Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Lemming

What it is:

A lemming is an investor who does whatever the crowd does.

How it works (Example):

A lemming is a short, furry rodent that is noted for its tendency to migrate en masse, regardless of the danger of the location or the stupidity of the move.

Lemming investors follow the prevailing wisdom without really questioning that wisdom.

Why it Matters:

In the investing world, people who follow the crowd for no particular reason are dubbed lemmings. Often, lemmings are individual investors who enter the market after prices have already run up, and they leave the market after prices have already fallen.

Contrarian investors are the opposite of lemmings; they love to do what's out of favor. They tend to buy when everyone else is selling, sell when everyone else is buying, and wait when everyone else is active. The result is that the contrarian often buys a cheap security that everyone else is calling a dog and sells a security that everyone else is clamoring to get into.