Herd Mentality and XEQT: When Following the Crowd Is Actually the Smart Move

Everyone tells you not to follow the crowd when investing. But what if the crowd is right?

Seriously. Every personal finance book, every investing podcast, every well-meaning uncle at Thanksgiving dinner has the same advice: “Don’t follow the herd. Think for yourself. Be a contrarian.” And most of the time, they’re absolutely correct. Blindly following the crowd has destroyed more portfolios than any single stock ever could.

But here’s the thing nobody wants to say out loud: sometimes the herd is right. And when it comes to index investing with something like XEQT, following the crowd isn’t just acceptable — it’s actually the smartest thing you can do.

I know. That sounds like investing heresy. Every fibre of your contrarian brain is screaming “that can’t be true.” But stick with me, because by the end of this post, I’m going to convince you that being a proud, card-carrying member of the index investing herd is the most rational financial decision you’ll ever make.

And I’m going to do it using the very same psychology that usually makes herd mentality so dangerous.

1. What Is Herd Mentality, Exactly?

Herd mentality — also called mob mentality, bandwagon effect, or groupthink — is the tendency for individuals to adopt the behaviours, opinions, or actions of a larger group, often without independent analysis or critical thinking. It’s one of the oldest and most deeply wired psychological tendencies in the human brain.

And it makes perfect evolutionary sense. For most of human history, following the group was a survival strategy. If everyone in your tribe started running, stopping to ask why was a great way to get eaten. Your ancestors who followed the crowd survived. The ones who stood around asking questions often didn’t.

The problem is that financial markets aren’t the savannah. In investing, the predator IS the crowd — its tendency to pile into overpriced assets at exactly the wrong time and stampede out at the worst possible moment.

The Greatest Hits of Herd Mentality Gone Wrong

History is littered with spectacular examples of investors following the herd off a cliff:

• Dutch Tulip Mania (1637): The original bubble. A single tulip bulb sold for more than ten times a skilled craftsman’s annual income. Everyone was buying because everyone else was buying. When the music stopped, prices crashed over 90%.

• The South Sea Bubble (1720): British investors poured their savings into the South Sea Company based on hype alone. Even Sir Isaac Newton lost a fortune, famously remarking, “I can calculate the motions of heavenly bodies, but not the madness of people.”

• The Dot-Com Bubble (1999-2000): Companies with no revenue and no business model were valued at billions. Why? Because everyone was buying tech stocks. Your dentist was day-trading Pets.com. The NASDAQ dropped 78% from its peak.

• The 2008 Housing Crisis: Everyone “knew” housing prices only go up. Banks, regulators, and homebuyers all followed the same assumption. When reality reasserted itself, the global economy nearly collapsed.

In every case, the pattern was identical: a compelling narrative, social proof that it’s working, fear of missing out, and an eventual catastrophic correction when the crowd’s collective delusion collided with reality.

2. The Standard Warning: Why “Following the Crowd” Is Usually Terrible Advice

Before I make my contrarian case for herding, let’s be honest about why the standard advice exists. In most investing contexts, herd mentality is genuinely destructive.

Meme Stock Mania

In early 2021, millions of retail investors piled into GameStop and AMC — not because they’d done fundamental analysis, but because everyone on Reddit was buying. The narrative was intoxicating: stick it to the hedge funds, get rich quick, be part of a movement.

Some people made life-changing money. Many more bought near the top and watched their investments crater. The ones who got in at $350 and rode it down to $40 weren’t making an investment — they were participating in a crowd event that happened to involve stock certificates.

Crypto Hype Cycles

Bitcoin, Ethereum, Dogecoin, NFTs — each wave brought a fresh herd of investors who bought because “everyone was buying.” Crypto has been particularly ruthless at punishing herd behaviour because these assets have no underlying cash flows to anchor their value. Price is driven almost entirely by sentiment — the herd creates the price, and the herd destroys it.

Hot Sector Chasing

Even without meme stocks, investors constantly chase whatever sector performed best last year. In 2020, it was work-from-home tech stocks. In 2023-2024, it was AI. The pattern is always the same: retail investors pile in after the big gains have already happened, buy at elevated valuations, and then watch as the sector mean-reverts and their money stagnates or declines.

Research from DALBAR consistently shows that the average retail investor underperforms the market by 3-4% annually, and the primary driver is bad timing — buying high because the herd is euphoric and selling low because the herd is panicking.

So yes. Herd mentality in investing is, generally speaking, a disaster. The standard advice is standard for a reason.

But here’s where it gets interesting.

3. The Plot Twist: Why XEQT Is “Following the Crowd” Done Right

Now let’s flip the entire argument on its head.

When you buy XEQT, you’re purchasing a single ETF that holds over 9,000 stocks across Canada, the United States, international developed markets, and emerging markets. It’s weighted by market capitalization — meaning the largest, most valuable companies make up the biggest slice of your portfolio.

Here’s the part that should blow your mind: market-cap weighting IS herd mentality. By definition, you’re buying more of the companies that the collective market — millions of investors, trillions of dollars, decades of accumulated information — has decided are the most valuable. You’re literally following the crowd.

But this is a fundamentally different kind of herding, and understanding why requires grasping three key concepts.

You’re Following the Crowd’s Information, Not Its Emotions

When someone buys GameStop at $350 because Reddit says to, they’re following the crowd’s emotions — FOMO, excitement, greed, tribalism. The “information” driving the decision is vibes and upvotes.

When you buy XEQT, you’re following the crowd’s collective information processing. Market prices reflect the aggregate analysis of millions of participants — hedge funds with PhDs on staff, institutional investors with proprietary data, individual investors with specialized knowledge, market makers who process information for a living. The current market price of any company is the best available estimate of what it’s actually worth, given all available information.

That’s not mob mentality. That’s collective intelligence.

Decades of Academic Evidence Support This Approach

The academic case for index investing isn’t a TikTok trend. It’s backed by over 50 years of peer-reviewed research:

• Eugene Fama and Kenneth French demonstrated that markets are largely efficient — prices reflect available information, making it extremely difficult to consistently outperform by picking individual stocks.
• William Sharpe (Nobel laureate) proved mathematically that, in aggregate, active managers must underperform index investors after fees. It’s arithmetic, not opinion.
• The SPIVA Scorecard shows that over 90% of actively managed Canadian equity funds underperform their benchmark index over 15-year periods. The professionals — with research teams, Bloomberg terminals, and decades of experience — can’t beat the crowd either.
• Burton Malkiel’s “A Random Walk Down Wall Street” has been making the case for indexing since 1973. The evidence has only gotten stronger in the 50+ years since.

When you buy XEQT, you’re not following a Reddit thread. You’re following the consensus of the world’s top financial economists, backed by mountains of data spanning decades. That’s a very different kind of “herd.”

The Crowd Includes You — And Everyone Else

Here’s another way to think about it: when you buy XEQT, you’re not following someone else’s crowd. You ARE the crowd. Everyone who participates in global markets — from the pension fund managing your parents’ retirement to the hedge fund in New York to the retail investor in Tokyo — is collectively setting the prices you’re buying at.

Index investing says: “I trust the aggregate wisdom of all market participants more than I trust my own individual analysis.” Given that individual analysis leads to underperformance roughly 90% of the time, that trust is well-placed.

4. Bad Herding vs. Good Herding: A Comparison

Not all herding is created equal. Here’s how to tell whether you’re following the crowd wisely or recklessly:

The difference between bad herding and good herding comes down to one question: are you following emotions or evidence?

When the herd is driven by fear, greed, and social media virality, following it is dangerous. When the “herd” is the collective weight of academic research, historical data, and the aggregate wisdom of global markets, following it is rational.

5. The “Wisdom of Crowds” Theory: Why Markets Are (Mostly) Right

In 2004, journalist James Surowiecki published “The Wisdom of Crowds,” which explored a fascinating paradox: under the right conditions, large groups of people are collectively smarter than any individual expert within the group.

Surowiecki described several conditions that make crowds “wise”:

• Diversity of opinion: Each person holds some private information or perspective
• Independence: People’s opinions aren’t determined by those around them
• Decentralization: People can draw on local and specialized knowledge
• Aggregation: A mechanism exists to combine individual judgments into a collective decision

Financial markets — for all their flaws — meet these conditions better than almost any other system. Millions of investors with diverse backgrounds, different information sources, different analytical frameworks, and different time horizons all express their views by buying and selling. The market price is the aggregate of all that information.

This is why it’s so hard to beat the market. Not because the market is always right about every stock — it isn’t. But because you’d need to be systematically smarter than the collective intelligence of millions of well-informed participants. And the data overwhelmingly shows that almost nobody can do that consistently.

Here’s the critical distinction for our discussion: the “wisdom of crowds” works when the conditions above are met. Meme stock manias violate those conditions — specifically, they destroy independence (everyone is copying each other based on the same Reddit thread) and diversity of opinion (dissenting views are downvoted into oblivion).

Index investing, by contrast, relies on the market’s wisdom operating normally. You’re buying the output of millions of independent, diverse, decentralized decisions — which is exactly when crowds are at their smartest.

6. When Does Herd Mentality Become Dangerous, Even with XEQT?

I’ve been making a strong case that following the index investing “herd” is smart. But I need to add an important caveat: the herd can still hurt you if you follow it in the wrong direction.

Buying XEQT because the evidence says to? Smart herding.

Selling XEQT during a market crash because everyone else is panicking? That’s the bad kind of herding, and it happens to index investors too.

Here’s the uncomfortable truth: even people who intellectually understand passive investing can fall victim to panic selling when the herd stampedes for the exit. Markets dropped roughly 34% in March 2020. During those terrifying weeks, plenty of XEQT and VEQT holders sold everything and went to cash — following the herd of panicking investors right out of the market.

Those who sold missed one of the fastest recoveries in market history. The market was back to all-time highs within months. The people who stayed the course — who refused to follow the panic herd — were handsomely rewarded.

This creates a rule that’s simple to state but hard to follow:

Follow the herd INTO index investing. Do NOT follow the herd OUT during a panic.

The entry herd is rational — it’s based on evidence, data, and academic consensus. The exit herd is emotional — it’s based on fear, breaking news headlines, and the overwhelming desire to “do something” when your portfolio is bleeding red.

If you want to understand how to stay calm during crashes, I’ve written about managing FOMO and fear during scary markets. The short version: have a plan before the crash happens, and stick to it no matter what the crowd is doing.

7. How to Be a “Smart Herder” — Practical Tips

Okay, so you’ve decided to follow the index investing herd. Great. Here’s how to make sure you stay in the right herd and don’t accidentally wander into the wrong one.

a) Set Up Auto-Invest and Stop Watching

The single best way to avoid destructive herd behaviour is to remove yourself from the herd entirely. Set up automatic recurring investments into XEQT through Wealthsimple or your broker of choice. Once it’s automated, you don’t need to make decisions. You don’t need to check the news. You don’t need to worry about what the herd is doing today.

You’ve already made the smart decision. Now let the system execute it without your emotional brain getting involved.

b) Write an Investment Policy Statement

An investment policy statement is a written document that outlines your investment strategy, asset allocation, contribution schedule, and — critically — what you will and will not do during a market downturn.

When the herd is panicking and every instinct screams “sell everything,” you can pull out your IPS and read the line that says: “During market declines of any magnitude, I will continue my regular contributions and will not sell any holdings.”

It’s hard to argue with your own written instructions. That’s the point.

c) Choose Your Herd Carefully

Not all herds are created equal. The investing “herd” you surround yourself with matters enormously:

• Good herd: r/PersonalFinanceCanada (PFC). This subreddit consistently recommends evidence-based investing, usually XEQT or VEQT, and the community will talk you down from doing something dumb. It’s not perfect, but the consensus is grounded in data.

• Bad herd: Meme stock TikTok, r/wallstreetbets, crypto Discord groups, “hot stock tip” newsletters. These communities reward speculation, hype, and overconfidence. The signal-to-noise ratio is abysmal.

• Good herd: Canadian financial content creators who advocate passive investing — Ben Felix, Canadian in a T-Shirt, the Canadian Couch Potato blog.

• Bad herd: Anyone who guarantees returns, shows only winning trades, or tries to sell you a course on how to beat the market.

I’ve written more about how social media distorts your investing decisions and how to protect yourself. The key insight is this: curate your information diet like you curate your portfolio — deliberately and with a bias toward quality over excitement.

d) Have a “Panic Protocol”

Decide in advance what you’ll do during the next major market crash (because there will be one). My personal protocol:

1. Turn off financial news notifications
2. Do not log in to my brokerage account to check balances
3. Continue my automated contributions as scheduled
4. Re-read my investment policy statement
5. If the urge to sell is overwhelming, go for a walk and wait 48 hours before making any decision

This isn’t about ignoring reality. It’s about recognizing that the panic herd does not have your long-term interests in mind, and removing yourself from its influence during the moments when it’s most persuasive.

e) Remember the Base Rate

Here’s a fact to tattoo on your brain: the global stock market has produced positive returns over every 20-year rolling period in modern history. Every single one. Through world wars, pandemics, financial crises, recessions, political upheaval, and every other catastrophe you can imagine.

When the herd is panicking and pundits are predicting the end of capitalism, the base rate says: this too shall pass, and patient investors will be rewarded. That’s not blind optimism. That’s a century of data.

8. The Irony: Contrarians Who Avoid Indexing ARE Following a Herd

Here’s my favourite twist in this whole discussion.

The people who refuse to buy index funds because “I’m not a sheep” or “I think for myself” almost always end up following a different herd — just a smaller, less successful one.

Think about it:

• The stock picker who avoids index funds is following the herd of stock pickers — a group that underperforms 90% of the time
• The crypto maximalist who dismisses traditional investing is following the crypto herd — an extremely loud, confident, and often wrong crowd
• The gold bug who insists on “real assets” is following the gold bug herd — a group that has significantly underperformed global equities for decades
• The dividend-only investor who avoids total market funds is following the dividend herd — making decisions based on incomplete information and tax-inefficient strategies

There is no “not following a herd” option. Every investment philosophy has a community, a set of shared beliefs, and social dynamics that reinforce those beliefs. The question isn’t whether you’ll follow a herd — it’s which one.

And if you’re going to follow a herd anyway, wouldn’t you rather follow the one backed by 50+ years of academic research, endorsed by every Nobel laureate in finance, and demonstrably more successful than the alternatives?

The “independent thinker” who avoids indexing because it’s “too mainstream” is making exactly the kind of emotional, identity-driven decision that herd psychology researchers study. They’re not thinking for themselves — they’re following the contrarian herd, which has its own groupthink, its own echo chambers, and its own confirmation biases.

True independent thinking means evaluating the evidence objectively and going where the data leads — even if the data says the same thing everyone else is saying. Sometimes the crowd is right. Having the intellectual honesty to acknowledge that is harder than being a contrarian.

9. Final Thoughts: Be Proud to Follow the Evidence

Let me wrap this up with a confession: I used to be the guy who thought index investing was for people who “couldn’t be bothered to learn how to invest properly.” I wore my stock-picking habit like a badge of intellectual superiority. I thought following the crowd into index funds was lazy, boring, and beneath someone who was willing to “do the work.”

Then I did more work. I read the academic research. I tracked my actual returns over multiple years (not just my winners — all of them). I compared my performance to a simple XEQT portfolio and discovered what decades of data had been trying to tell me: the crowd was right, and I was the one being irrational.

Switching to XEQT wasn’t giving up. It was growing up. It was having the intellectual humility to admit that millions of market participants processing information collectively are smarter than me sitting at my kitchen table reading Seeking Alpha articles.

So here’s my message to you: be proud to follow this particular crowd. Not because everyone else is doing it — but because the evidence overwhelmingly shows it works.

Be boring. Be systematic. Be the person at the barbecue who says “I just buy XEQT every month” while everyone else brags about their latest hot pick. Five, ten, twenty years from now, you’ll be the one quietly compounding wealth while the stock pickers are still chasing the next big thing.

The herd mentality that drove tulip mania and meme stocks is real, and it’s dangerous. But the “herd” of evidence-based investors who buy globally diversified index funds and hold for decades? That’s not a herd at all.

That’s a community of people who read the research, checked the data, and independently arrived at the same rational conclusion.

Sometimes the crowd is wrong. But sometimes — when the crowd is following evidence instead of emotions — the crowd is exactly right.

And with XEQT, it is.