how to avoid herd instinct
herding may be instinctual but there are ways for you to avoid following the crowd especially if you think you ll be making a mistake by doing so it requires some discipline and a few considerations try following some of these suggestions herd mentality faqsherding or following the crowd can cause trends to amplify well beyond fundamentals as people pile into investments for fear of missing out or because they have heard something positive but have not actually done their own due diligence prices can skyrocket this irrational exuberance can lead to unstable asset bubbles that ultimately pop in reverse sell offs can turn into market crashes as people pile in to sell for no other reason than others are doing so which can turn into panic selling herding behavior can have some benefits it allows novice or uninformed investors to benefit from the due diligence and research of others passive index investing for instance is a herding type strategy that relies on simply matching the broader market s performance herd instinct can also let the novice trader cut their losses early since it is often better to sell along with the crowd than risk being a bag holder herd instinct appears in several contexts and throughout human history aside from various asset bubbles and manias herding can help explain mob behavior or riots fads conspiracy theories mass delusions political and social movements sports fandom and many others for instance people may rush out to buy the newest smartphone because of its popularity with other consumers a good way to avoid this is to make investment decisions that are based on sound objective criteria and not let emotions take over another way is to adopt a contrarian strategy whereby you buy when others are panicking picking up assets while they are on sale and selling when euphoria leads to bubbles 9at the end of the day it is human nature to be part of a crowd and so it can be difficult to resist the urge to deviate from your plan passive investments and robo advisors provide good ways to keep your hands off of your investments 