Key idea
Doing what everyone else is doing feels safe, but in investing the crowd is often most confident right at the worst moments.
Humans are wired to follow the herd, it kept our ancestors alive. In markets, though, the herd is frequently wrong at the extremes: most euphoric near the top, most terrified near the bottom. Following it means buying high and selling low, in sync with everyone else.
The hot tip problem
Closely related is the "hot tip", the stock a friend, a colleague, or a stranger online swears will multiply. By the time a tip reaches you, it has usually passed through many hands, and if it were truly certain, it would already be priced in. Tips feel like inside knowledge; they are usually just the herd, wearing a confident face.
Warning signs: "everyone is buying this," "you cannot lose," "my cousin doubled his money." These are the sounds of the herd, not of sound investing.
Standing apart, calmly
You do not need to be a contrarian for its own sake. You need a plan that lets you ignore the crowd entirely, so their euphoria and their panic simply pass you by. An automated SIP into a diversified portfolio is beautifully deaf to hot tips.
The crowd is not a strategy, and a tip is not research. Your plan, made calmly and followed steadily, is worth more than any number of confident voices.
Finished reading?
Marking this complete counts today, and your streak becomes day 1.