Investing term

What is Herding?

Doing what everyone else is doing because everyone else is doing it.

Herding is doing what the crowd is doing simply because the crowd is doing it — buying because everyone's buying, selling because everyone's selling. It feels safe but systematically pushes you to buy high and sell low, since crowds are most euphoric at tops and most fearful at bottoms. Independent thinking is the antidote, and it's uncomfortable by design.

For example

Everyone's piling into a hot stock so you do too, right at the peak — herding turning a popular trade into a personal loss.

Herding is taught hands-on in Stage 12 — Investor Psychology: FOMO, Panic & Biases.

See the lesson →

Related terms

AnchoringLetting one earlier number — like the price you paid — drive your judgment about a current decision.Base rateThe long-run average probability of an event, before you weight any recent evidence.Confirmation biasReading the things that agree with you and ignoring the things that don't.Disposition effectSelling winners too early to lock in gains and holding losers too long to avoid realizing the loss.
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