At various times in U.S. history, political operatives would "plant" applauders when their candidates made speeches. The plant would clap first and the audience would usually follow. In turn the press would report the candidate was well-received.
The mother of famous American comedian Milton Berle sat in the front row when her son performed. She would start to laugh hysterically when a joke fell flat. The "flock" usually followed.
George Evans once managed Frank Sinatra. Explaining Sinatra's meteoric rise in the early 1940s, Evans said "...Sinatra's talents provided an 'initial impetus'. His [Evans'] own planting of 'organized and regimented moaning' in Sinatra's crowd accounted for some of the panic." ("Prechter's Perspective")
I'm sure you get the point: In a crowd it's easy to follow the lead of others, especially when emotions are running high -- like at a concert.
Or when your money is at stake.
Most investors are uncertain about when to buy or sell. So, they take their cue from others. That's how herding happens. It's a natural process:
"...emotional impulses from the limbic system impel a desire among individuals to seek signals from others in matters of knowledge and behavior and therefore to align their feelings and convictions with those of the group. 'Wall Street' certainly shares aspects of a crowd, and there is abundant evidence that herding behavior exists among stock market participants."
Robert Prechter, Science is Revealing the Mechanism of the Wave Principle
We've all been there. Some expert appears on TV with a fancy title under his name. He must know. But the 2007-2009 financial crisis revealed once again just how often the Wall Street crowd is wrong -- you paid for the bailout to prove it.
In fact, extremes in sentiment are often the perfect contrary indicator. You probably remember how bullish CEOs and mainstream experts were in 2007, just before stocks tanked.
Now the same experts are bullish again. Will they be right this time?
Or is this the moment to "separate from the herd"?
Get the answer by reading our Financial Forecast Service -- without risk. Our flagship service provides you with a thorough briefing about major markets and the economy -- independent of the crowd.