Don’t Go Along with the Crowd When Investing

Key Takeaways

  • It’s human nature to want to be part of a tribe.
  • People often go along with the crowd in many areas of life, including investments.
  • If you don’t understand the investment world, it can be easy to simply follow what others are doing.

Years ago, there was a study about how people work with strangers and interact as a group. People were put into an auditorium and were asked whether they liked red hats or blue hats. The consensus was that people liked red hats. They were told to then choose either a blue hat or a red hat as they left the auditorium. What occurred was that more people selected a blue hat, despite the fact that they’d agreed they preferred red hats.

What happened? Well, this has to do with tribes. People like to belong and get along with others. By nature, people are generally non-confrontational.

This type of behavior appears a lot in the investment world. If you look at the recent situation with GameStop, it was basically a “little guy” who went after the “big guy” and very rapidly, GameStop’s stock went up and it really put the screws to the big Wall Street firms. What we saw was people going along for the ride, simply because everybody else was doing it.

Look at cryptocurrencies. There have been waves of this over the past few years, but in particular, earlier this year, Elon Musk created a stir. He bought $1.5 billion in cryptocurrency for Tesla at the beginning of February 2021 and said that people could buy a Tesla with cryptocurrency. He later tweeted that doing so wasn’t good for the environment, due to the electricity consumption required for mining cryptocurrencies. His tweets have caused all sorts of ups and downs for cryptocurrencies.

It’s been interesting to see how people took on that tribalism. It happens all the time – a new stock comes out, new offerings are announced, and people jump on the bandwagon. Sometimes it works out, sometimes it doesn’t.

But regardless, going along with the crowd is something to be wary of. Many times, the crowd doesn’t even know where they’re going – they’re just along for the ride, going with the momentum. If you’re not astute enough to understand when the crowd isn’t going in the right direction, you can end up dragged along.

This happens a lot with investments because they’re not easily understood – they’re intangible instruments. People see someone who seems to know what they’re doing, and they go along with them, even if they lose money, because they want to be in with a group. So, it’s important to be aware of this group mentality and not let the crowd determine what direction you take, both in life, and in your investments. Until next time, enjoy.


If you’d like to read more on this topic, here is one of our past Coyle Blog posts that you might enjoy:

Why Shouldn’t I Buy Cryptocurrency? And, Anyway, What Is It?



Gary Klaben serves as a Financial Advisor, and visionary for Coyle Financial Counsel. He has over 30 years of experience and is the author of Changing the Conversation, Wealth of Everything and co-author of The Business BattlefieldWhether advising his clients, mentoring his team, or coaching entrepreneurs, he is always simplifying complexity and motivating others to take the next action that’s right for them.

Learn more about The Coyle Process, approach designed to get your arms around the big picture, so you can make informed financial decisions. Ask Gary about The Coyle Process and schedule a complimentary consultation and start living the Good Life Managed Well™.
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All information is from sources deemed reliable, but no warranty is made to its accuracy or completeness.   This material is being provided for informational or educational purposes only, and does not take into account the investment objectives or financial situation of any client or prospective client.  The information is not intended as investment advice, and is not a recommendation to buy, sell, or invest in any particular investment or market segment.  Those seeking information regarding their particular investment needs should contact a financial professional.  Coyle, our employees, or our clients, may or may not be invested in any individual securities or market segments discussed in this material.  The opinions expressed were current as of the date of posting but are subject to change without notice due to market, political, or economic conditions. All investments involve risk, including loss of principal.  Past performance is not a guarantee of future results.

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