Herd Instinct

Herd behaviour in investing refers to the occasional, irrational tendency of investors to trade in the same direction as others just because others are doing it (a form of “social proof”). Dispassionate analysis might lead investors to conclude that an asset is trading at reasonable value. But if the herd moves to buy or sell, the price of a security or asset will go up or down, so investors will join the herd to seek to avoid losses or to satisfy FOMO (fear of missing out). Herding flies in the face of the efficient market hypothesis.

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