I think it is true that much of our country loves sports – and that the love of sports can have a unifying impact on our society. That’s why the ratings continue to set records across different sporting events. The Olympics on NBC averaged 24 million viewers across its prime afternoon coverage and primetime in Milan, a 94% improvement over the 2022 Beijing Games. According to Nielsen, the Super Bowl has continued to set viewership records over the last few years. In the U.S., the complete seven-game World Series registered 16.1 million average viewers, making it the most-watched Fall Classic in the U.S. since 2017. As Americans, many of us love to cheer on the skill and athleticism on display and the dedication of these athletes to persevere, overcome obstacles, and deliver when the spotlight is brightest.
Because sports are so ingrained into American culture, a natural emotional response of gravitating to a team or athlete in short order can and does often take place. The origin of the expression “jump on the bandwagon” is attributed to American politics in the mid 1800s with the presidential campaign of Zachary Taylor, who became the 12th president of the United States. As the story goes, a famous and popular circus clown of that time, Dan Rice invited Taylor to join the circus bandwagon. Taylor accepted the invitation and as he gained more recognition and his campaign became more successful, the newspapers began writing that Taylor’s political opponents should “jump on the bandwagon” themselves if they want to achieve similar success.
The bandwagon phenomenon in sports seems to fit well within this framework of the human experience. As former president Taylor gained more recognition and success, more people wanted to follow and join his campaign. In my opinion, this is what happens in sports as well. As a team or athlete grows in popularity and winning results, more people become interested and emotionally invested in supporting and following that team or particular athlete.
This type of bandwagon approach can also spill over into the world of investing. Investing and financial markets can be especially vulnerable to bandwagon effects because not only will the same kind of social, psychological, and information-economizing factors occur, but additionally the prices of assets tend to rise as more people jump on the bandwagon. This can create a positive feedback loop of rising prices and increased demand for an asset.
There are many examples of this bandwagon phenomenon occurring, resulting in what would traditionally be described as a “bubble.” During the dotcom bubble of the late 1990s, dozens of tech startups emerged that had no viable business plans, no products or services ready to bring to market, and in many cases, nothing more than a name (usually something tech-sounding with “.com” or “.net” as a suffix). Despite lacking vision and scope, these companies attracted millions of investment dollars in large part due to the bandwagon effect. The example of the dotcom bubble or another historically significant bubble or event in the history of the financial markets, need not be the only time the bandwagon mindset may start to creep in. A simple example may be the short-term increase in the stock price of a local company that gets local and or national media attention, and the desire to take part in this experience may activate the inherent “bandwagon” interest to partake in that investment.
In December of 2023, my colleague Dylan Potter wrote an article, “Tiger Woods’ Putting Precision: Lessons in Consistency.” In that article, Dylan highlights Tiger Woods’ focus on the impact of his short game and the consistency of his putting. He shared, “Tiger’s commitment to mastering putting, despite the allure of power drives, underscores the importance of identifying and honing skills that deliver consistent results rather than pursuing fleeting, high-risk endeavors. Forget the speculative ventures or chasing the new trend.”
“Consistency, in investing is often misunderstood or even underrated in a world captivated by the allure of rapid gains (which generate books and stories and documentaries), volatile markets, and unneeded complexity. Yet much like Tiger Woods’ relentless focus on mastering the less glamorous aspects of golf, great investing comes down to boring consistency and an approach that can be repeated and sustained over the long term.”
How to Avoid the Bandwagon Effect
Like Tiger Woods’ focus on consistent putting and the fundamentals of golf to get and maintain a competitive edge, training to minimize and reduce the bandwagon effect can be a long and rigorous process. Herd mentality is difficult to escape, as are the emotions and behaviors that humans are socially prone to having. However, below are three steps that may be taken to help contend with the bandwagon effect in investing.
- Think critically. Know your own goals and objectives and consider how your positioning, needs, or opinions differ from those around you. Rather than following what other people are doing, an alternative position can be taken while there is further exploration of all the different investment options available.
- Use reliable sources of information. Look for and use research sources that have been vetted and historically have been used for in-depth or professional analysis. Ideally, these sources are free from or openly acknowledge their biases. It’s important to know what you own and have sources to understand your investments well.
- Deliberate Decision Making. It takes time to make a deliberate decision. It’s important to decide what to invest in only after information is gathered, processed, and thoroughly reviewed. This helps to take the emotion out of investing so that the decision is made objectively and with a fundamental analysis. It’s important to never feel “pressured” into an immediate choice.
Taking the emotion out of investing is certainly easier said than done as money can elicit strong feelings. When that is amplified by the emotion of “jumping on the bandwagon” it can be difficult to resist the instinct to follow the crowd or be a part of a larger movement. I think this is especially the case for us as Americans as it is part of our culture to love sports, cheer on a team, and experience the thrill of victory. However, like Tiger Woods and other elite athletes, consistency with the fundamentals matter. When it comes to investing, let’s try to be the athlete in the arena, competing in the game, relying on our training, honing our skill and discipline, so that we make sound financial decisions and use objective analysis to try to avoid the traps and pitfalls of just jumping on the bandwagon.
Disclosures:
This material is provided for informational and educational purposes only and should not be construed as investment, tax, or legal advice, or as a recommendation to buy or sell any security or adopt any specific investment strategy. The views expressed are those of the author as of the date of publication and are subject to change without notice. The information contained herein is believed to be reliable but is not guaranteed as to accuracy or completeness. All investing involves risk, including the potential loss of principal. Market conditions, economic developments, and investor sentiment can cause investment values to fluctuate significantly over time. Strategies intended to reduce behavioral biases or promote disciplined investing cannot eliminate investment risk or guarantee successful outcomes. References to historical market events, including examples such as the dot-com bubble of the late 1990s, are provided for illustrative and educational purposes only. Past market events and historical performance do not guarantee future results. Discussions of behavioral concepts such as herd mentality, bandwagon effects, or investor psychology are intended to highlight common behavioral tendencies that may influence financial decision-making. These observations are general in nature and may not apply to all investors or market environments. References to athletes, sporting events, or sports analogies are used solely for illustrative purposes to help explain behavioral and investment concepts. Such references should not be interpreted as endorsements, investment recommendations, or indications that similar outcomes can be achieved in financial markets. Statistics and data referenced from third-party sources (such as Nielsen, Statista, Fortune, MLB, Yahoo Sports, or Investopedia) are believed to be reliable but have not been independently verified. Howe & Rusling makes no representations regarding the accuracy or completeness of third-party information. Links to third-party websites are provided for informational purposes only and do not constitute an endorsement or approval of the content. The concepts discussed in this article regarding research, critical thinking, and deliberate decision-making are general observations about investment behavior. Individual investment decisions should be made based on a person’s unique financial circumstances, goals, time horizon, and risk tolerance, preferably in consultation with qualified financial professionals. Advisory services are offered through Howe & Rusling, Inc., a registered investment adviser. Registration with the U.S. Securities and Exchange Commission does not imply a certain level of skill or training.
