Lemming Effect Completely Explained

Question 1: What is the lemming effect?

Question 2: What does the lemming effect mean?

Lemmings: A group of irrational retail investors who easily fall into collective unconsciousness. Mr. Buffett once compared lemmings to securities institutions. Investors are like lemming families. When the wealth effect of investors amplifies, it will immediately spread to other people's ears. People will continue to join the market, and the number will expand rapidly. The market inflated dramatically as a result. To illustrate the following effect of the stock market, the final advice given to us is not to believe in the market but to believe in yourself.

Lemmings are very common and cute little animals that live in the Arctic all year round. They have an oval body shape, short limbs, and are smaller than ordinary mice. They can grow up to 15 cm. They have a thick and short tail and short ears. Very small. Lemmings are mainly distributed in the high-latitude coniferous forests of northern Norway and Eurasia. Lemmings are the most reproductive of all animals in the Arctic.

But why do the populations of such animals never increase? It’s because these things have a special characteristic. When the number of lemmings expands rapidly and reaches a certain density, a strange phenomenon occurs: at this time, almost all lemmings suddenly become restless, no longer timid and fearful in the past, and they will attack any natural enemies. They all appear fearless, obviously provocative, and sometimes even take the initiative to attack. The only possible and reasonable explanation is that they do everything possible to attract the attention of natural enemies so that they can devour and consume them. This is nothing like committing suicide. the difference.

What drives the lemmings is not the desire to die, but panic. Including panic about hunger and panic about disorientation. Just as a sudden increase in investors leads to too much money chasing too many stocks, investment opportunities suddenly decrease. When the market plummets, the channel for evacuating the market will be very narrow, and collective panic leads to suicidal selling by investors. . .

Mr. Buffett once used lemmings as a metaphor for securities institutions to illustrate the following effect of the stock market. The final advice he gave us is not to believe in the market but to believe in yourself.

Reasons for the Lemming Effect

There are two reasons for the Lemming Effect. One is that group members tend to maintain consistent behaviors and beliefs with other members in order to gain group support. His recognition and sense of belonging to the group; secondly, when group members are unsure about events that require decision-making, it is often safe to imitate and obey the behaviors and beliefs of others.

The lemming effect is fully reflected in human investment activities. People's investment behavior is often influenced by others. When most investors fall into the madness of greed and desperately chase the rise, few investors can calmly and rationally resist the temptation to buy; When prices fall out of fear, few investors can resist the urge to sell.

This kind of pressure to follow the herd is very huge. However, wise investment decisions are often unexpected but reasonable decisions. The investment value of the hot sectors that everyone is optimistic about has usually been overdrawn in advance. , and smart investors will generally continue to observe and track stocks with investment value, and when their stock prices fall within a reasonable range (ignored by most investors), they will decisively buy in.

Obviously, doing so requires not only professional value assessment, but also the firm will to resist the pressure of conformity and the great courage to be the first in the world. To pull yourself out of the emotional vortex of the stock market, you need to discover the irrational behavior of most investors. They buy stocks not based on logic, but based on emotion.

Lemmings are a collective name for about 20 species of small herbivores that live in the Arctic. People have long noticed that their numbers change cyclically. Some years they are extremely abundant, and some years they are very rare. Various legends emerged from this. In the 16th and 17th centuries, many European scholars believed that lemmings fell from the sky; as long as the air conditions were suitable, lemmings could be generated spontaneously. In order to refute this statement, the Danish naturalist Ol Form conducted the first dissection of lemmings and proved that the anatomical structure of lemmings is similar to that of other rodents.

The reason why lemmings give people the feeling of suddenly falling from the sky is because their reproductive capacity is astonishingly strong. Lemmings can reproduce about a month after they are born, and a female can give birth to a litter of about eight mice every five weeks. When conditions are right, a lemming population can grow tenfold in a year. About every four years, the number of lemmings reaches a peak, and then drops sharply, becoming so rare that it is difficult to find them. Where did all the lemmings go?

Legend has it that when the number of lemmings reaches its peak, they will spontaneously migrate en masse and rush to the sea to commit suicide, leaving only a few of their kind to stay and shoulder the sacred task of passing on the family line. In the documentary "White Wilderness" shot by Disney in 1958, it recorded the scene of lemmings migrating in groups and eventually jumping into the sea to commit suicide, with a very sensational explanation. This Oscar-winning film had a profound impact and made the touching legend of lemmings rushing to meet their death a household name in the West.

But the scenes in that documentary were faked. The film was filmed in the Canadian province of Alberta, an area where lemmings are not native.

The camera crew went to the Arctic region and bought dozens of lemmings from Inuit children and let them run on a snow-covered turntable. They filmed them from various angles and edited them to show the migration of thousands of lemmings. scene. Afterwards, the camera team took the lemmings to the cliff, hoping to film them jumping into the river below the cliff and drowning. Unexpectedly, the lemmings refused to jump down. After waiting for two days, the impatient camera crew drove the lemmings off the cliff and committed suicide by jumping into the sea.

Why the number of lemmings changes periodically is a biological subject that has not yet been determined. It may be related to natural enemies, food, climate, season and other factors. For example, one obvious but as yet unconfirmed explanation is that the dramatic increase in lemming numbers destroyed vegetation and led to food shortages, leading to large numbers of lemmings starving to death. Then vegetation begins to recover, and a new cycle begins. In fact, this is not a phenomenon unique to lemmings. Some other small animals that survive in harsh conditions will also experience similar cyclical changes in their populations.

Although there are different opinions on the answer to this question, experts are unanimous on this point: lemmings do not commit mass suicide. When lemming populations increase dramatically and local food becomes scarce, lemmings, like other animals, will spread to other places. People have observed that in the Norwegian mountains, lemmings on the mountains spread to the valleys, and some of them will gradually reach lakes and seasides, where they settle down. But as more and more people come after them, some will try to swim to the other side, and some will drown. This may be the origin of the myth of mass lemming suicide.

In recent years, some experts have tried to explain the mystery of their declining numbers from changes in the lemmings themselves. For example, as population density increases, lemmings experience more social interactions and stress among each other, leading to changes in hormone levels in their bodies, making them less fertile and more aggressive. When the group density is too high, the lemmings' response is not to sacrifice themselves, but to attack other lemmings, and even kill each other.

The myth of lemmings rushing to meet death will not disappear as easily as the myth of lemmings falling from the sky. No matter how experts clarify it, this myth will always be passed down as a scientific fact and an educational natural wonder. After all, for many people, a beautiful lie is better than the cold truth.

Have you ever seen the legendary lemming throw itself into the sea?

There are hundreds to tens of thousands of them. When they encounter a river, the lemmings walking in front will jump into the water regardless of their own safety and build a mouse bridge for those who follow them. On cliffs or deep ditches, thousands of lemmings huddle together to form large meat balls, rolling down regardless of life or death.

This group of lemmings is now standing on the cliff of nearly 2800 points of China's A-shares, and is preparing to dive into the ocean of unknown whereabouts. Maybe it won't be long before everyone will be able to witness their tragic performance with their own eyes.

Elephants dance together, sectors relay, and the Shanghai Composite Index rises by 1,200 points without looking back. Since mid-August last year, China’s A-shares have been rushing forward in a way that challenges the thinking of the bull market. Even if there are occasional large fluctuations in the market, it is also a warm-up dance for retail investors to practice their courage.

Today's China A-share market is becoming more and more like a besieged city. People inside want to stumble out, while people outside the city are rushing in one after another. Judging from the trading volume in recent days, the Shanghai stock market has traded 80 billion for several consecutive days. In other words, more than 80 billion lemmings are preparing to invest in the sea every day. Of course, there are also 80 billion in funds secretly rejoicing every day. Can escape whole body.

Of course, it is too early to say that A-shares will adjust now. At least before the stock index futures come out, there will definitely be no real correction. However, if the current daily price of nearly 80 billion If the trading volume cannot be sustained, or if there are no more lemmings rushing in to take over for the giant rats inside, a minor adjustment in the market will be inevitable in the short term.

Poor these lemmings, they either spent all their money, or robbed relatives and friends, or pawned all their belongings. They wanted to get something for nothing in the current brilliant A-share bull market, but finally got in. Be yourself and all hope.

What is disturbing is that even in the process of these lemmings jumping into the sea, many institutions sang their praises, and some institutions even listed leading A-share stocks with a current price-earnings ratio of nearly 40 times - -Industrial and Commercial Bank of China still maintains buy, while some institutions are optimistic about China Life, which debuted at a price-to-earnings ratio of 200 times, by 90 yuan in three years.

However, do not underestimate the power of these lemmings. Once these lemmings burn their wealth in the stock market, they will inevitably have a malignant impact on China's macro-economy. In 2001, China's stock market bubble It is not a coincidence that deflation will follow one after another, especially under the current economic imbalance inside and outside China. The sharp drop in consumption caused by the destruction of wealth will make all the previous achievements of China's current consumption-oriented economic policy undoable.

Of course, maybe not all lemmings will disappear in the next wave of market conditions. Maybe more lemmings will quickly climb ashore after choking on a few sips of water. There are also some lemmings. They will be rescued by the People's Liberation Army later, but a considerable number of lemmings, especially those who currently have no experience in the stock market and are blindly chasing highs, may live in the sea forever.

Lemming Effect and Adverse Market Investment Method

The lemming effect of group panic occurs when there is a sharp decline, and investment opportunities also come at this time.

After experiencing the last round of slumps, even the most optimistic brokerage researchers found it difficult to believe that the stock market could erase the scars of the slump so quickly: In the five trading days after May 30, the Shenzhen Component Index dropped by the most down 20.87%. However, after that, it actually pulled 7 positives in a row, hitting a new all-time high in a short squeeze. It closed at 13811 points yesterday, an increase of 2.64% compared with May 30.

Opening the daily K-line chart of the Shenzhen Component Index, a typical V-shaped reversal makes people lament the beauty of the bull market. During the market adjustment, most investors, both institutional and individual, firmly believe that the mid- to long-term bull market pattern of the Shenzhen and Shanghai stock markets will remain unchanged. But what makes them sell their stocks when they are most panicked? This article attempts to decode it for you.

Suddenly there are no buyers in the market. In the past two weeks, the Shenzhen and Shanghai stock markets suffered from panic in the bull market: from May 30 to June 5, many stocks were sold at their limit. Among them, Yingda Group became the diving champion among listed companies in the Shenzhen Stock Exchange with five consecutive daily limit drops. Its stock price has dropped from 17.95 yuan to 10.63 yuan, a short-term decline of 40.78%.

In the absence of a sudden change in the fundamentals of individual stocks, hundreds of stocks like Yingda Group were suddenly sold off by the market just because of the signal of policies to curb excessive speculation.

Lowering the limit usually means the disappearance of individual stock liquidity. What kind of fear caused a large number of stocks in the market to suddenly have no buyers?

The sudden announcement of the increase in stamp duty was somewhat unexpected by the market, thus arousing violent reactions. In an emotional state, it is difficult for people to treat rationally for a while, so the stock market has become seriously oversold. Gui Haoming, chief analyst at Shenyin Wanguo Securities Research Institute, believes that when the plunge began, everyone was unable to adapt for a while, and many investors fled desperately, so that the entire market panicked, forming a continuous limit-down market.

Rome was not built in a day, nor was it destroyed by a sudden misfortune. The stock market crash that started on May 30 is, on the surface, the result of the stamp duty increase policy. However, it is more due to the rapid rise in valuations, rapid expansion of structural bubbles, and too many short-term profit chips in the market. Exchange chips through shock.

The market generally believes that in the context of the recent single-month turnover rate of Shenzhen and Shanghai stock markets exceeding 100%, it is correct for management to increase stamp duties and adopt appropriate policies to curb excessive speculation, but the adjustment method is The trigger that led to this major adjustment.

The exit market channel is very narrow. It is reported that every round of bull market always amplifies the wealth effect and attracts a large number of new investors to enter the market. Data shows that in the first four months of this year, the number of newly opened accounts was as high as 3.42 million, 1.27 million, 4.01 million, and 6.7 million respectively! In the first four months of this year alone, 15.4 million new accounts were opened, more than three times the number of new accounts opened in the whole of last year. On May 28, the number of new A-share accounts opened across the country hit a new high of 385,300, and the total number of accounts in the Shanghai and Shenzhen stock markets reached 100.2736 million.

The sudden increase in investors has led to too much money chasing too many stocks, and investment opportunities have suddenly decreased. This reminds the investment community of the famous lemming phenomenon: Norwegian lemmings increase dramatically every ten years and have to carry out large-scale migrations to find food, but they always end up collectively committing suicide at sea.

The impact of the lemming effect

The lemming effect of group panic occurs during a sharp decline, and investment opportunities also come at this time. After experiencing the last round of slumps, even the most optimistic brokerage researchers found it difficult to believe that the stock market could erase the scars of the slump so quickly: In the five trading days after May 30, the Shenzhen Component Index dropped by the most down 20.87%. However, after that, it actually pulled 7 positives in a row, hitting a new all-time high in a short squeeze. It closed at 13811 points yesterday, an increase of 2.64% compared with May 30.

Opening the daily K-line chart of the Shenzhen Component Index, a typical V-shaped reversal makes people lament the beauty of the bull market. During the market adjustment, most investors, both institutional and individual, firmly believe that the mid- to long-term bull market pattern of the Shenzhen and Shanghai stock markets will remain unchanged. But what makes them sell their stocks when they are most panicked? Suddenly there are no buyers in the market. In the past two weeks, the Shenzhen and Shanghai stock markets suffered from panic in the bull market: from May 30 to June 5, many stocks were sold at their limit. Among them, Yingda Group became the diving champion among listed companies in the Shenzhen Stock Exchange with five consecutive daily limit drops. Its stock price has dropped from 17.95 yuan to 10.63 yuan, a short-term decline of 40.78%.

In the absence of a sudden change in the fundamentals of individual stocks, hundreds of stocks like Yingda Group were suddenly sold off by the market just because of the signal of policies to curb excessive speculation. A lower limit usually means the disappearance of individual stock liquidity. What kind of fear caused a large number of stocks in the market to suddenly have no buyers?

The sudden announcement of the increase in stamp duty was somewhat unexpected by the market, thus arousing violent reactions. In an emotional state, it is difficult for people to treat rationally for a while, so the stock market has become seriously oversold. Gui Haoming, chief analyst at Shenyin Wanguo Securities Research Institute, believes that when the plunge began, everyone was unable to adapt for a while, and many investors fled desperately, so that the entire market panicked, forming a continuous limit-down market.

Rome was not built in a day, nor was it destroyed by a sudden misfortune. The stock market crash that started on May 30 is, on the surface, the result of the stamp duty increase policy. However, it is more due to the rapid rise in valuations, rapid expansion of structural bubbles, and too many short-term profit chips in the market. Exchange chips through shock. The market generally believes that in the context of the recent single-month turnover rate of Shenzhen and Shanghai stock markets exceeding 100%, it is correct for management to increase stamp duties and adopt appropriate policies to curb excessive speculation. However, the way of adjustment is what led to this major adjustment. fuse.

The exit market channel is very narrow. It is reported that every bull market always amplifies the wealth effect and attracts a large number of new investors to enter the market. Data shows that in the first four months of this year, the number of newly opened accounts was as high as 3.42 million, 1.27 million, 4.01 million, and 6.7 million respectively! In the first four months of this year alone, 15.4 million new accounts were opened, more than three times the number of new accounts opened in the whole of last year. On May 28, the number of new A-share accounts opened across the country hit a new high of 385,300, and the total number of accounts in the Shanghai and Shenzhen stock markets reached 100.2736 million.

The sudden increase in investors caused too much money to chase too many stocks, and investment opportunities suddenly decreased. This reminds the investment community of the famous lemming phenomenon: Norwegian lemmings increase dramatically every ten years and have to carry out large-scale migrations to find food, but they always end up collectively committing suicide at sea.

However, do not underestimate the power of these lemmings. Once these lemmings burn their wealth in the stock market, they will inevitably have a malignant impact on China's macro-economy. In 2001, China's stock market bubble It is not a coincidence that deflation will follow one after another, especially under the current economic imbalance inside and outside China. The sharp drop in consumption caused by the destruction of wealth will make all the previous achievements of China's current consumption-oriented economic policy undoable.

Of course, maybe not all lemmings will disappear in the next wave of market conditions. Maybe more lemmings will quickly climb ashore after choking on a few sips of water. There are also some lemmings. They will be rescued by the People's Liberation Army later, but a considerable number of lemmings, especially those who currently have no experience in the stock market and are blindly chasing highs, may live in the sea forever.