Many of us are conditioned to believe that the collective wisdom of the masses is superior to any one individual’s opinion. When we see people lining up at a new club or restaurant, we eagerly get in line with the crowd, not wanting to miss what we assume must be a fabulous experience inside. This same “herd” mentality is often at work in investing, where following the crowd could result in a more distasteful result than just wasted time.
The herd mentality has led to a number of investing bubbles over the centuries, like the tulip bulb craze of the 1600s and the more recent dot-com boom. The unfortunate fact is, people tend to make irrational investment decisions when the majority of investors are making these same choices.
The video below provides some perspective on herding, and why you might want to take a different approach to your investments than the rest of the crowd.
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What are the Risks?
All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions.