Beware the Herd: Avoiding the Investment Trap

Cognitive biases significantly influence investment decisions, with herd behavior being particularly destructive. Investors often follow the crowd, mistakenly believing that prevailing trends signify safety and correctness, leading to risky outcomes such as market bubbles. Historical examples, like the S&P 500 stocks' extraordinary performance from 1995 to 2000, highlight how collective behavior can drive irrational market conditions.