The Herd Mentality

Behavioural Finance

How Practical Is Behavioural Finance?

In my recent editorials, I discussed the market efficiency (or lack of it). I discussed the various hypotheses that academics teach their students.  The Global Financial Crisis created doubts in what the theories and hypotheses claimed for decades. We now enter an era of doubt on what makes the market move up or down in a rational (or irrational) way.

We can ask ourselves if there is anything that can help investors beat the market. If ...

Behavioural Finance

Herd instinct explains why people tend to imitate others. (source: Investopedia)

Traders’ characteristics are painted with fear and greed. That is what pushes the market up and down beyond rational manners.

Now when I talk about fear, I am referring about the fear to miss out. Some traders believe that when the market is moving higher or lower, some other people who may be aware of some new information have acted and the rest of the mob needs to follow ...

Behavioural Finance

In many of our previous editorials, I mentioned that what makes the market is not just supply and demand. It is all about us. I need to mention early in this editorial, traders and many investors are irrational. We are driven by our “fear and greed”.

On one hand we have the analysts that will only look at the fundamentals factors that they believe will help them determine the value of a stock. They also believe that the price of ...