Mob mentality is a strange thing. It can rear its ugly head in ways we could never fathom. And before we know it, we find ourselves caught up in it.
Years ago I was writing for precious metals companies. They're always focused on the fundamentals of the markets. Of course, that’s where we start, right? We look at balance sheets, debt/equity ratios, production per share and so forth, in an effort to make the right investments.
What continued to confound me, however, was that the markets would usually outmaneuver fundamentals. This has been especially true in metals, where it “should have” gone up and up, long ago.
I tried different ways of looking at it, but it continued to baffle me. And as I saw this trend, my ability to write about the reasons to buy precious metals began to wane. I had a harder time believing what I had been proposing for years.
As I learned about technical analysis, some of what we see in the markets started making more sense to me. I could see how social influence and fractals were a factor that sometimes defied fundamentals. But I still couldn’t find that link with why precious metals just didn’t seem to want to do what so many analysts seemed so positive that they should do.
That’s when I discovered systems that tracked sentiment. As sentiment is tracked, while you can’t analyze it with certainty, you can begin to see a pattern that provides a means to stack up probabilities so that you can become more accurate with your expectations. Elliott Wave is one means of tracking sentiment, for instance. Coupled with sound technical analysis, some investors and traders have found it to be incredibly rewarding.
Gold bugs have talked about mob mentality for years. They point to the tulip bubble and other events, including riots and lynchings that sometimes defied logic – i.e. the fundamentals.
Then it struck me. Sentiment analysis was tracking the mob. If it can measure the probabilities of when the mob becomes more pessimistic or euphoric, then the opportunity to use it for gain increases accordingly.
When a person gets caught up in the mob, it’s hard to see what’s happening. But the dynamic is such that when the mob really gathers a head of steam, even those who find the pursuit of the mob to be repugnant can get caught up in it, doing things that they never would have otherwise considered and may regret for the rest of their lives. It’s as if the mob takes over their character with a combination of peer pressure, fear of missing out and greed to be at the top of whatever is happening.
We see throughout history that the mob can be manipulated, but perhaps nowhere as profoundly as when the religious leaders turned the mob against Jesus. At the beginning of the week, the event we celebrate as Palm Sunday, Jesus entered Jerusalem in triumph, being praised by the masses as they laid their clothes and palm branches on the road before Him, crying, “Hosanna to the Son of David! ‘Blessed is He who comes in the name of the LORD!’
Hosanna in the highest!” (Matthew 24) Less than a week later these same people were caught up in the mob that the religious leaders had manipulated. Not only were they no longer worshiping, but their zeal was stirred both for the release of a notorious criminal and the crucifixion of Jesus.
But the chief priests and elders persuaded the multitudes that they should ask for Barabbas and destroy Jesus. (Matthew 27) So effective was the manipulation that these people, who had just been worshiping Him and laying their clothes before Him in adoration, were screaming, “Let Him be crucified!” Nothing has changed over the millennia. Today, we see these same types of people stirring up the mob. Those who have character that normally exudes integrity and fortitude find themselves compromising, gossiping and otherwise embracing as truth that which they’ve failed to verify and may even normally find abhorrent. The next thing they know, even though it goes completely against their principles, they’re shouting, “Crucify him!” And if we don't see it, maybe we need to ask ourselves if we’re part of it.