Definition of Lemming
What is a "lemming" as it applies to investors and the stock market? What does the term lemming mean?
To understand the term "lemming" as it applies to the stock market, we need to identify a common misconception of the "lemming" as it applies to nature.
Lemmings are small rodents that live near and around the Arctic. There is a common misconception that lemmings, during mass migrations, will hurl themselves over cliffs and commit mass suicide. You probably have a vision in your head right now of thousands upon thousands of small lemmings hurling themselves over the side of a cliff, only to perish in the oceans below.
This is not entirely true, but that doesn't stop us from applying the idea to the stock market.
A "lemming" in the stock market is somebody who follows the crowd and jumps into a stock not because they did the research themselves and found it to be a great buy, but because everybody else was buying.
Let's give you an example to illustrate the concept of a "lemming":
You are sitting in a day-trading chat room. Everybody in the chat room starts buying a stock that is up 100% on the day - a company that has reportedly made a major gold discovery.
You don't have time to research the company, so you just decide to throw your hat into the ring as well and buy some shares, hoping to benefit from an increased run in the stock.
This would make you a "lemming", as you are basically blindly following the crowd and leading yourself into potential danger.
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