Following the herd


The herd mentality has captivating power.

As a personal example many years ago, I ventured into the local theatre to catch a movie during opening week. There were two cashiers at each end of the ticket counter. One had a line up outside stretched around the block; the other was completely open. My initial inclination was to follow everyone else, circling around to the back. I just naturally assumed the vacant velvet-roped side was set up for patrons after they purchased their tickets.

But for some reason I went to the empty side. At the risk of looking foolish, I hesitantly asked the cashier if I had to go to the back of the other line. To my great surprise, she nonchalantly said I could purchase my ticket directly and walk right in. Wow! Really?

After a moment of disbelief, I asked why everyone else opted to wait for hours.

Her nonchalant reply was articulate in its brevity.

"I dunno."

This was one of my first experiences in what people sometimes refer to in the investment industry as the herd mentality.

The herd mentality applies to cattle as it does to Wall Street. Whether it's investor frenzy or latching on to the largest group, we tend to gravitate towards rather than against the grain, placing heavy reliance on the wisdom of the masses.

When it comes to investing, part of it has to do with the dynamics of fear and greed. But in general, it's more to do with our cultural conditioning where we automatically assume there is an element of safety behind such an approach.

So why so much reliance on the herd?

For one, it appears to require less mental effort on our part. We let them do the thinking for us. Secondly, we avoid the chance at making wrong decisions; to do so might deflate our egos. By following the herd, the burden of a wrong decision no longer rests on our shoulders because after all, "everyone else is doing it".

Nonetheless, the fallacy in this approach is that we may not necessarily be acting the way we normally would in an unbiased setting. Over time this chips away our moral fibre and diminishes confidence in our own ability. In it's extremity, we become the human equivalent of sheep following other sheep off cliffs.

Contrarians on the other hand do the opposite of what everyone else does. Not that they are always successful by going against the herd, but they don't lose themselves in mass hypnosis.  Warren Buffett for example candidly admits to not always making the right decision. In fact he recently announced to doing some "dumb things in investments".

http://www.marketwatch.com/story/berkshires-buffett-cops-mistakes-likes-long

Success isn't without its setbacks, but has to be recognized as part of the overall package of being human. Perfection is an overrated concept that creates unnecessary stress resulting in short term benefits at best. Instead, we should strive for excellence which means embracing our own humility and accepting the rough terrain as part of the overall journey.

By thinking in these terms, we can more comfortably step apart from status quo. We can then begin making more decisions based on opportunity rather than avoiding them for fear of mistakes.

This is why it's prudent to initiate a "gut check" prior to taking action and trusting that instinct even though at times it may appear to not lead to the perfect outcome.

When we reimind ourselves to not succumb to herd mentality, we become an authentic decision maker- navigators rather than passengers of our own journey. The benefit is this approach also nurtures our "creative intelligence": an invaluable resource when it comes to sales and overall success.

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