Herd behaviour: why a crowd is convincing

When everyone around is buying the same thing, abstaining is psychologically hard. Social proof is a powerful mechanism, and in markets it works against the participant.

Why agreement is not an argument

The price already reflects the majority's opinion — that is what a market price is. Joining the consensus means paying full value for it.

Additional return is possible only where your assessment differs from the consensus and turns out closer to the truth.

Where it is most visible

In illiquid securities: an inflow of attention moves the price sharply, and an outflow moves it back just as sharply — Blue chips and market tiers: how groups of securities differ.

In periods of strong growth: the longer the rise, the more convincing the explanations of why this time is different — How a bubble works: the general pattern.

What helps

Your own written analysis before encountering other people's opinions.

A check: did something change in the business, or did only the volume of conversation change — Company news: what actually changes a valuation.

Predefined rules independent of the news background — A strategy without exit rules is not a strategy.

And the reverse side

In a panic the mechanism works identically: mass selling seems sensible precisely because it is mass. Both phases are the same mechanism.