What is herd mentality?

It means to get influenced according to others around us, do what majority of them are doing and follow the majority. The decisions of people bound by herd mentality are based on the decisions of the people around them.

A variety of factors responsible for herd mentality:

Safety and Security - People are a part of this society, thus associate ourselves with others around us. We don’t want to be at odd and being singled out or ridiculed by others around us. "Rise or sink with the group."

Let us analyze the situations where people herd mentality is commonly perceived,

1. Stock Markets – The great example is our stock markets. The bull market starts and people with herd mentality pour it to sustain the bull market; everyone ignores the flaws of the market and invest. With more and more money, the market indices surges ahead.

Same with bear market, when the market falls, the fear spreads and everyone is out to rescue their money from the market.

We must have read arguments like land, oil, gold are limited, so precious natural resources. With time and increasing population, the prices too will increase, so any investment on these resources will be rewarded with excellent returns. But the recession, it proved otherwise.

When there is fear and insecurity prevailing in the market, the buck stops there and not enough buyers for these resources, the price decreases.

The dotcom bust reminds us of some more stories. Every dot com companies raises money from market ignoring the debt equity ratio and the revenue stream. The banks and corporations too invested in them ignoring the fundamental fallacy. Ultimately, most of the companies went bust or acquired by companies with deep pockets.

It’s sad that parents are responsible for career choice in our society, ultimately the hidden talents of the children go unnoticed.

During boom time, seats in engineering and Management colleges are in huge demand. With the increasing the demand; more colleges came up with inadequate faculty and resources. With the recession, the trend changed and seats in most of these newly opened colleges are lying unfilled.

3. Marketing Campaign – The media campaign of products such as Nano created such an effect on the public that everyone worth 1 lakh balance in the savings account is in the queue to book a Nano. The launch of products by Apple always has the similar effect of the public. The release of all Aamir Khan Movies too have the same effect.

In a recent survey, it was seen that the peer recommendation is the most important factor while buying products like gadgets, car, laptop, television etc.

4. Daily life situations – A child demands for a private tuition because he feels that his friends are getting that extra knowledge which he is being devoid of. The same child then grows up and demands a mobile phone, trendy clothes and then bike.

It takes real hard balls to against the herd mentality.

In summary, herd mentality is nothing but imitating people around us during confusing times or choice. It is the true leader or individual who defies the trend and proves otherwise in the long run.

 “Be fearful when others are greedy, and be greedy when others are fearful” – Warren Buffet.