Picture this. It is November 2021. Your neighbour — the one who still uses a landline — calls you excitedly to say he just put ₹2 lakh into a crypto token called “SafeMoon.” Two relatives at a wedding last month told him it was “going to the moon.” So obviously, it must be a great idea.

Six months later? That investment is worth roughly ₹18,000. Your neighbour is now back to his landline, muttering about “market manipulation.”

This is herd mentality in investing. And it is more common in India than you might think.

What Is Herd Mentality in Investing?

Herd mentality — also called herd behaviour — is the tendency of individuals to follow the actions and decisions of a larger group, often without doing independent analysis. In financial markets, this means buying an asset simply because everyone else is buying it, or selling in a panic because everyone else is selling.

It is not a new problem. Behavioural economists Daniel Kahneman and Amos Tversky spent decades documenting how humans are wired to follow social proof. We are social animals. When we are uncertain, we look to others for guidance. In investing, that instinct often costs us dearly.

Why Indian Investors Are Especially Vulnerable

India’s retail investor base has exploded. According to SEBI data, the number of demat accounts crossed 15 crore in 2024 — up from just 4 crore in 2020. Most of these are first-time investors who entered markets during the post-COVID bull run.

Many of these investors learned about stocks not from textbooks, but from YouTube channels, WhatsApp forwards, and Telegram groups. That is a recipe for herd mentality.

SEBI’s own study from 2024 found that 9 out of 10 individual traders in equity derivatives lost money. Most of them were chasing the same hot trades they heard about online. That is textbook herd behaviour.

Real Examples of Herd Mentality Hurting Indian Investors

1. The 2021 Crypto Frenzy

When Bitcoin crossed ₹40 lakh in late 2021, everyone from college students to retired government employees was “investing” in crypto. Many put in money they could not afford to lose. Bitcoin then dropped over 70% in the following months. Those who bought at the peak are still recovering — if they held on at all.

2. Yes Bank Collapse

Between 2018 and 2020, retail investors kept buying Yes Bank stock as it fell sharply — believing the crowd’s narrative that it was a “value buy.” The RBI-imposed moratorium in March 2020 wiped out a significant chunk of retail wealth. The stock fell from around ₹400 to under ₹10.

3. The SME IPO Rush of 2024

In 2024, SME IPOs saw subscription levels of 200x to 400x, driven entirely by FOMO — fear of missing out. Many of these companies had thin businesses and questionable financials. SEBI raised red flags on inflated GMP (grey market premiums) being used to drive artificial demand. The crowd was essentially bidding up stocks they had never researched.

The Psychology Behind the Herd

Understanding why we follow the crowd is the first step to breaking free from it. According to research published in the Journal of Behavioral Finance, herd behaviour in markets stems from three psychological biases:

These are not character flaws. They are deeply human responses. But in investing, acting on them without a rational framework destroys long-term wealth.

Herd Mentality vs. Smart Contrarian Thinking

Being a contrarian does not mean doing the opposite of everything the crowd does. That is equally irrational. It means making decisions based on independent research rather than social pressure.

Consider Rakesh Jhunjhunwala’s early bet on Titan Company. In 2002–2003, Titan was not a hot stock. The market ignored it. He analysed the business fundamentals, saw the opportunity, and held for decades. His investment grew over 400x over that period. The crowd missed it entirely.

Contrarian investing, done right, means buying when there is blood in the streets (as Rothschild famously said) — but only if you have done the homework on why the asset is undervalued.

How to Identify If You Are Caught in the Herd

Ask yourself these honest questions before making any investment:

If you answered “no” to most of these, you are likely investing on herd instinct — not on research.

How to Protect Yourself from Herd Mentality

Build an Investment Process

Successful investors like Peter Lynch, Benjamin Graham, and Warren Buffett all share one thing — a defined investment process. In India, investors like Nemish Shah and Porinju Veliyath also follow strict frameworks. A process keeps you from reacting to market noise impulsively.

Limit Your News and Social Media Consumption

A study by DALBAR in the US consistently shows that the average investor underperforms the index — not because of bad stock picks, but because of bad timing driven by emotional reactions to news. The same pattern plays out in India. CNBC-Awaaz is not your financial advisor.

Use SIPs — They Are Literally Designed to Beat the Herd

Systematic Investment Plans (SIPs) in mutual funds force disciplined, regular investing regardless of market conditions. AMFI data shows that SIP contributions hit a record ₹26,459 crore in January 2026. SIPs naturally average out your purchase price, reducing the impact of buying at market peaks driven by crowd euphoria.

Talk to a SEBI-Registered Investment Advisor

Before making large investment decisions, consult a SEBI-registered investment advisor (RIA). Not your uncle. Not your colleague’s brother-in-law. A professional who is legally accountable for their advice.

The Long Game Always Wins

India’s Nifty 50 has delivered around 13–14% CAGR over the last 25 years, despite wars, recessions, pandemics, and political upheaval. The investors who stayed invested — calmly, without panicking during crashes or over-buying during booms — made real wealth.

The ones who chased every hot tip, followed every trending stock, and sold at every market bottom? Most of them broke even at best. Many lost significant capital.

Herd mentality in investing is not just a bad habit. It is a wealth destroyer. The good news is that awareness is the first step to changing behaviour. You are already ahead of the curve simply by reading this far.

Now stop checking Twitter for stock tips. Open your balance sheet instead.