Herd mentality is the behaviour whereby people follow and copy the actions of others.

In investing, this behaviour can be observed among investors, especially during a downturn as investors tend to sell off their investments based on others’ actions as well as their feelings of fear and anxiety.

The folly of following the crowd
Succumbing to herd mentality may seem irrational but investors’ investment decisions can be easily influenced by their emotions as well as the voices surrounding them, e.g. media reports and discussions by people around them. Combined together, investors may believe that they will face huge losses if they hold on to their investments and eventually lock in their losses by selling their investments at lower prices.

Investors who had redeemed their investments during the downturns by following crowd may have missed out on the market’s subsequent recovery as the rebound of the market may be too fast for them to re-enter the market.

To avoid being swayed by the herd mentality, investors should remain disciplined and focused on their long-term goals as those who with a long-term investment horizon continue to invest regularly and consistently tend to benefit when the markets eventually rebound.

Adopt the Ringgit Cost Averaging (RCA) strategy to keep emotions out of investments
Another method that can help investors keep their emotions out of their investments is by adopting the RCA strategy.

This method allows investors to average out the cost of their investments over time by investing a fixed Ringgit amount into unit trust investments at regular intervals as they will buy fewer units when prices rise and more units when prices fall.

This time-tested practice allows investors to better ride through market fluctuations in pursuit of long-term capital growth by adhering to a disciplined approach and keeping emotions out of their investment portfolio.