by Sol Palha, Lead analyst at Tactical Investor
Harnessing Pack Mentality for Success in Investing
Updated Feb 2023
The time for change is today for tomorrow never ever comes; change now or remain woven in yesterday’s cocoon forever. Sol Palha
Overview from Part 1
In this post, I delve into the topic of how emotions can easily sway the masses and how they can result in poor decisions and market behaviour. The masses tend to act in unison, disregarding individual thought or reason. This herd mentality can lead to market bubbles and crashes, devastating groups and the economy.
Understanding mass psychology and the dangers of blindly following the crowd is important. Instead, we should always look to historical events and past market behaviour as a guide and never make decisions based on emotions or what others are doing.
By becoming aware of mass psychology and its influences on the markets, we can make informed decisions and potentially avoid costly mistakes. The wisdom and insights shared in this book are still relevant today, and the message continues to be as important now as it was written centuries ago.
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Continuing from my previous post (Mass Psychology I), I am quoting yet another section of the insightful book I mentioned towards the end of the previous article. This book, in my opinion, is a work of art and a masterpiece. The author clearly illustrates the pack mentality in action through events that took place over this lifetime. I have discussed these principles over and over again, but it is nice to see that someone who was born several hundred years ago understood the often misunderstood field of Mass psychology.
As an observer of human behaviour, I have always believed that the education system fails to deliver on its promises. Public education is often inadequate and does not give students the tools they need to succeed. Instead, it stifles creativity and independent thought, turning students into mere robots who are trained to repeat information without questioning it. Public education, for the most part, is akin to rubbish.
In fact, a school only prepares one to be a good robot; it kills all forms of independent thought and forces one to accept the stupid and idiotic concept that working in a group is better than doing things alone. Sol Palha
In my opinion, the education system reinforces the pack mentality and trains individuals to work in groups rather than encouraging them to think and act independently. This results in a society of people who follow blindly and have little originality or creativity. They are simply biological robots performing their programmed tasks without ever challenging the status quo.
We must rethink our approach to education and begin to emphasise fostering critical thinking and independent thought. Only then can we hope to create a society of individuals who are capable of truly innovative and transformative ideas.
Navigating the Financial Markets with an Understanding of Pack Mentality
The moment one gives himself the title of master, the process of learning stops and dictating takes over. Only a student can continue to advance; a master sits there, waiting to be dethroned by a former student.
It’s imperative to always strive for knowledge and self-improvement. A true master of any subject is never done learning and growing, as the world constantly changes and advances. The masses believe in the status quo, but those who challenge the norm and push the boundaries genuinely make a difference. The masses are content with blindly following the herd, but true leaders pave their own paths and set new trends.
The same can be said for financial analysis. Struggling for original thought and innovative ideas is essential rather than simply following the crowd. The world of finance is constantly evolving, and one must evolve with it. Repeating someone else’s work will not lead to true success or mastery.
Remembering a title does not make someone a master, but rather their continued efforts towards self-improvement and advancement. So let us strive to be students for life and never become complacent with our knowledge. Only then can we hope to understand ourselves and the world around us truly.
This action is mimicked by most market technicians today. They take another’s work, add some nonsense and try to sell it off as their own. What is lacking in financial analysis today is new insight and new ideas; the majority are happy to work together, repeatedly re-packaging the same nonsense.
Societal Pack Mentality: How it Affects Parenting
In truth, however, all I understand of the matters that the gravest and hardest of human sciences is the rearing of children. It is easy enough to beget them; but once you have them, then the cares, troubles, and anxieties begin. Their inclinations in babyhood are so obscure, their promise so uncertain and deceptive, it is mighty difficult to have any solid conjecture or judgment about them. Cubs and puppies quickly show their natural bent; but mean as they grow up, fit themselves so readily into received customs, opinions, and laws, they soon change or at least mask their true nature.
Hence, it happens that by not guessing their real road we waste our time and pains in educating them to things they are hardly fit for. As to this difficulty, I believe they should be set upon the best and most profitable highways without bothering too much about the hints and signs they give in childhood, to which Plato, I think, credits undue weight.
Abandon Fearful Pack Mentality, Win, by Thinking Independently.
Learning, Madame is a fine ornament and marvellous tool, especially to persons of your rank. While I am sure that you who have tasted of its sweets will not omit this necessary ingredient in the education of your child, I will nevertheless presume to tell you a crotchet of mine, which runs contrary to the common usage. It is about all I can offer you on this subject.
A boy of good family then who seeks in letters not a livelihood or outer adornment but something for his personal use to furnish and enrich his inner being, who wants to make of himself an able rather than a learned man; for such a boy I would have his friends select a teacher who had a well-turned rather than well-filled head. We need a man with both, but preferably with manners and understanding than with learning. And we want him t do his work in a new way.
Breaking Free from the Pack Mentality: Educate Beyond Brainwashing
Teachers are forever thundering in our ears as though pouring into a funnel, and our business is merely to repeat what they tell us. I would have our tutor reform this all together. At the very outset, he should put the pupil on his own mettle. Let him taste things for himself and choose and determine between them. Sometimes the teacher should break a new path and sometimes the pupil. It is well to make the boy, like a colt, trot before him so he can judge the pace and by how much to abate his own speed. This is one of the hardest things I know of. Only the most disciplined and finely tempered of souls know how to slacken and stoop to the gait of children. I walk firmer and surer uphill than down.
Our schoolmaster should judge what his pupil has gained by the testimony of his life, not his memory. Let the boy examine and sift everything he reads and take nothing on trust or authority. Then Aristotle’s principles will be more principles to him that those of Epicurus or Stoics. The diversity of opinions should be laid before him. If his able he will make his choice; if not he will remain in doubt. And if he adopts the principles of Plato through his own reasoning, they will no longer be Plato’s but his. The man who follows another follows nothing, finds nothing, nay, seeks nothing.
Exploring Different Perspectives on Pack Mentality in Society
– Evidence of herding was observed in the Vietnam stock market from 2007 to 2015.
– Herding was more prevalent during upmarket days, potentially linked to small-capitalization stocks.
– The market experienced both fundamental and non-fundamental herding.
– The level of herding decreased significantly after the global financial crisis.
– Both arbitrageurs and noise traders participated in herding and interacted with each other.
In this study, we investigate herd behaviour in stock markets by examining aggregate market data for stocks, focusing on the role of participants with different information. Our analysis includes the asymmetry of herding in up and down markets, the impact of price limits, and the effect of the recent financial crisis. We also propose a new method to investigate herd behaviour among different groups of investors and improve existing tests for fundamental and non-fundamental herding.
Our findings based on the Ho Chi Minh Stock Exchange in Vietnam suggest that herding is stronger on up-market days, particularly among small-cap stocks, and that herding sharply decreased after the crisis. We also document intentional herding even after accounting for unintentional (fundamental) herding. Additionally, our results suggest the potential for within-group herding and between-group interactions among arbitrageurs and noise traders in the market. Full Story
Strategies for Achieving Financial Freedom
Break Free from the Herd Mentality
Investing requires a rational and analytical approach. It’s important to conduct thorough research and not rely solely on the opinions of others. The market is unpredictable, and there will be highs and lows, but making informed decisions can improve your chances of success in the long term.
It’s better to think independently and base decisions on your own research and analysis rather than blindly following the crowd. Successful investing requires a deep understanding of yourself and the market and not being influenced by the actions and opinions of others.
Disciplined Investing: The Key to Averting losses
It’s crucial to remember that just because others are making a particular investment decision, it doesn’t guarantee its success. Mass market behaviour often leads to irrational choices, resulting in significant losses. Instead of blindly following the crowd, conducting independent research, evaluating the risks, and making informed investment choices is crucial. A long-term investment strategy, coupled with discipline and patience, is a safer and more effective approach to maximizing returns.
Avoid Emotional Investing; Stay Disciplined for Long-Term Success
It’s essential to exercise caution and avoid being swayed by hype. Many investors have lost money in the stock market due to their inability to control emotions, particularly fear and greed. In a bull market, the temptation of quick wealth is difficult to resist. Greed increases when investors hear stories of fabulous returns made in the stock market in a short period.
In contrast, the fear of losing money can lead to impulsive decisions like selling off holdings during a bear market. However, this is precisely when one should consider buying quality stocks at a discounted price. In other words, buy low and sell high. The key to success in the stock market is to remain calm and patient, do thorough research, and have a well-thought-out investment strategy. By doing so, you can minimize the impact of emotions on your investment decisions and increase the likelihood of long-term success.
“This leads them to speculate, buy shares of unknown companies or create heavy positions in the futures segment without really understanding the risks involved,” says Kapur. Full Story
Psychology Today’s Views on the Consequences of Pack Mentality
Status is a need for recognition and respect, which we all strive for before moving on to higher demands. Even if we don’t admit it, we all want to feel better than those around us. We establish this in our own minds through the symbols of wealth, such as designer clothing, jewellery, luxury cars, and exclusive neighbourhoods. Even the poorest people find ways to establish their status through symbols. The visibility of these status symbols can create the powerful emotion of envy.
However, most of the happiness gained from achieving status symbols is short-lived. Over time, these symbols become meaningless, and we seek genuine achievements to prove our worth. Studies have shown that after reaching a certain income level (usually around $250,000 a year), an individual’s happiness does not increase until they become super-rich (earning approximately $10,000,000 a year). Full story
Humans: Pack Animals with the Ability to Communicate
paraphrase this. The idea of group polarization is worth considering, as it suggests that when a group of people with similar views come together, they tend to reinforce each other’s beliefs. This can make their opinions even stronger and more deeply entrenched, which can be a problem in the stock market. Group polarization can result in herd mentality, where everyone makes the same investment decisions, creating a bubble.
In such situations, stepping back and evaluating the situation critically is essential instead of blindly following the crowd. Diversifying investments and seeking advice from experienced and knowledgeable individuals can help make informed investment decisions and avoid the pitfalls of group polarization.
Remember that investing in the stock market requires patience, discipline and a level head. Emotional and impulsive decisions can lead to losses, while a measured approach backed by thorough research and analysis is more likely to result in successful investments.
Experiments showcasing groupthink in action
Cialdini conducted an experiment where a sign was removed from a path in the park to observe any differences it might make. Surprisingly, the path with no sign had one-third less theft than the one with a warning. Visitors interpreted the sign’s message as permission to take small pieces of wood, as it seemed “normal” to do so, given the theft that occurred each year.
Social proof has also been used to help people overcome their fears. In a study by Albert Bandura and his colleagues, a group of young children frightened of dogs was shown a four-year-old boy happily playing with a dog for 20 minutes a day over four days.
After the four-day period, 67 per cent of the children who watched the boy play with the dog were willing to enter a playpen with a dog. A follow-up study conducted a month later found that the same children were still ready to play with a dog. By using the behaviour of a boy playing with a dog as a model, the children could change their own behaviour and reduce their fear. Full Story
FAQs on Pack Mentality
What is the author discussing in this text?
The author discusses how the pack mentality can influence various aspects of life, including investing, societal behaviour, parenting, and financial analysis.
The author emphasizes the importance of understanding mass psychology and the dangers of blindly following the crowd. By becoming aware of mass psychology and its influences on the markets, one can make informed decisions and potentially avoid costly mistakes. The author also criticizes the education system for reinforcing the pack mentality and training individuals to work in groups rather than encouraging them to think and act independently. Furthermore, the author states that true mastery of any subject requires constant learning and self-improvement and that the masses are content with blindly following the herd.
What is the message the author wants to convey?
The author wants to convey that the pack mentality can be dangerous and that individuals should strive for independent thought and critical thinking. By understanding mass psychology, individuals can make informed decisions and potentially avoid costly mistakes. The author encourages individuals to challenge the norm and push the boundaries to create innovative and transformative ideas.
The author believes blindly following the crowd and the status quo will not lead to true success or mastery. Instead, individuals should constantly strive for knowledge and self-improvement and challenge the norm to create new insights and ideas. The author also criticizes the education system for reinforcing the pack mentality and training individuals to work in groups rather than encouraging them to think and act independently.
What is the author’s view on the education system?
The author criticizes the education system for reinforcing the pack mentality and training individuals to work in groups rather than encouraging them to think and act independently. The author believes that public education is often inadequate and does not give students the tools they need to succeed. Furthermore, the author states that public education stifles creativity and independent thought, turning students into robots trained to repeat information without questioning it.
The author believes the education system kills all forms of independent thought and forces one to accept the stupid and idiotic concept that working in a group is better than doing things alone. The author believes that we must rethink our education approach and emphasize fostering critical thinking and independent thought.
What is the author’s advice on investing?
The author advises individuals to avoid blindly following the crowd and to always look to historical events and past market behaviour as a guide. By becoming aware of mass psychology and its influences on the markets, individuals can make informed decisions and potentially avoid costly mistakes.
The author emphasizes the importance of understanding mass psychology and the dangers of blindly following the crowd in investing. By becoming aware of mass psychology and its influences on the markets, individuals can make informed decisions and potentially avoid costly mistakes.
What does the author believe is lacking in financial analysis today?
The author believes that new insight and new ideas are lacking in financial analysis today. The majority are happy to work together, repeatedly re-packaging the same nonsense.
In the author’s opinion, new insights and ideas are lacking in financial analysis today. The majority are happy to work together, repeatedly re-packaging the same nonsense.
What is the author’s view on societal pack mentality?
The author believes that the education system reinforces the pack mentality and trains individuals to work in groups rather than encouraging them to think and act independently. Furthermore, the author states that the masses believe in the status quo,
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