peer pressure

Rough Markets: When the Wisdom of the Crowd Becomes Herd Mentality

photo shows a mountain stream

Clients, some of you have reported that some people around you are finding it inexplicable that you haven’t yet sold out of the stock market, given its rough times. One of you even heard the prediction, “You’re going to lose it all!” These conversations are happening at coffee time, out to dinner in a group, at every kind of casual gathering.  

We often think of peer pressure in connection with children. But there are strong forces at work among not only children: it’s also retirees and everyone in between! 

In ambiguous situations, humans tend to copy what other people seem to be doing. If we don’t know what to do, we may assume that others do. So we emulate them. This type of behavior is sometimes referred to as “social proof”: we take our cues from others when we feel unsure what to do. 

In some social groups, people react to rough markets by selling out; in other groups, people cling to the long-held belief that investing is too dangerous for anyone. If everybody in your “group” seemed to be doing the same thing, you’d have lots of social proof to reassure you that, surely, you must be on the right path. 

But this social influence can hold more weight in our choices than it deserves. Yes, someone marching to a different drummer can seen as a rebuke. The contrary behavior—going against the crowd—is full of resistance. Sometimes it takes a big splashy effort to swim upstream! Hence the hectoring and lecturing. 

But we choose our own course, and it does not start or end with what others think about us. 

You can see the core principle at work: “avoid stampedes.” We believe this has kept us out of fads—and pointed us to bargains. We think going against the crowd may be profitable, though no guarantees of course. 

If your friends hassle you about your investing, be kind to them. You can always change the subject if you need to. Maybe in their mind, fear is in the driver’s seat right now. Or maybe they’re in the grips of peer pressure. 

Either way, we know what we’re about. And that’s enough. 

Clients, if you would like to talk about this or anything else, please email us or call. You are among the best clients in the world, a group where you may find all the proof you need that being contrary may be a great thing.


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Rough Markets: When the Wisdom of the Crowd Becomes Herd Mentality 228Main.com Presents: The Best of Leibman Financial Services

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