The Herd Mentality:
Where Can You Make the Most Money?
by Efren Ll. Cruz, RFP®
Question: They say that investing in the stock market is a good thing. But there is also a great number of people telling me that it is in business where you make the most money. Which is better? – asked at “Ask a friend, ask Efren” free service available at www.personalfinance.ph and Facebook.
Answer: Let me ask you, what is the first thing you ask the waiter when you eat at a restaurant for the very first time? Some would answer, “I ask for the wi-fi password.”
Kidding aside, the usual answer is, “What is your bestseller?” And the reason why this is the normal question is because in times of uncertainty, conformity is the best. Human beings learned this early on.
Back in the time of the cavemen, there was a lot of uncertainty in daily living because man’s knowledge was very limited. The law was survival of the fittest. But early man realized that there was strength in numbers, which many times meant following the crowd.
Life for today is far from being survival of the fittest. However, the heard mentality has been ingrained in the minds of humans through many, many years of evolution. Retailers study this mentality and use it to their advantage. Let’s take the restaurant as an example.
Why is it that even if there are still a lot of tables available, some restaurants ask you to wait to be seated? In part, that is to instill order. But the other reason is that when they ask customers to wait, a line develops. And when people who are still looking for a place to eat see a line building up in front of a restaurant, the automatic conclusion is that the food must be good in that restaurant because people are lining up to eat there.
In some restaurants, staff will guide early patrons to sit near the window in plain view of those outside so that passersby become “passers buy”. But the herd mentality is not just limited to restaurants. Movie producers brag about their ticket sales to entice yet more people to watch their movies. If so many watched the movie, it must be good because the collective wisdom of a lot of people cannot be wrong.
Now, going back to your question, do not just always follow what the herd says. Take their advice with a grain of salt then follow the five steps to investing wisely, namely:
- determine your return targets and risk preference based on your life goals;
- ask yourself if you have the size of funds, expertise and time to invest directly (if not, hire a professional fund or business manager);
- before you invest, investigate;
- diversify your investment portfolio; and
- monitor your investments periodically.
The crowd is not always right. Investors have time and again priced stocks incorrectly. Businessmen have gone into fads only to see their investments evaporate due to competition and changing consumer preference. But perhaps the biggest of example of a crowd getting it wrong was when a throng shouted, “Crucify Him.”
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Efren Ll. Cruz is a Registered Financial Planner and Director of RFP® Philippines, seasoned investment adviser, bestselling author of personal finance books in the Philippines and a YAMAN Coach™. He also writes for the Philippine Daily Inquirer’s Money Matters column HERE.
For more financial management advice for entrepreneurs, you can check out the column The Business of I Do on Inspirations.ph every Monday (publication date may change without prior notice) or send questions directly to yaman@personalfinance.ph.
Copyright 2025 Efren Ll. Cruz, RFP®. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without the prior written consent of the author.
