Psychology of investing: Don’t Follow The Crowd

mass mindset

Psychology Of Investing: Follow The Trend

Updated May 16, 2023

Repetition is the father of all sins, stupidity is the mother, and not knowing when to keep one’s mouth shut is the grandfather of them all. Sol Palha

If you understand the mechanics of the mass mindset, you can use it to your advantage when investing in the stock market. The mass mentality is often driven by fear and emotion, leading to hasty and irrational decisions that can negatively impact an individual’s investment portfolio. On the other hand, contrarian thinking involves going against the crowd and making informed decisions based on research and analysis.

By embracing a contrarian approach, you can potentially find opportunities for growth in the market when others are selling in a panic. However, it’s essential to understand that being a contrarian does not mean blindly going against the crowd; it requires careful consideration of market trends, company performance, and other relevant factors. The goal is to make well-informed investment decisions that are not swayed by the emotions and biases of the masses.


Hive Mentality

The masses repeat the same mistakes when investing, never learning from past experiences. It’s like the movie “Groundhog’s Day” where the main character is stuck in a repeating cycle. The difference is he eventually finds a solution, while the masses don’t even realize they have a problem.

Recognizing the problem is crucial to finding a solution; this is where the masses fail. The mass mindset can be a hindrance when it comes to investing, leading to poor decisions and missed opportunities. To be successful, it’s essential to understand the dynamics of crowd psychology and adopt a contrarian approach, breaking away from the pack mentality.

Psychology for Dummies; Graphic representation of the Mass Mindset in Action

The Mass Mindset in Action

  1. The stock appears to stagnate, indicating it’s not worth holding onto. I should shift my focus to something more promising.
  2. The stock’s sudden plummet presents a fortunate opportunity to capitalize on its downfall.
  3. Despite lacklustre earnings, people are naively driving up the stock price. However, a reality check is due, and the stock will inevitably experience a significant correction.
  4. My intuition was correct; the stock had indeed crashed. Fortunately, I did not buy it, as I’ve escaped a potential loss. (Note: Those with a losing mindset focus only on negative aspects, failing to appreciate the positive.)
  5. This stock was supposed to fail, but it has somehow surpassed expectations. Perhaps I should have taken the risk and invested in it. (Note: Only halfway through the fifth stage will a losing mindset consider venturing out.)
  6. The stock is soaring, and I’m making a profit. It’s an excellent time to share the good news with others and consider investing further.
  7. Despite the stock pulling back, I remain undaunted. I’ll take advantage of the dip and invest more.
  8. I knew it would recover, and I’m now enjoying even greater profits. Next time, I’ll invest even more during a pullback. (Note: The losing mindset fails to recognize when a stock hasn’t reached a new high; instead, all that matters is that it’s going up.)
  9. The stock is dipping again, presenting an opportunity to buy in at a low price. With earnings looking favourable, now’s the time to increase my investment.
  10. Although the stock has experienced a significant setback, I remain optimistic it will recover. Blind faith is a mistake, but I’ll use this opportunity to buy more and average down.
  11. The outlook may not be promising, but I’ll hold onto the stock a little longer, hoping for a change. With the stock having previously skyrocketed and now experiencing a significant pullback, the worst is over, and it’s bound to go up.
  12. The stock is dead in the water, and I must get out while I can. I knew it was garbage and should never have invested in it. (Note: Panic leads to poor decision-making, causing a losing mindset to bail out just as a stock starts to bottom out.) In other words, the secret programmed desire to lose syndrome has achieved its objective.
  13. Slowly but surely, the stock shows signs of a possible new uptrend, and the trader who missed out due to a losing mindset is no longer in the market. Regrettably, they let panic improve and failed to see the stock’s potential. Thoughts that were going through his mind before he pressed the sell button. I will never look at this or any stock like this again. Moreover, comparatively speaking, I knew it was garbage.  Why did I ever buy it in the first place?

The Psychology of Investing: Contrarian Insights

Stock markets often continue reaching new highs for longer than most experts predict. As long as sceptics warn that the market is overvalued, it will likely climb higher. As the saying goes: “markets climb a wall of worry.” Traditionally, the market is believed to predict the future state of the economy. Therefore, current prices reflect future expectations rather than the present reality.

While waiting until a stock has had a substantial increase before buying may seem tempting, it’s essential to consider why someone would pay more for the store in the future. Using the “Theory of Mind” thinking, which has been shown to improve investment performance, it’s essential to understand that other investors will also be aware of the stock’s growth potential. Therefore, the price is likely to continue increasing.

Those holding stocks are reaping the rewards of their investments, while those not in the market will likely eventually give in and get in. Even those who have sold the market short will ultimately have to buy back in, leading to built-in buying and price increases.

New highs tend to beget new highs – for longer than all the pundits say they will. An old saying is “Markets climb a wall of worry“, and therefore, as long as people are on TV talking about how now the market is too expensive, chances are, it will go higher.

Psychology Of Investing and the Coronavirus

The first month triggers panic, and markets decline from mild to wild. The masses repeat the same cycle, as seen in the chart of the MSCI World Index. Mass psychology provides insight into market behaviour, allowing investors to recognize opportunities to buy low and sell high during crashes.

In market uncertainty, keeping a level head and avoiding the urge to follow the crowd is essential. By understanding the psychology behind mass behaviour, investors can make informed decisions and take advantage of market opportunities that others might miss.

Mass psychology and coronavirus

Against the Herd: The Psychology of Investing

The psychology of investing cannot be ignored when navigating market crashes like the one brought on by the COVID-19 pandemic. History has shown that those who panic during the initial selloffs suffer the most significant losses, while those who remain calm and patient reap the rewards of the eventual rebound. Just three months after the panic-based selloff, the MSCI index was up an average of 3%, and within six months, it was showing average gains above 8.5%.

Despite this evidence, many experts continue to spread fear and doom, ignoring the lessons of history for their gain or perhaps out of ignorance. But as the current trend indicates, the world is not ending, and the markets will not drop to zero.

It’s crucial to remember that the masses were not euphoric when the markets sold off, and giving in to fear when the masses are not euphoric is a recipe for disaster. As difficult as it may be, refraining from panic and trusting in the eventual recovery is the best course of action. The psychology of investing tells us that those who can remain calm and patient in the face of uncertainty are the ones who ultimately benefit.

Conclusion on the Psychology of Investing 

In summary, understanding the mass mindset and its impact on investing is crucial for successful decision-making in the stock market. By recognizing the repetitive nature of mistakes, breaking away from the pack mentality, and embracing contrarian thinking, investors can navigate the challenges posed by the mass mindset. The examples in the Mass Mindset chart illustrate the various scenarios where the mass mindset influences investment decisions, highlighting the importance of informed analysis and avoiding impulsive actions.

Fear, Opportunities, and Investment Success: Contrarian Thinking Unveiled

Contrarian thinking offers valuable insights into market dynamics, as markets often climb a wall of worry, and prices reflect future expectations rather than the present reality. Understanding the psychology behind market behaviour and recognizing opportunities during market crashes can lead to good investment decisions. The COVID-19 pandemic is a notable example, where panic-induced selloffs presented opportunities for those who remained calm and made informed decisions.

Against the herd, it is essential to remain calm and patient, trusting in the eventual recovery. History has shown that rebounds follow selloffs, and those who resist the fear-driven panic tend to reap the rewards in the long run. While experts may spread fear and doom, relying on informed analysis and maintaining a long-term perspective is essential.

In conclusion, the psychology of investing plays a significant role in navigating the stock market. Understanding the mass mindset, recognizing its influence on decision-making, and adopting a contrarian approach can help investors make informed decisions and capitalize on market opportunities. By remaining calm and patient, investors can overcome the masses’ repetitive mistakes and ultimately succeed in their investment endeavours.

FAQ on Psychology of Investing

Q: What is the significance of understanding the mass mindset in investing?
A: Understanding the mass mindset is crucial in investing as it helps investors recognize repetitive mistakes, avoid impulsive decisions, and make informed choices based on rational analysis.

Q: What is contrarian thinking and how does it relate to investing?
A: Contrarian thinking involves going against the crowd and making informed decisions based on research and analysis. Investing means not blindly following the masses but considering market trends, company performance, and other relevant factors to make well-informed investment decisions.

Q: How does the mass mindset impact investment decisions?
A: The mass mindset often leads to fear-driven and emotionally charged decisions that can negatively impact investment portfolios. It can result in hasty actions during market downturns or buying into market hype, causing investors to miss opportunities or make poor choices.

Q: How can embracing a contrarian approach benefit investors?
A: Embracing a contrarian approach can help investors identify market growth opportunities when others are panicking and selling. By going against the crowd and making well-informed decisions, investors can potentially achieve higher returns and mitigate risks associated with following the masses.

Q: How can investors break away from the pack mentality?

A: Breaking away from the pack mentality requires understanding the dynamics of crowd psychology, recognizing its influence on decision-making, and adopting a contrarian mindset. This involves independent thinking, conducting thorough research, and making decisions based on rational analysis rather than emotions.

Q: What is the relationship between market prices and future expectations?

A: Market prices often reflect future expectations rather than the present reality. As the saying goes, “markets climb a wall of worry.” Investors need to consider why others would pay more for a stock in the future and understand that other investors also recognize its growth potential, which can drive the price higher.

Q: How can investors navigate market crashes and downturns?
A: During market crashes, keeping a level head and avoiding panic-induced decisions is essential. By understanding the psychology behind crowd behaviour, investors can recognize opportunities to buy low and sell high. Patience, informed analysis, and a long-term perspective are vital to navigating market downturns successfully.

Q: How does the COVID-19 pandemic serve as an example of the psychology of investing?
A: The COVID-19 pandemic triggered panic-induced selloffs in the stock market. However, history has shown that those who remained calm and made informed decisions during such downturns were able to benefit from the eventual market rebound. It highlights the importance of resisting fear-driven actions and maintaining a long-term perspective.

Q: How can investors overcome repetitive mistakes made by the masses?
A: Overcoming repetitive mistakes requires self-awareness, rational thinking, and a contrarian approach. By understanding the pitfalls of the mass mindset and making decisions based on research, analysis, and long-term goals, investors can avoid repeating the same mistakes and succeed in their investment endeavours.


A Concise and Comprehensive Overview


Understanding the mechanics of the mass mindset is crucial when it comes to investing in the stock market. In this essay, we will explore the impact of the mass mindset on investment decisions and the significance of adopting a contrarian approach.

I. The Mass Mindset and its Impact on Investing

A. Repetition of Mistakes:
– Lack of learning from past experiences
– Groundhog’s Day analogy

B. Hindrance to Successful Investing:
– Poor decisions and missed opportunities
– Breaking away from pack mentality

II. The Mass Mindset in Action

A. Stock Stagnation and Shifting Focus:
– Failure to consider the growth potential

B. Capitalizing on Stock’s Downfall:
– Recognizing fortunate opportunities

C. Naive Optimism and Impending Correction:
– Need for a reality check

D. Confirmation Bias and Missed Opportunities:
– Focusing only on negative aspects

E. Success and the Desire to Invest Further:
– Recognizing positive outcomes

F. Resilience during Stock Pullbacks:
– Taking advantage of market dips

G. Recognizing Stock’s Potential for Growth:
– Evaluating market trends and company performance

H. Holding on Amidst Challenges and Hoping for Change:
– Balancing optimism and realism

I. Panic-Driven Decision to Sell during a Stock Bottom-out:
– Consequences of impulsive actions

J. Regret over Missed Opportunities:
– Learning from past decisions

III. The Psychology of Investing: Contrarian Insights

A. Markets Climbing a Wall of Worry:
– Overcoming market skepticism
– Future expectations and stock prices

B. Reaping Rewards and Built-in Buying:
– Example from the text
– Effects of market participation

C. New Highs Begetting New Highs:
– Prolonged market upswings
– Impact of market sentiment

IV. Psychology of Investing and the Coronavirus

A. Panic and Market Decline:
– Lessons from the COVID-19 pandemic
– Market behaviour during uncertain times

B. Recognizing Opportunities during Crashes:
– Example from the text
– Making informed decisions amidst market volatility

C. Making Informed Decisions in Uncertain Times:
– Understanding mass psychology
– Capitalizing on market opportunities

V. Against the Herd: The Psychology of Investing

A. Importance of Remaining Calm and Patient:
– Managing emotions during market downturns
– Trusting in the eventual recovery

B. Lessons from History and Rebound after Selloffs:
– Example from the text
– Positive outcomes after market panic

C. Spreading Fear and Doom by Experts:
– Media influence on investor sentiment
– Relying on informed analysis

D. Trusting in the Eventual Recovery:
– Refraining from panic-selling
– Long-term perspective in investing


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