A personal finance blog dedicated discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance.


Thursday, July 14, 2005

Are You Part of the Herd?

By "herd" I'm referring to the herd mentality that exists in the stock market (or it can also be seen in any bubble situation). According the wonderful book Why Smart People Make Big Money Mistakes by Gary Belsky and Thomas Gilovich, there are warning signs as to whether or not you are a herd-follower:

You may be prone to following the herd if...
  • you make investment decisions frequently.

  • you invest in "hot" stocks or other popular investments.

  • you sell investments because they're suddenly out of favor, not because your opinion of them has changed.

  • you're likely to buy when stock prices are rising and sell when they ar falling.

  • ou make spending and investment decisions based solely on the opinions of friends, colleagues, or financial advisers.

  • your spending decisions are heavily influenced by which products, restaurants, or vacation sports are "in."

If you live by the herd, you die by the herd.

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