Having a conversation with your colleagues...
"I am sure that a recession is coming, how can the market maintain this growth?"
"I totally agree, I just moved my portfolio to 70% bonds."
"That is a good idea."
Then you go home and trade your 401(k) from 70/30 equity to fixed income to 30/70.
What went wrong?
This is called herding behavior and it is an emotional bias that people exhibit in many areas of their lives, often unknowingly. The concept is that people find it more comfortable to share beliefs or sentiment with others rather than to stand alone.
So, in the fictitious example above, you could have felt fear that you are going to be left out of this shared conversation. You could have felt that your colleagues are exhibiting such confidence that they must know more than you. Maybe you don't actually agree with them, but, for some reason, you couldn't help yourself and changed your allocation to just a little more bonds.
This isn't uncommon. It permeates all levels of investors, including professionals. When your compensation is tied to performance, these professional investors may hedge their bets. They can't fire all of us if we are wrong, but they certainly can fire just me if I stick my neck out and miss. The point is, even the people paid to make these decisions are not immune.
The truth is that this type of behavior is a detriment to investment success. It makes you an active, short-term investor. Characteristics that have been shown to underperform a true passive, long-term investing strategy.
My advice is to reflect on the emotions that are present. Be considerate of fear, desire of inclusion, or aversion to exclusion. Emotions may have helped us thrive as humans, but those same emotions can lead to poor investment performance. Don't fall victim to these intuitions. You are more likely to find success in your financial life if you develop a financial plan and stick to objective measures of success - Am I planning for the one financial life I want to live?