Herd Instinct

AAA

DEFINITION of 'Herd Instinct'

A mentality characterized by a lack of individual decision-making or thoughtfulness, causing people to think and act in the same way as the majority of those around them. In finance, a herd instinct would relate to instances in which individuals gravitate to the same or similar investments, based almost solely on the fact that many others are investing in those stocks. The fear of regret of missing out on a good investment is often a driving force behind herd instinct.

INVESTOPEDIA EXPLAINS 'Herd Instinct'

Also known as herding, such investor behavior can often cause large, unsubstantiated rallies or sell-offs, based on seemingly little fundamental evidence to justify either. Herd instinct is the primary cause of bubbles in finance. For example, many look at the dotcom bubble of the late 1990s and early 2000s as a prime example of the ramifications of herd instinct in the development and subsequent pop of that industry's bubble.

RELATED TERMS
  1. Pulling In Their Horns

    A collective shift by investors toward a less bullish stance ...
  2. Skittish Market

    An investment climate marked by skeptical investor behavior. ...
  3. News Trader

    A trader or investor who makes trading or investing decisions ...
  4. Mr. Market

    An imaginary investor devised by Benjamin Graham and introduced ...
  5. Sucker Rally

    A temporary rise in a specific stock or the market as a whole. ...
  6. Rally

    A period of sustained increases in the prices of stocks, bonds ...
Related Articles
  1. Active Trading Fundamentals

    10 Timeless Rules For Investors

    Find out what most investors are doing wrong, and how you can do it right.
  2. Investing Basics

    The 10 Commandments Of Investing

    Use these rules to guide you on the road to financial freedom.
  3. Trading Strategies

    Riding The Momentum Investing Wave

    Buy high and sell higher. Find out if you could surf these risky waters.
  4. Options & Futures

    Investors: Rely On Your Gut

    Find out how your personality and natural instincts can direct your investment choices.
  5. Active Trading Fundamentals

    An Introduction To Behavioral Finance

    Curious about how emotions and biases affect the market? Find some useful insight here.
  6. Options & Futures

    Market Problems? Blame Investors

    Investors are only human, and their irrational behavior can often move the market.
  7. Economics

    Sympathy Sell-Off: An Investor's Guide

    Find out how to tell whether your stock is a bargain or a bank breaker.
  8. Chart Advisor

    4 Bullish Flag Patterns You Should Trade Now

    Here are four stocks with flag patterns, highlighting the various ways to trade this chart pattern.
  9. Active Trading Fundamentals

    20 Rules To Trade More Professionally

    Break free from the pack and join the professional minority with an approach that raises your odds for long term prosperity.
  10. Chart Advisor

    These 4 Swing Trades Could Place You in the Money

    Take advantage of moves both higher and lower with swing trades based on trend channels.

You May Also Like

Hot Definitions
  1. Risk Averse

    A description of an investor who, when faced with two investments with a similar expected return (but different risks), will ...
  2. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  3. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  4. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  5. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  6. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
Trading Center