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The tendency of investors to follow and mimic the actions of a larger group, regardless of whether the group's behavior is rational.
Herding is one of the most powerful forces in financial markets. When everyone is buying, the fear of missing out (FOMO) drives more buying. When everyone is selling, panic amplifies the selling. This creates bubbles on the way up and crashes on the way down. The dot-com bubble of the late 1990s was a classic example: investors piled into internet stocks because everyone else was, regardless of fundamentals. Herding is driven by social proof (if everyone is doing it, it must be right), information cascades, and the career risk faced by professional fund managers who underperform their peers.