Think Like the Great Investors: Make Better Decisions and Raise Your Investing to a New Level

Chapter 25

Contrary to popular belief . . .

We are inherently social animals. All of us crave company to some extent. This is never more so than when we are anxious or afraid, such as when we have difficult decisions to make. This includes most investment and trading decisions, because they involve uncertainty.

Wilfred Trotter developed the idea that people are naturally what he called gregarious in his book Instincts of the Herd in Peace and War. He identified five obvious characteristics of our herd instinct:

• People are afraid of being physically or mentally alone and are intolerant of situations where they are left with only their own company or are the only one holding a point of view against the majority.

• People are more sensitive to the images and values of the crowd around them than to any other influence.

• People are remarkably carried away by euphoria and panic when in a crowd, in a way that would not be evident were they facing the same situation as an individual.

• People are greatly susceptible to leadership. When we are uncertain, we all look to the lead of those who profess to have a solution to the problem, and the simpler the terms in which it is expressed, the more likely we are to accept it.

• People define themselves in terms of the group of similar people with whom they form relationships. This leads into ideas of us against the others and reinforces ...