The Lemming Effect (Part 1)

Google defines lemming as “a person who unthinkingly joins a mass movement, especially a headlong rush to destruction.” Coincidentally, the example it gives is “the flailings of the lemmings on Wall Street.”

I have found finance to be a curious endeavor because unlike other disciplines where educational degrees or verifiable experience are regarded to establish credibility, financial credibility is more about being outspoken and visible to others.

I belong to a trading mailing list where some members post their trades every day. They occasionally give some commentary about these trades to help explain the strategy.

Recently, one of the members posted his trading log to the list. He wrote that he would be happy to send this log to anyone who provided him with an e-mail address. Over the next two weeks, I am not exaggerating when I say tens upon hundreds of people I had never seen post before responded with “can I get a copy? Thanks!”

I could speculate and say in the absence of anything, maybe people look to others for a starting point. Unfortunately no Holy Grail exists and even seeing what works for someone else is not necessarily going to work for them. It takes a lot of hard work to develop a personal strategy that will work consistently over the long-term and that work does not include copying others. No free lunch exists. One way or another, the hard work must be done.

Despite my speculation about why, the phenomenon seems quite repeatable. Over the years I have associated with many other traders and participated in many trading groups. Whenever beginners get so much as the tiniest whiff of something that could potentially make them money, they appear to trip over each other to get it no matter how meaningless it might be. This is the Lemming Effect.