Do You Have a Herd-Like Mentality?
Humans have some horse-like tendencies. Before you get offended, let me explain. I recently went horseback riding for the first time and during that ride, I learned a lesson or two. We chose a private ride instead of a group ride, so there were just three horses including mine. Well, as we were riding, a large group with maybe 15+ horses and riders was passing us. They were going left, and we were going right - well, should have been going right. Unfortunately, my horse Laredo decided to go off course and go left with the group. My memory lapsed and I was unsure of what to do, I tried to do as I had been instructed, but Laredo did not want to turn around. Without getting too far into the weeds, what I learned that day, was that horses are social animals who exhibit herd behavior explaining why he wanted to follow the other horses.
People are similar, often following the crowd. This tends to happen in many facets of life, but we also see this in the world of finance and investing. Social media has reinforced this behavior in many instances where people learn about what others are doing and mimic that behavior, buy that stock, invest in the same companies, or in the same manner. Am I saying this is wrong? No; but it could be dangerous if you're not careful.
The danger in herd behaviors is that people sometimes assume that since everyone is doing it, it must be right. That's not always true, maybe even rarely true. Just like Laredo thought he was doing the right thing by following the herd, he really took me off track, created a little bit of panic, and even threw off the horse that was right behind him.
The important takeaway here is to do your homework. If you learn about an investment that sounds interesting, a stock that seems hot, or some new social media fad; do some research before jumping all in. As Warren Buffet is quoted as saying, "Don't invest in something you don't understand. “The important thing is to know what you know and know what you don't know.”
Just because everyone is doing something, it does not mean that you should be doing it too. Everything is not for everybody. It's okay to be curious, to dig deeper, to do your research. However, the key is to find out if something aligns with your values, if it fits your investment philosophy, and determine if it will help you to achieve your goals.
✨Managing Money Like a Boss sometimes means going against the majority. When investing and really doing anything in life, do it because it's right for you, not because everyone is doing it. Be a leader, not a follower!✨