause, question, and pre-commit rules to avoid stampedes.

• The winners aren’t contrarians for the sake of it; they’re calm, consistent, and long-term.

👉 Translation: Stop grazing with the herd. Learn to spot the stampede and step aside.

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🪤 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.

But here’s the thing: it’s not really mentality (which suggests thinking). Herds don’t think. They pattern.

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 in logic’s clothing.

😍 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 - all born from herds.

• The crowd stampedes because it feels safer to run together… even if the cliff edge is right ahead.

• And when you do get burned? Well, hey, at least you weren’t alone. (That’s cold comfort.)

The risks are obvious:

1. You “hit big” once, then believe you’re special - rinse, repeat, lose.

2. You miss the hit, and you’re left with frustration (and maybe envy).

3. Worst case? You torch a pile of hard-earned money.

🐑 What Herds Actually Do

Let’s call it like it is: “herd mentality” is really pattern-avoidance of hard things.

Here’s what herds provide:

1. Comfort in numbers. (“Everyone’s doing it, so it must be safe.”)

2. Short-term thrills. (Living in the “now,” ignoring the future.)

3. Novelty over proven wisdom. (“New and unique” beats “tried and tested.”)

4. A shepherd figure. Someone to follow - who mysteriously disappears when the trouble starts.

But:

• Comfort evaporates when markets wobble.

• Short-term thinking robs you of compounding.

• Herds make it harder to exit - you’re wired in.

False security, on repeat.

🖼️ 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.

Flip it. 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:

• FOMO: “They’re making money without me!”

• Social proof: “If everyone’s in, it must be right.”

• Pain avoidance: “Losing with the crowd hurts less than being wrong alone.”

• Shortcut thinking: “Surely the herd knows something I don’t.”

Spoiler: the herd rarely knows anything.

Photo by Sigmund on Unsplash

🎓 How to Graduate From the Herd

Breaking patterns isn’t easy. There’s no final exam. It’s more like graduating grade by grade.

🔑 The trick? Invert the herd.

When everyone’s rushing one way, pause and consider the opposite.

Here’s how:

1. Slow Down Decisions → Use rules that prevent snap buys/sells.

2. Check the Source → Fundamentals or crowd chatter?

3. Pre-Commit Rules → Allocation, risk tolerance, rebalancing. Stick to them.

4. Build Awareness → FOMO and panic are red flags. Stop, don’t act.

5. Eliminate Envy → Congratulate others when they get lucky. Don’t follow.

Graduation starts by rewiring your reflexes.

📉 Case Study: Tesla’s Stampede

Remember Tesla 2020–21?

• Stock surged 700% in 18 months.

• Friends, coworkers, even your Uber driver wanted in.

• Logic sounded like: “Elon is unstoppable. This is the future. Everyone’s getting rich.”

But valuations implied Tesla would dominate all global automakers combined. That wasn’t investing; it was collective daydreaming.

Eventually, reality intruded and the stock corrected over 60%.

The anti-herd didn’t necessarily short Tesla. They just:

• Avoided the frenzy.

• Trimmed exposure when prices looked frothy.

• Reinvested later when value returned.

They weren’t smarter. They were calmer.

✅ The Real Lesson

Herd behavior isn’t about intelligence. It’s about behavior.

• The herd runs on reflex.

• Reflex feels safe… until it isn’t.

• And the winners? They don’t just think differently. They act differently.

✨ Closing Thought

Herds make you feel comfortable - right up until the stampede.

But comfort isn’t the goal. Wealth is.

👉 The crowd grazes. The graduate steps aside, spots the cliff, and calmly builds a bridge.

Which would you rather do?

🚀 Next Up:

Thursday - “Don’t Compound Your Problems”

Sunday - “Time is Money! (Or So We Thought)”

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