Picture a herd of zebras crossing the plains, a paddling of ducks skimming across the water, a shoal of fish swerving their way through the ocean. What do these all have in common? They are all following what is called ‘herd behaviour.’ They are sticking together.

It could be part of a safety mechanism, where an individual in the group reduces its risk by staying as close as possible to its centre. However, this can also lead to panic, when danger is sensed and emotions quickly feed off each other. There is sudden evasive action, and fear and anxiety increase rapidly.

The human equivalent of this is called the ‘herd mentality,’ which Wikipedia describes as where “individuals in a group can act together without planned direction.” This behaviour can occur in street demonstrations, at sporting events, and every day decision-making.

It is very noticeable in sharemarket investing, where bubbles and crashes are triggered by individuals reacting to situations and driven by emotions of either fear or greed. The results spread rapidly through the group, and lead to more and more of the same behaviour.

Have you ever felt rising fear, which then grows when you see how others are reacting to a risky situation? Or have you ever been lured into what looks like winning ‘get rich quick’ investment schemes, which are justified by the spruikers based on out-sized returns. This is how ‘Ponzi schemes’ grow, with gullible investors getting caught up by hopes of super-sized returns on investments.

As the saying goes, “If something looks too good to be true, it probably is!” Put differently, as an investor, you need to invest with your head, and not your heart.

Sun Tzu, the famous military strategist, once said: “To see victory only when it is within the knowledge of the common herd is not the acme of excellence.”

What does this mean for investing? Simply that if you follow the bull runs or the bear runs in the sharemarket, you will only do as well or as badly as the rest. The same holds true for property. To succeed in investing, timing is everything, and the best returns come from investing near the bottom of the cycle, and (if you do sell), selling near the top.

What does this mean for you as an individual? Simply that you need to be aware of the up or down ‘runs’ and see them for what they are; symptoms of the herd mentality at work, with real dangers in simply following the herd. Sheep behave like this. So do lemmings, and you know what happens to them!

Successful investors succeed through overcoming the fears that might hold the majority of people back. They also avoid the lure of investing in situations where the market is red-hot.

What do you do if you don’t have the confidence in where to invest, or when, or how?

The answer is that ‘Success leaves clues”. Many successful investors have trodden this path before you, and their strategy and approach can be learned through working with experts in the field.

McCarthy Group is one such source of expert knowledge in the field of investment property, with an 11 year track record of success for hundreds of Australian families. Our investment strategies are based on bricks and mortar, and our knowledge of investment property ensures that our clients avoid the pitfalls of blindly following the herd.

If you would like to learn more and discuss how McCarthy Group can assist you, click here.