Learn the stock market › Market psychology › Lesson 6 of 6
Herd behavior in investing
Why the herd pulls
Following others is often sensible. If the restaurant is full, the food is probably good. In the stock market it is harder, because the price already shows what everyone else has done. When many have bought, the price is high, and when many have sold, it is low. Following the herd therefore usually means buying after rises and selling after falls.
After a record
A record is when the index closes higher than ever before. It makes the news and draws more buyers, but also scares those who feel it has gone too far. This is how the year after each record day went, against all days:
| Days | Higher a year later | Middle move a year later | At least 20% lower on the way |
|---|---|---|---|
| S&P 500, after a record (1,359) | 71.3% | +9.8% | 14% |
| S&P 500, all days (24,326) | 69.7% | +9.5% | 18% |
Since 1928 the S&P 500 was higher a year after a record 71.3% of the time, against 69.7% for all days. The middle move was +9.8% against +9.5%. The 1,359 record days fell in 47 different years, and the last one was Oct 6, 2026.
The herd the other way
The same behavior shows when the market falls and many sell at once. How deep the big crashes went and how long the way back took is in the study of every stock market crash since 1928. What happened after a single stock reached its highest price in a year is in the lesson on support and resistance.
Test yourself
The market has just hit a record and everyone is talking about it. What does history say for the S&P 500?