How to Avoid Losing Everything—The Truth About Herd Behavior
History shows the crowd is almost always wrong—here’s how smart investors stay ahead.
Hey there,
Travel down memory lane with me…
It’s early 2021, and your cousin won’t shut up about doubling his money on GameStop. Your coworker keeps shouting, “AMC is headed to the moon 🚀.” Even your neighbor—the stay-at-home wife with 3 kids—is bragging about buying Bed Bath & Beyond because “the kids on Reddit say it’s the next big thing.”
In just weeks, the stocks climb 500%, 1,000%, and even 3,000%. All your friends are roaring about profits. Social media shows you hundreds of related videos a day. And even though you see all the signs of a classic pump-and-dump scheme, for those few weeks, you start to feel insane for not investing in them, too. That was me!
Then, reality hit everyone like a freight train… except me.
Within weeks, GameStop crashed back below $20.
AMC collapsed from its $370 highs to less than $2.00.
Bed Bath & Beyond didn’t just fall—it filed for bankruptcy and disappeared completely.
What did that mean for investors who thought they were gaining everything and were about to retire early? Many of them lost everything, including their retirement funds.
The Dangerous Psychology Behind Herd Behavior
Humans are hardwired to feel safe in groups. If everyone around us is doing something, we automatically assume it must be the right move—hundreds of studies have confirmed this phenomenon.
It’s the psychology of herd behavior, and it’s been separating beginner investors from their money for centuries. It tricks beginners into thinking that popularity = profitability. But as your friend, I’m telling you that history tells the exact opposite story: crowds almost always buy at the top, then panic-sell at the bottom.
It Keeps Happening Throughout History
The 2021 meme era wasn’t unique. The same herd mentality shows up time and time again throughout market history:
The dot-com bubble of 1999-2000: Investors threw money at any company with “.com” in its name, even if they had zero revenue and no business plan.
The housing bubble of 2005-2008: Companies kept pouring billions into terrible derivatives—loaning money to high-risk borrowers with poor credit and low incomes, while receiving little to no down payment. As the popularity of those securities grew, more companies joined the bandwagon. Everyone thought real estate could never fall across the nation—until it did.
Your Defense Against the Herd
The Growth Triangle framework that I shared with you last week will save you from financial disasters like Gamestop (GME), AMC, and Bed Bath & Beyond (BBBYQ)—and it’s extremely simple to use.
Without rehashing last week’s information, just ask yourself three questions:
Is this company leading the growth in a market?
Do they have advantages that competitors can’t easily copy?
Do they have multiple ways to grow?
In the case of GME, AMC, and BBBYQ, we can stop at the first question because the answer is a resounding “No!”
GME’s market was declining—they sold physical copies of video games as the market was rapidly shifting to streaming downloads.
AMC’s market was in the same boat—companies like Netflix, Hulu, and Disney+ made it unnecessary for most moviegoers to leave the house.
BBBYQ struggled long before 2021. When companies like Amazon made online shopping more attractive, BBBYQ did not adapt quickly enough and started struggling in the late 2000s and 2010s.
🔑 Here’s the key: If you can’t confidently answer “yes” to all three questions, that company is probably going to run out of steam in the near future. Do Not Invest!
I’m sharing this with you this week because I see something similar happening in AI. Sure, AI is revolutionary, and many people will make millions from their investments. But that isn’t the case for every AI company you hear about. The best investors don’t follow the herd. They study the herd, understand the herd, and stay far away from the predictable mistakes it usually makes.
Keep thinking for yourself,
✍️ Isaiah from Earn Out Loud
P.S. I highly encourage you to listen to the full audio podcast of my The Growth Triangle episode. You’ll learn exactly how I help PRO subscribers avoid companies like GME and spot early opportunities to invest in companies like Amazon (+23% since our April article) and NUKZ (+20% since our June article). I’ll see you there!