Jiri had a plan, and it was a good one. Steady contributions, a diversified portfolio, a long time horizon. He felt calm about it.
Then at a dinner, an old colleague would not stop talking about the small fortune he had made on a single hot investment over a few months. He showed the numbers on his phone. Everyone leaned in. By the time Jiri got home, his sensible plan felt embarrassingly slow, almost stupid. Why was he plodding along earning ordinary returns while people he knew were getting rich?
Within a week he had moved a chunk of his savings into the same hot thing, near the top, just before it rolled over. The colleague, it turned out, had also bought more near the top. Nobody at the dinner had mentioned that.
That pull Jiri felt has a name, and it is the oldest one in this series.
The instinct that kept your ancestors alive
Humans are herd animals. For almost all of our history, doing what the group did was the safe bet. If everyone suddenly ran, you ran too and asked questions later, because the cost of running for no reason was a little wasted energy, while the cost of standing still when there really was a predator was your life.
That instinct is still fully installed. When everyone around you is doing something with their money, every cell in your body wants to do it too, and the wanting does not feel like a bias. It feels like common sense. Surely all these people cannot be wrong.
In a market, they very often are, and worse, the act of following them is what makes the danger.
Why the herd is wrong at the worst moments
Here is the cruel mechanism. In markets, the crowd does not just observe the price. The crowd is the price. So when you follow the crowd, you are not getting in early on something smart. You are buying after the buying has already pushed the price up, and selling after the selling has already pushed it down.
That is the exact reverse of the only rule everyone claims to follow: buy low, sell high. Herd behaviour reliably has you buying high and selling low, because the crowd feels most confident near the top and most terrified near the bottom.
- On the way up, everyone is buying, the price keeps rising, and the rising price looks like proof that buying was clever. More people pile in. This is how a bubble inflates.
- On the way down, everyone is selling, the price keeps falling, and the falling price looks like proof that selling was wise. More people rush out. This is how a crash deepens.
The market, in other words, manufactures exactly the social proof that pulls you in at the worst time and out at the worst time.
Social proof: the price as its own advertisement
Social proof is the everyday shortcut that says: if lots of people are doing this, it must be right. Usually harmless. A busy restaurant is probably decent. In investing, it is poison, because a rising price becomes its own advertisement.
A price climbs. The climb attracts attention. The attention attracts buyers. The buyers push the price higher. The higher price looks like even stronger evidence that this is a winner. And around it goes, with nothing underneath necessarily having changed at all. The crowd is reacting to the crowd.
This is why a hot asset feels safest precisely when it has become most expensive, and feels most dangerous precisely when it has become cheap. Your social instincts have the danger meter wired backwards.
FOMO and the highlight reel
The emotional fuel for all of this is FOMO, the fear of missing out, and it has never been easier to feel than now.
The crucial thing to understand about FOMO is the asymmetry of what you hear. The colleague at dinner told everyone about his win. He did not mention the three bets that went nowhere, or the chunk he bought near the top and is now quietly down on. Nobody posts the losses. Social feeds, dinner conversations, and group chats are highlight reels, and a highlight reel makes it look like everyone is winning except you.
So your steady, diversified plan, which is doing exactly what it should, feels like a failure by comparison to a feed full of other people’s best days. That comparison is the trap. You are measuring your full reality against everyone else’s edited best moments.
Making the crowd’s noise stop reaching your money
You cannot switch off a herd instinct that took hundreds of thousands of years to install. But you can arrange your financial life so the noise has nothing to grab.
- Keep your money private, not performative. A surprising amount of crowd-chasing is driven by wanting something impressive to report. If your finances are nobody else’s business, the urge to keep up with the dinner-table stories loses most of its force. There is nothing to prove and no scoreboard to lose.
- Automate so the noise has nothing to act on. If your contributions happen on their own and you review on a schedule rather than on impulse, a wave of FOMO has no button to press. By the time the urge passes, the plan has quietly carried on.
- Judge against your own goals, not their stories. The only honest benchmark for your money is whether you are on track for your own goals and timeline. What a colleague did with theirs is irrelevant to that question, however loud it is.
- Assume you are hearing only the wins. When the pull to chase something hot arrives, deliberately ask what you are not being told. The losses are real; they are just silent. Remembering that they exist restores the missing half of the picture.
The hardest part is emotional, not technical: accepting in advance that you will sometimes watch people around you appear to get rich on things you sensibly skipped. That feeling is not a sign your plan is wrong. It is the ordinary, recurring price of having a plan at all.
What you can do
- Recognise the pull for what it is. When a friend’s win makes your plan feel foolish, name it: that is herd instinct and FOMO, not new information about your strategy.
- Mute the scoreboard. Reduce how much you expose yourself to other people’s financial highlight reels, and keep your own finances out of the comparison game entirely.
- Let your plan run on autopilot. Automated contributions and scheduled reviews give a wave of crowd enthusiasm nothing to act on in the moment.
- Ask what the story leaves out. Behind every boast about a quick win are the quiet losses nobody mentions. Picture them. They are part of the truth you are reacting to.
Herd behaviour is the crowd acting on you in the moment. But crowds do not stampede over nothing. They stampede over a story, a compelling reason that “this time is different.” The next bias is about how those stories take on a life of their own and move markets more than the facts beneath them. That is narrative economics, and it is where we go next.