Let’s face it—humans are wired to follow the crowd. Whether it’s picking a restaurant because it’s “the place to be” or buying a stock because everyone’s talking about it, we feel safer when we’re part of the group. But when it comes to investing, this herd mentality can lead us down some pretty rocky paths. Following the crowd might feel comforting in the moment, but it often ends with regret.

In The Psychology of Money, Morgan Housel dives deep into why we fall prey to herd behavior and how it impacts our financial decisions. He uses real-life stories to show just how costly it can be to go along with the crowd—and how rewarding it can be to think for ourselves. Let’s break it down with some anecdotes from the book and figure out how you can avoid the herd and make smarter, more independent investment choices.

Why Do We Follow the Crowd?

We’ve all been there. You hear about a hot stock or a “can’t-miss” investment opportunity, and suddenly it feels like everyone’s jumping on board. Maybe your coworker is raving about their crypto gains, or your neighbor just doubled their money on a meme stock. It’s hard not to feel like you’re missing out.

But here’s the thing: herd mentality isn’t just about peer pressure—it’s baked into our DNA. Evolutionarily, sticking with the group helped our ancestors survive. If everyone ran away from a predator, you probably should too. In the world of finance, though, this instinct doesn’t serve us well. When markets get volatile or trendy investments grab headlines, we tend to look around and mimic what others are doing, even if it doesn’t align with our goals.

Take the dot-com bubble of the late 1990s, for example. Everyone was throwing money at tech startups with no profits, no clear business models, and sky-high valuations. Why? Because “everyone else was doing it.” Investors ignored red flags, driven by FOMO (fear of missing out). Then the bubble burst, and trillions of dollars disappeared almost overnight.

Housel uses this story to highlight a key truth: the crowd isn’t always wrong, but it’s rarely ahead of the curve. By the time you hear about the next big thing, it’s usually already priced in—or worse, overpriced.

Ronald Read vs. the Dot-Com Millionaires

One of my favorite contrasts in The Psychology of Money is between Ronald Read and the flashy dot-com millionaires. Ronald Read was a janitor who quietly amassed an $8 million fortune through frugal living and disciplined investing. He didn’t chase trends or try to time the market; instead, he stuck to a simple strategy of buying solid companies and holding them for decades.

On the flip side, many dot-com millionaires made fortunes overnight, only to lose everything just as quickly. Their wealth was built on speculation and hype, fueled by the herd mentality of the time. When the bubble burst, their paper fortunes evaporated.

What’s the lesson here? Success in investing isn’t about being flashy or following the crowd—it’s about patience, discipline, and staying true to your plan. Slow and steady wins the race.

The 2008 Financial Crisis: A Lesson in Panic

Another powerful example from Housel’s book is the 2008 financial crisis. As markets crashed, fear spread like wildfire. Even seasoned investors got swept up in the hysteria and sold off their assets at rock-bottom prices. The herd mentality kicked in: “If everyone’s selling, I should too.”

But here’s the kicker: Warren Buffett didn’t panic. Instead, he doubled down. He famously advised, “Be fearful when others are greedy and greedy when others are fearful.” While others were running for the exits, Buffett was buying undervalued stocks. And guess what? Those same stocks rebounded big time once the market recovered.

This story shows us that the best opportunities often arise when everyone else is panicking. Staying calm and thinking independently can pay off in a big way.

How to Avoid the Herd and Make Smarter Decisions

So, how do you resist the pull of the crowd and make better investment choices? Here are a few practical tips inspired by Housel’s insights:

1. Tune Out the Noise: Turn off the financial news and ignore the hype on social media. Most of what you hear is noise designed to grab your attention, not help you make informed decisions.

2. Focus on Your Goals: Ask yourself: What am I investing for? Retirement? A house? Financial independence? Keeping your personal goals front and center helps you tune out distractions.

3. Think Long-Term: The herd is obsessed with short-term gains, but real wealth is built over decades. Stick to a buy-and-hold strategy and let compound interest work its magic.

4. Be Contrarian (When It Makes Sense): Sometimes the best opportunities arise when everyone else is running in the opposite direction. Look for chances to zig when others zag.

5. Educate Yourself: Knowledge is your best defense against herd mentality. The more you understand about investing, the less likely you are to be swayed by trends or panic.

6. Surround Yourself with Calm Voices: Seek advice from people who prioritize rational thinking over emotional reactions. A good advisor or mentor can help you stay grounded.

   
   

Final Thoughts: Are You Following the Herd?

At the end of the day, avoiding the herd isn’t about being smarter than everyone else—it’s about behaving differently. It’s about tuning out the noise, focusing on your goals, and trusting your own judgment.

As you reflect on this, ask yourself:

• Am I making this decision because it aligns with my goals, or because “everyone else is doing it”?

• Have I done my own research, or am I relying on social proof to validate my choices?

• Am I focused on long-term growth, or am I chasing quick wins?

Success in investing isn’t about timing the market or predicting the next big trend—it’s about staying disciplined and playing the long game. So the next time you’re tempted to jump on the latest bandwagon, pause and ask yourself: Am I following the herd, or am I charting my own course?

By resisting the pull of the crowd, you’ll not only protect your wealth—you’ll grow it. And that’s something worth striving for.

TL;DR: Herd Mentality and Investing

• Herd mentality is the tendency to follow the crowd in investing, often leading to poor decisions like buying high and selling low.

• Examples like the dot-com bubble and 2008 financial crisis show how dangerous it is to follow trends or panic with the crowd.

• Stories like Ronald Read’s disciplined investing vs. the flashy dot-com millionaires highlight the value of patience and long-term thinking over chasing quick wins.

• Tips to avoid herd mentality:

  • Tune out the noise (ignore hype and headlines).

  • Focus on your personal goals, not what others are doing.

  • Think long-term and stay disciplined.

  • Be contrarian when it makes sense—zig when others zag.

  • Educate yourself and surround yourself with calm, rational voices.

• Key takeaway: Success in investing isn’t about being the smartest—it’s about behaving differently from the crowd and sticking to your plan.