23 May 2024 The Allure of the Crowd

I was recently able to vacation to Europe, where Megan and I had a great time in England and France. While in Paris, we went and checked out the Louvre as tourists are fond of doing. We meandered through the museum and eventually made our way to the Mona Lisa. It wasn’t hard to find, we just had to go towards the loud noise of the crowd.

It was fascinating to me – not the Mona Lisa itself, but the crowd that gathered around. It was in a small glass protected container on a giant wall. It was roped off from 20 feet away with security guards that ushered people through. Everyone was taking a picture of it. Why did they do this? They probably weren’t sure, but felt compelled because everyone else was doing it (I am guilty of this). No one seemed to look at it with amazement, but rather a hmm and a check off their list. I am not here to discuss the artistic impact of the painting itself, but the crowd that gathered around it. Did they follow the mass because they wanted to see the art itself or to be among the crowd that had seen it?

Bringing this back to a financial context, you may have seen in recent weeks that ‘meme stock mania’ returned with some of the same stocks rapidly increasing again. Was it because GameStop or AMC reported higher than expected earnings? Did they design a new AI that powered their stores? No, it was because of a meme on Twitter from Roaring Kitty. The Wall Street Journal reports:

“On Sunday night, an X account associated with Gill posted something for the first time in nearly three years: a picture of a man leaning forward in his seat.

Nevermind that the post mentioned no stock tickers. GameStop’s stock more than doubled at its intraday high Monday and closed up 74% in its fourth-largest one-day percentage gain on record. Shares kept climbing Tuesday, up 60%. In all, the company added roughly $9.6 billion in market value in two days.

Shares of AMC Entertainment gained 135% over that period. Plug Power surged 34%, BlackBerry rose 20%, and Koss increased 92% so far this week.”

The article goes on to detail one person and their thought process:

“Michael Timpone, a 34-year-old mechanic in New York, was clocked in for his night shift Sunday when he saw the Roaring Kitty tweet.

“I thought it was back into GME, like everyone else,” Timpone said. “I was like, let me get in.”

I would argue that the allure of the crowd and being a part of what some see as a movement far outweighed any financial benefit for a majority of the people involved in the meme stock craze. Timpone even mentions in the WSJ article that it will either go back to where it was in 2021 or be worthless. There is no inherent value in the stock to him outside of participating in the crowd (or the movement).

I think this makes sense when you consider it has been well reported in recent years that so many people lack community and shared values – especially in a post pandemic digital age. Human beings desire to have ties to one another, and if they are not grounded in what they believe will latch onto the groups around them. Even though the crowd eventually fizzles out (and in this case the stocks have already dropped significantly again), people are able to feel a connection for a little time.

As a financial planner, thinking through the allure of crowds, and what that means in a planning context, brings me back to goals. It is so important to spend time as a family deciding what you want to achieve with the money you have worked so hard for. When people are distant from what is really important to them, it is easy to get swept up by what the crowd is doing and just go on autopilot. This can play out in the things you buy or even the things you spend your time on.

Of course, there isn’t anything inherently wrong with the Mona Lisa, or even GameStop, but deciding what is most important to you will help you to avoid the allure to spend time or money on what the crowd deems worthy.

We at Beacon love talking about what is most important to you and your family. Never hesitate to reach out and start a conversation or ask a question about what is going on in your life. While deciding on goals and what is important to you is one step, making a plan for how to accomplish those things is equally challenging and that is why we are always here to help.

The content above is for informational and educational purposes only. The links and graphs are being provided as a convenience; they do not constitute an endorsement or an approval by Beacon Wealthcare, nor does Beacon guarantee the accuracy of the information.