Some of you may be too young to remember this, but those who do probably see commercials with some sock dog talking to people. Pets.com – an online pet retailer.
Here is its nightmare-inducing glory.
When the company went public in early 2000, they saw them shares rose to $14. However, the dot bubble quickly burst and they saw their market tank as low as $1/share. Hundreds were laid off as the company took responsibility later that year. Now, their site redirects to the PetSmart website and the company exists as a sad example of herd mentality.
[yellowbox]Free little lesson: Manage your success with our new How to Design Your Wealthy Life mini-course. It’s a quick, fun, and free introduction to our Wealthy Lifestyle.[/yellowbox]Example of Herd mentality C: Disney Theme Parks fireworks displays
Happiest place on Earth. A magical land where you can meet your favorite Disney princess, eat turkey legs the size of your leg, and get songs stuck in your head for years.
Self-governance.
And it’s a place where you can see the mob mentality in action 365 days a year. Disney has been able to develop a crowd mentality to draw people to their parks and keep them coming back year after year since they opened their first park in 1955.
One of their most ingenious ways of using the mind of the crowd comes in the form of their famous night games.
Back in the park’s early years, Walt Disney had a problem: Families across America were clamoring to get into Disneyland…
After all, these were the early days of theme parks in general. People had no frame of reference and didn’t know what to expect when they got to Disneyland. So when families started showing up, they followed other families – they stayed as long as they needed to get on something and then leave.
Walt needed to find a way save with them there, or else he took a hit at the expense of opportunity.
That’s when park planners came up with the idea having a fireworks display so families have something to look forward to at the end of the day. Families soon began staying longer in the park, as word of mouth spread the news of the fireworks display at the end of the day.
The plan worked. People stayed until the end of the day, and more than 50 years later you can still see that example of herd mentality at work in Disney parks around the world.
Example of Herd mentality D: The housing market crash
More than a decade has passed since the housing market crash of 2008, and in many ways, its effects are still being felt today. And while the reasons behind the crash are incredibly diverse and complex, it all boils down to a bubble created by a large number of home owners who can’t pay their mortgages.
The result of this accident led to millions of people losing their jobs, many people losing their homes, too consumer spending down 8%.
Although there are many things that caused this accident, I want to talk about how the crowds are rampant after it.
Because when the housing bubble burst, investors got scared. They were so nervous that they found themselves victims of a herd behavior called “panic selling,” where people sell their stocks in droves out of panic and fear, causing stock prices to plummet. Investors fear that if they keep their money in the market, they will lose it. This led people to withdraw their money from the market. Which led to prices falling and… you know, how this ended.
[yellowbox]Free little lesson: Manage your success with our new How to Design Your Wealthy Life mini-course. It’s a quick, fun, and free introduction to our Wealthy Lifestyle.[/yellowbox]Can Crowd Minds Be Good?
Although many examples of mob mentality can seem very scary, it is not all doom and gloom. Herd mentality can be a GREAT thing if you let it.
Michael Bond, author of The Power of Others: Peer Pressure, Groupthink, and How the People Around Us Shape Everything We Dowrote that the herd mentality can actually be “change the course of history.”
From Bond:
Despite the changing political climate, the herd mentality may be strong when it comes to your investments – or at least Warren Buffett thinks so. He says: “Be afraid when others are greedy and greedy when others are afraid.
It does mean that you should always be willing to go against the grain when it comes to your investments. The person who will come out on top of a bubble burst or a market crash is the one who keeps his head again this is not the case they immediately disposed of all their stocks.
Which brings us to…
All you have to do is use herd mentality to your advantage
By its very nature, the herd mentality is hard to spot right now. After all, a snowflake does not realize that it is part of a snow. It’s the same for you when you get swept up in market trends.
But if you find yourself among the herd, remember BOTH the dangers and benefits of herd thinking. And remember what Warren Buffett quoted earlier: “Be fearful when others are greedy and greedy when others are fearful.
And if you are new to investing, I want to show you how to do it.
By simply doing your research, you are already ahead of 99.99% of the people out there when it comes to planning your financial future.
Frequently Asked Questions About Herd Mentality
How does herd behavior affect the stock market?
The herd behavior of investors reflects the fact that they make trading decisions based on the latest information available to them, rather than taking a long-term view. The results may lead to a deviation of stock prices from their fundamental value.
How can herd behavior lead to a financial market bubble?
As other investors make money and new investors join the group, the crowd starts to feel good and starts imitating the behavior of those who make money. This makes the bubble even bigger, where prices are driven by nothing but emotions (herd mentality).
To end on a high note, don’t miss Ramit Sethi’s recommendations on the top 3 books for getting a good idea in this video.