Herding Instinct

Birds of a feather flock together.  Have you heard that saying?

There’s a certain phenomenon in life and business: Shiny objects attract attention.  And, attention attracts attention.

• Someone spots a celebrity at Disneyland.  And soon, there’s a swarm of people snapping pictures of the celeb.
• Bitcoin starts taking off.  And, all of a sudden everyone becomes a bitcoin investor.
• In the 70s, Pet Rocks and Cabbage Patch Kids became all the rage.

I’m sure you can probably think of certain crazes or fads you’ve observed.

Catching The Wave

Here’s the deal: In business, timing can be the difference between winning and losing.  And, you need to know when to zig and when to zag.

Ask a surfer.  There’s an art to getting into the right position to catch and ride a wave.  Too soon, and the wave washes over you.  Too late, and you miss the wave.  You’ve heard the saying, “Timing is everything.”

Here’s another trustworthy saying:

“There is a time for everything, and a season for every activity under the heavens:” – Ecclesiastes 3:1

The key is knowing when to start and when to stop.  When to buy and when to sell.

Example: Stock Market

When the stock market starts to take off, suddenly everyone wants to invest.  And, as the news spreads, the waves of investment continue to fuel the burgeoning market.

Then one day, things seem off.  Some selling occurs.  And, maybe some more.  This, too, can create its own wave.  We can reflect back on the stock market crash in 1929.  And, even as recent as in 1987, and again in 2008.

I wasn’t here in 1929.  But, I do remember both 1987 and 2008.

Ahead of the Curve

The herding instinct does exist.

• If everyone is buying, it makes you want to buy.  You want to get it (whatever it is) when the price is low.
• If everyone is selling, it makes you want to sell.  After all, you don’t want to be the last person holding the bag.  Sell before the price goes down too much, right?

That’s the norm.

Opposite the Herd

In life and business, God willing, the key is to navigate these waters — taking advantage of the highs and lows.  To be on the right side of things.

You’ve heard the classic adage: “Buy low, sell high.”

You want to buck the trend, so you want to work opposite the herd.  There’s safety in numbers, so they say.  But, if you follow that premise you’ll “buy high and sell low.”

The key is to anticipate where the herd is going.  And, have the herd work for you — not against you.

Example: Stock Market

Remember the example earlier?  The stock market crashed big in 1929, 1987, and 2008.

Guess when it would have been a great time to invest?  That’s right.  At the bottom.  The best time to buy something is when it’s on sale.

Back in February 2009, one share of Berkshire Hathaway “A” Stock was trading at $78,600.  Today, in June 2018, that same share is trading at $287,000.  That’s 3.65x.

Summary

It’s good to recognize the trend.  It’s even better, God willing, to create the trend.

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