Conformity psychology in investment
The herd mentality in investment can also be called herd effect, so it should be noted that when we talk about herd mentality or herd effect, we actually mean the same thing.
Conformity psychology refers to the psychology of taking some concerted action unconsciously without thinking through the brain and being trapped by emotions.
There are many manifestations of herd mentality in investment. In terms of specific performance, for example, in a bull market, investors always rush headlong into it, while in a bear market, it is typical to disperse in a hubbub.
Also, in fund investment, many investors compete to chase funds through the short-term ranking of funds, which is also a manifestation of herd mentality.
Conformity psychology does not come out of thin air, it comes from millions of years of human evolution.
We often hear the word "leader". It is very important for individuals to survive in the cruel natural competition, obey the orders of the leaders in the ethnic group, and be consistent with the collective action.
Similarly, in the process of development and evolution, human beings have formed the psychology of unconsciously obeying the collective and keeping consistent with the collective in behavior choice.
This kind of psychology gives us more sense of security. After all, there is always nothing wrong with following the big army. Under the influence of collective emotions, investors can easily blindly follow the trend, be caught by various hot spots that change from time to time in the investment process, and be infected by the public or fanatical or depressed emotions.
This may be a mentality of reducing losses, but it will always bring harm when applied to investment.
Problems brought by herd mentality in investment
Many investors lack the basic knowledge of financial market and common sense of investment, lack independent consciousness in specific investment practice, gradually develop the habit of following "collective" operation, and lack the ability of independent thinking and rational judgment.
To achieve long-term correctness, we must make investment decisions independently and rationally to avoid short-term mistakes in the market, so as to obtain long-term reasonable returns from the market through patient waiting.
It is human nature to chase short-term quick money, and herd mentality is often closely related to the short-term behavior of various markets.
In the bull market, investors pay attention to the short-term rise, completely ignoring the risk of permanent loss of principal.
In the bear market, investors pay attention to short-term downward fluctuations, and hate the floating loss of principal caused by fluctuations, completely ignoring the huge compensation that can be obtained in the future by buying high-quality assets at cheap prices.
The typical performance of herd mentality in stock and fund investment is chasing up and killing down. It is not difficult to explain why only a few people can make money in the market.
Conformity is sometimes possible in social life, but it is a weakness that investors really need to overcome. So, how should we serve such weaknesses?
First of all, learning knowledge is your most powerful weapon. Learn the basic knowledge of financial market, master the common sense of investment, and cultivate certain fund investment and research ability.
Only by forming an independent and complete understanding of an investment product can we have our own opinions in investment practice and avoid being entangled in the emotional ups and downs of the market.
Improve your own investment logic and investment system, and invest independently. Find a strategy that suits you in constant practice and stick to it for a long time.
Develop the habit of long-term investment and reduce the attention to short-term market hotspots. Pay attention to the understanding of the law of value, pay attention to the research of fund managers, and pay attention to long-term investment. Don't pay too much attention to the short-term fluctuation of the market in investment practice. The combination of five swords of value and five swords of growth simply ignores the short-term hot spots in the market at ordinary times.
I hope the above contents are helpful to you.