Lemming

AAA

DEFINITION of 'Lemming'

The act of an investor following the crowd into an investment, without doing research themselves; this usually results in losses. These investors are emotional and easily swayed by the current ongoings of how well or bad the market is doing. This term is considered a "herd" mentality that can increase the chance of losing invested funds, because investors either leave the market too early or get into it too late, when prices are already too high to make a profit.

INVESTOPEDIA EXPLAINS 'Lemming'

In the animal kingdom, a lemming is a rodent known for periodic mass migrations that occasionally end in drowning.


To contradict the "herd" mentality, many proactive investors react in an opposite fashion than what the majority of investors are doing. For example, if investors are in a buying frenzy, anti-"herd" investors will sell and when the crowd sells, these investors will go against the lemmings by buying stocks, instead.

RELATED TERMS
  1. Ostrich

    A colloquial term that refers to the tendency of certain investors ...
  2. Skittish Market

    An investment climate marked by skeptical investor behavior. ...
  3. Herd Instinct

    A mentality characterized by a lack of individual decision-making ...
  4. Bear

    An investor who believes that a particular security or market ...
  5. Investment Strategy

    An investor's plan of attack to guide their investment decisions ...
  6. Bull

    An investor who thinks the market, a specific security or an ...
RELATED FAQS
  1. How does days to cover a short position relate to a short squeeze?

    Days to cover a short position reveals the intensity and duration of a potential short squeeze. A short squeeze occurs when ... Read Full Answer >>
  2. Is it better practice to use a stop order or a limit order?

    Both stop orders and limit orders have their advantages and disadvantages; traders need to decide between the two based on ... Read Full Answer >>
  3. What is the difference between a buy limit and a sell stop order?

    A buy limit order is a specific type of buy order used to enter a market, while a sell-stop order is a sell order that can ... Read Full Answer >>
  4. What is the difference between a short squeeze and a long squeeze?

    A short squeeze and a long squeeze are situations that can force traders and investors out of their positions. A short squeeze ... Read Full Answer >>
  5. Why does the efficient market hypothesis state that technical analysis is bunk?

    The efficient market hypothesis (EMH) suggests that markets are informationally efficient. This means that historical prices ... Read Full Answer >>
  6. What does it mean to be absolutely risk averse?

    Some people are absolutely risk-averse, which means that they cannot tolerate sustaining any sort of loss, even a temporary ... Read Full Answer >>
Related Articles
  1. Trading Strategies

    Riding The Momentum Investing Wave

    Buy high and sell higher. Find out if you could surf these risky waters.
  2. Trading Strategies

    3 Ways Price Momentum Can Burn Your Portfolio

    Momentum traders are always trying to ride the herd. In these three situations, however, they may end up getting trampled.
  3. Active Trading Fundamentals

    An Introduction To Behavioral Finance

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

    Market Problems? Blame Investors

    Investors are only human, and their irrational behavior can often move the market.
  5. Trading Systems & Software

    Trading Systems: Run With The Herd Or Be A Lone Wolf?

    Find out if taking the path less traveled will work in your favor - or against it.
  6. Active Trading Fundamentals

    Leading Indicators Of Behavioral Finance

    Discover how put-call ratios and moving averages can be used to analyze investor behavior.
  7. Active Trading Fundamentals

    Five Biggest Obstacles Facing First-Year Traders

    Address these five obstacles and you'll make significant progress as a first-year trader.
  8. Charts & Patterns

    Avoid The Perfection Trap In Trading

    Avoid the perfection trap and make peace with the market’s high levels of systematic noise.
  9. Trading Strategies

    Pros And Cons Of Paper Trading

    Most market novices should paper trade for a considerable amount of time, despite key drawbacks.
  10. Trading Strategies

    Uncovering Evidence Of Sector Rotation

    Stalk ETF performance lists over several weeks to uncover hidden institutional buying and selling strategies.

You May Also Like

Hot Definitions
  1. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  2. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  3. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  4. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  5. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  6. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!