John Maynard Keynes once said:
“It is not a case of choosing those [faces] that, to the best of one’s judgment, are really the prettiest, nor even those that average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees.”
(Keynes, General Theory of Employment, Interest and Money, 1936)
To put it simply, Keynes is talking about how people don’t just follow the crowd—they’re busy trying to figure out what the crowd thinks the crowd will do. This thinking goes beyond just looking at others’ opinions and turns into a kind of meta-thinking, where the focus is on predicting the average person’s behavior rather than relying on independent judgment or individual research.
The Herd Mentality in Financial Markets
In financial markets, this dynamic is incredibly common. Investors often focus more on what others are buying, thinking, selling, and doing than on their own research or analysis. Instead of thinking critically about the fundamentals of a stock, people often get caught up in what they believe the market sentiment will be. It becomes a game of predicting what others are predicting. It’s like trying to second-guess a game you’re not even playing.
Bitcoin: A Classic Case of FOMO
Take the latest Bitcoin hype, for example. In recent months, Bitcoin’s price surged once again, largely driven by growing institutional interest, mainstream acceptance, and predictions that the cryptocurrency will continue to rise in value. Many investors jumped in, driven by fear of missing out (FOMO) or the belief that everyone else expected Bitcoin to soar.
But, if you dig into Bitcoin’s volatility and its unclear regulatory future, you see that it’s still a speculative asset, vulnerable to drastic fluctuations. The surge in price wasn’t always due to solid fundamentals; it was fueled by the collective mindset that everyone else was going to profit. People weren’t just buying Bitcoin for its utility or its potential—people were and still are buying Bitcoin because they believed the crowd would keep buying it.
Nvidia: Riding the AI Wave
The same is true with Nvidia. With the explosion of AI-related technologies, Nvidia’s stock skyrocketed, drawing a huge wave of new investors. Many jumped on the Nvidia bandwagon because they believed AI was going to continue driving the company’s growth, and others were piling in.
Nvidia’s price soared, and while the company does have strong fundamentals in AI, it’s possible that part of this rally is due to speculative hype. Investors weren’t necessarily doing deep dives into Nvidia’s earnings or long-term prospects—they were reacting to the buzz, betting on the “next big thing” that everyone was talking about.
The Feedback Loop of Speculation
The result? A feedback loop of herd mentality. Decisions are made not because the stock has solid fundamentals, but because investors are trying to anticipate what others are doing or thinking—making moves based on speculation rather than logic. And this can lead to irrational behavior—whether it’s a market bubble, where everyone’s buying into the hype, or a crash, where panic sets in and everyone starts selling out of fear.
Think for Yourself: The Importance of Independent Judgment
Keynes’ insight is powerful because it reveals how easy it is for us to get swept up in this pattern of thinking. It’s a natural human instinct, but it’s also a risky one when it comes to investing. Independent judgment, critical thinking, and solid research should always be the foundation of investment decisions.
So next time you’re thinking about making a move in the stock market, remember this: Don’t just follow the herd. Think for yourself. Do the research. The crowd might be rushing in one direction, but that doesn’t mean it’s the right way to go.
The Broke College Student 
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