FOLLOW THE HERD?

RE: ElliottwaveInternational.com "How to Flee the Flock" 3/24/10

Excerpts:

"At different times in our history, political operatives would plant applauders in the audience when their candidates made speeches. The rest of the audience would usually follow. The newspapers would then report the candidate was well-received.

The mother of a famous American comedian Milton Berle sat in the front row when her son performed. She would start to laugh hysterically when a joke fell flat. The "flock" usually followed.

George Evans once managed Frank Sinatra's career. Explaining Sinatra's meteoric rise in the early '40s, Evans said "...Sinatra's talents provided an 'initial impetus'. His [Evans'] own planting of 'organized and regimented moaning' in Sinatra's crowd accounted for some of the panic."

Something built in to us makes it easy to follow the herd and makes it uncomfortable for us to act and think contrary to the group. Professional opinion makers i.e. public relation experts, advertising gurus or spin doctors if you will, depend on this tendency.

Today's markets reflect this herding tendency. Despite the worst fundamentals

since the great depression, bonds stay attractive, stocks are selling at more than 20 times earnings and Euphoria abounds in the mainstream media.

Bill Bonner of Daily Reckoning.com wrote "a fool and his money are soon patrted", makes you wonder how he got the money in the first place.

"The absolute majority of investors are unsure whether to buy or sell -- they simply do as others do. ...emotional impulses impel a desire among individuals to seek signals from others in matters of knowledge and behavior and therefore to align their feelings and convictions with those of the group."

Martin Armstrong relates the story of an experience during the Japanese stock market run up , where a wealthy client invested his entire fortune in the market on the day the market made it's historic top. He had resisted the herd impulse depending on his intellect and rational thought as long as he could, only to suffer an extreme loss when he caved in to emotional thinking and followed the group.

We 'feel' uncomfortable being apart from the group and comfortable when we are in a group--hence the attraction of associations, political parties, partnerships, corporations and other forms of the herd.

The group concept holds true in professional and academic endeavors as well. The medical profession is famous for sticking together even in the face of scientific evidence that their practices and nostrums are without merit. To be a contrarian in the academic and scientific community is to be ostracized and ridiculed.

To stick with what you know to be right and true is difficult, but usually very profitable in the end.

With Love and Kindness,

THE HATMAN