What is investment lemming?
“Lemming” is a term that describes the spirit of the herd and despises investors who invest without conducting their own research, often leading to losses.
- “Lemming” is a term that describes the spirit of the herd and despises investors who invest without conducting their own research, often leading to losses.
- According to urban legend, lemmings are small rodents known to have instincts that regularly rush off cliffs and eventually die.
- Performing the necessary due diligence, or thinking like a contrarian, is a much better strategy than succumbing to the lemming spirit, especially when irrational enthusiasm seems to dominate the market.
Understand the term “lemming”
According to urban legend, lemmings are small rodents known to have instincts that regularly rush off cliffs and eventually die. Figuratively speaking, remming in financial market terms is easily influenced by the irrationality of market price behavior, which is extremely common, and investors who dive in fear of overlooking what they mistakenly believe. Refers to. This is a great opportunity.
This “flock spirit” can usually lead to loss of money because investors leave the market too early or enter the market too late when prices are already too high to make a profit. Will be higher. To counter the “flock spirit”, many sophisticated investors, such as contrarian traders, react in the opposite way when they feel that market movements are due to the influx of lemmings. For example, if investors are enthusiastic about buying, opponents sell, and when lemmings sell, these investors buy instead.
To avoid becoming a lemming investor, you need to stay in control of your emotions. In other words, apart from the analysis that is important for making a transaction. Investors who make this successful can probably find a lemming activity and consider using it for profit by moving in a contrarian way.
Performing the necessary due diligence, or thinking like a contrarian, is a much better strategy than succumbing to the lemming spirit, especially when irrational enthusiasm seems to dominate the market. Extreme optimism often coincides with the top of the market, and extreme pessimism is very obvious at the bottom of the market. The obvious point is that these extreme markets can only be effectively identified after the fact. In other words, with the clarity that only hindsight brings.
Knowledgeable investors know that the time to sell is much higher than the fundamentals suggest, and the time to buy is much lower than reasonably guaranteed. Extreme optimism should be seen in the bearish veins, and extreme pessimism should be considered bullish, which is the opposite of the way Lemming thinks.
Research shows that investors are most affected by current events (market news, political events, earnings, etc.) and ignore long-term investment and economic fundamentals. Moreover, as the movement begins in one direction, it tends to attract more and more investors with time and momentum. The impact of such lemming-like behavior has been exacerbated in recent years due to the abundance of sensational financial, economic and other news that strikes investor sensibilities. This surge in financial media will inevitably affect investor sentiment and create lemmings.
Strategies to avoid lemming
- Stick to the plan.
- I know your goal.
- Choose a strategy that fits your goals.
- Minimize risk.
- Don’t give in to greed or fear.
- Understand the personality of your investment.
- Stay within the comfort zone of your investment.
- Stick to your investment approach.
- Don’t get hooked on “financial porn” media, publicity and advertising hype.