Don’t Trust the Crowd

The herd, it seems, alters our perception of reality.

Back when I was a newspaper editor in Rochester, N.Y., an investment club invited me to speak about small-company stocks, a subject I occasionally wrote about. Before the session, I talked with club members to learn more about how they picked stocks. They explained that they focused on a single strategy involving small companies and earnings momentum. So fixated were they on this one approach that when I asked whether they employed other strategies as well, it was as if I had asked members of the Southern Baptist Convention who else they worshiped besides Jesus.

At one point during the session, I tried to point out that small growth companies represent just a thin slice of the market -- and a risky one at that -- and recommended that the group consider diversifying. I might as well have told the aforementioned Baptists they should also consider that Buddha fellow.

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Bob Frick
Senior Editor, Kiplinger's Personal Finance