Herd Mentality Definition & Stock market for beginners
Herd Mentality Definition: The Do’s & Don’ts

Herd Mentality Definition: The Do’s & Don’ts

Herd Mentality Definition

Herd Mentality Definition

Updated Feb 2023

In this stock market guide for the uninitiated, we aim to provide a fundamental understanding crucial to success. The goal is not to dictate what you ought or should not do but to start with the most vital element. This one factor distinguishes those who succeed over the long run and those who do not. It is said that a mere 10% of investors enjoy success in the market over the long term. So, what is this elusive element? Simply put, it is mastering one’s emotions and avoiding succumbing to them.

We delve into the fascinating yet often overlooked discipline of Mass Psychology. We aim to provide a sturdy foundation for novice investors to build upon. With a sound understanding of this principle, scaling up becomes effortless. We have curated a collection of articles, each elegantly exploring the topic of Mass Psychology, as well as many insightful videos.

Navigating the Market’s Wave: The Lemming Syndrome

The Tactical Investor is steadfast in our belief that studying Mass Psychology is key to navigating the stock markets with acumen. By understanding Mass Psychology, one gains a powerful tool to identify the primary emotions that drive the crowd and, thus, the trend in the market.

By combining the principles of Mass Psychology with those of Technical Analysis, one can create a system unmatched in its ability to pinpoint key market turning points. Technical Analysis allows us to determine when a market trades in overbought or oversold ranges, providing a complementary approach to Mass Psychology.

It is a common refrain that the crowd is always on the wrong side of opportunity. The articles we provide delve deeper into this concept and aim to educate and empower those seeking to enhance their understanding of Mass Psychology in the stock market. Our goal is to assist the reader in becoming a contrarian investor, positioned to take advantage of the mistakes made by the herd mentality.

Trader’s Insights on the Stock Market

At the Tactical Investor, we understand the importance of emotions in the stock market and strive to educate our readers on the nuances of Mass Psychology. The study of herd mentality is crucial to understanding the masses’ actions and decisions and their impact on the market.

In order to find a solution one has to identify the problem; once identified the solution is relatively simple.  Sol Palha 

As traders and investors, we must maintain a calm and collected demeanour and avoid letting emotions cloud our judgement. By acknowledging and understanding our feelings, we can make informed decisions not driven by impulsiveness. Instead, we can adopt a steady and systematic approach, allowing us to build wealth over time.

One does not need to control their emotion but become aware of them; once you are aware of them, you can let them run amock or tell them to take a hike. Sol Palha 

The key to success in the stock market is to embrace failure and learn from it. We are given a new opportunity to grow and improve with each failure. At the Tactical Investor, failure is a stepping stone to success. We strive to give our readers the tools and knowledge to overcome obstacles and achieve their financial goals.

Groupthink, AKA Mob  Psychology

Crowd psychology, or mob psychology, is a branch of social psychology. Social psychologists have developed several theories for explaining how the psychology of a crowd differs from and interacts with that of individuals withhttps://en.wikipedia.org/wiki/Psychologyin it.

Major theorists in crowd psychology include Gustave Le BonGabriel TardeSigmund Freud, and Steve Reicher. This field relates to the behaviours and thought processes of the individual crowd members and the crowd as an entity.[1] Crowd behaviour is heavily influenced by the loss of responsibility of the individual and the impression of the universality of behaviour, both of which increase with a crowd

Confirmation Bias: A Psychological study of crowd phenomena

It was documented decades before 1900 as European culture was imbued with thoughts of the fin de siècle. This “modern” urban culture perceived they were living in a new and different age. They witnessed marvellous new inventions and experienced life in new ways.

The population, now living in densely packed, industrialized cities such as Milan and Paris, saw the development of the light bulb, radio, photography, moving-picture shows, the telegraph, the bicycle, the telephone, and the railroad system. They experienced a faster pace of life and viewed human life as segmented, so they designated each phase with a new name.

They created new concepts like “the Adolescent,” “Kindergarten,” “the Vacation,” “camping in Nature,” “the 5-minute segment,” and “Travel for the sake of pleasure” as a leisure class to describe these new ways of life.

Herd Mentality Definition; Understand the Concept of Crowds First

Likewise, the abstract concept of “the Crowd” grew as a new phenomenon simultaneously in Paris, France, and Milan, the largest city in the Kingdom of Italy. Legal reformers motivated by Darwin‘s evolutionary theory, particularly in the Kingdom of Italy, argued that Europe’s social and legal systems had been founded on antiquated notions of natural reason, or Christian morality, and ignored the irrevocable biology laws of human nature.

Their goal was to bring social laws into harmony with biological laws. In pursuit of this goal, they developed the social science of criminal anthropology, which is tasked with changing the emphasis from one the studies of legal procedures to one studying the criminal.

The Crowd: A Living Force To Be Reckoned With, Yet Below Average

Organised crowds have always played an essential role in the life of people, but never has it been so influential as in the present era. One of this age’s chief features is substituting crowds’ unconscious activity for individuals’ conscious action. I have sought to scrutinise the intricate problem presented by crowds purely scientifically. That is, by striving to proceed with a method free from the influence of opinions, theories, and doctrines. This, I believe, is the only way to arrive at the discovery of a few fragments of truth, mainly when dealing with a matter that is the subject of vigorous debate.

A scientist set on verifying a phenomenon is not obligated to concern himself with the interests his verifications may harm. In a recent publication, a distinguished thinker, M. Goblet d’Alviela, remarked that as someone who does not belong to any of the contemporary schools, I am occasionally opposed to sundry the conclusions of all of them. I hope this fresh work will earn a similar observation. One must adopt prejudices and preconceived notions to be a member of a school. The crowd

Herd Mentality: Uncovering The Mysteries of Mass Psychology

Although crowds, including picked assemblies, have been shown to possess extreme mental inferiority, it would be dangerous to meddle with their organization, despite this inferiority. This is because social organisms are as complex as those of all beings, and it is impossible to force them to undergo sudden, far-reaching transformations.

No matter how excellent they may appear theoretically, significant reforms are often fatal to a people because they assume the power to instantaneously change the genius of nations, which is possessed only by time. Ideas, sentiments, and customs govern us, and institutions and laws are outward manifestations of our character and expressions of our needs. Therefore, being the outcome of our personality, institutions and regulations cannot change it.

The study of social phenomena cannot be separated from the people among whom they have come into existence. From a philosophical standpoint, these phenomena may have absolute value, but they only have relative importance in practice.

Ideas, sentiments, and customs rule men—matters of our essence. Institutions and laws are the outward manifestations of our character, the expression of our needs. Being its outcome, institutions and laws cannot change this character. The study of social phenomena cannot be separated from that of the people among whom they have come into existence. From the philosophic point of view, these phenomena may have an absolute value, But in practice, they have only relative importance. Gustav Le Bon The Crowd

Buy when the masses panic and flee when they are joyous 

Sol Palha 

Research on the dangers of following the herd

These articles highlight the risks associated with blindly following the herd when it comes to investing, including the potential for bubbles, market crashes, and missed opportunities.

  1. An Analysis of Behavioral Biases in Investment Decision-Making; (PDF) An Analysis of Behavioral Biases in Investment Decision-Making (researchgate.net)

  2. “An Analysis of Behavioral Biases in Investment Decision-Making; Herding Behaviour in Investment Decision Making: A Review | Request PDF (researchgate.net)
  3. “Why Investors Need to Guard Against the Herd Mentality” – Investopedia Link: Herd Instinct: Definition, Stock Market Examples, & How to Avoid (investopedia.com)
  4. “The Dangers of Herd Mentality in Investing” – Herd Mentality – Overview, Examples, Impact of Social Bias (corporatefinanceinstitute.com)


Other Interesting Articles

Everything You Wanted to Know about Mass Psychology

Random Musings 

Learning Centre 

Winning the Investment Game