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Finance For Dummies

Finance For Dummies offers personal finance information on investing, retirement investing, finance, insurance, credit cards, loans and more. Personal finance education is our goal.

Wednesday, June 14, 2006

The Wall Street Herd

In biology the “herd instinct” is a social instinct of groups of animals to herd together. Wall Street investors behave in a very similar way and they love to conform to the group of a certain opinion. The herd on Wall Street is always there, but is not always dangerous. Right now, because the Fed will announce at the end of June what they plan to do with interest rates, the herd is pushing the market and this can be dangerous. If the herd decides before or after the Fed announcement on interest rates that the U.S. economy is heading for higher inflation and a slow down things can get a bit chaotic. Real or perceived—it does not matter--because once the herd makes up its mind millions of investors will follow. This could make a downturning economy worse than it should actually be; or in good times make a rising economy over-inflate itself. Be careful of the herd mentality and respect it because if it begins to move public opinion things can shift quickly.

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