DEFINITION of ‘Lemming’
The act of an investor following the crowd into an investment, without doing research themselves; this usually results in losses. These investors are emotional and easily swayed by the current ongoings of how well or bad the market is doing. This term is considered a “herd” mentality that can increase the chance of losing invested funds, because investors either leave the market too early or get into it too late, when prices are already too high to make a profit.
BREAKING DOWN ‘Lemming’
In the animal kingdom, a lemming is a rodent known for periodic mass migrations that occasionally end in drowning.
To contradict the “herd” mentality, many proactive investors react in an opposite fashion than what the majority of investors are doing. For example, if investors are in a buying frenzy, anti-“herd” investors will sell and when the crowd sells, these investors will go against the lemmings by buying stocks, instead.