Fear and Herding in Wyoming

On the last big earnings day of August, one company got red-alert-style coverage: “all Nvidia, all day.” On that very same day, Salesforce also beat earnings, and its stock rose over 20%, far outstripping the gain from Nvidia. That story was barely covered. The gap between what gets attention and what actually performs is where the opportunity lives.

This month, I am reporting from Eatons’ Ranch in Wolf, Wyoming. Once a year, Frontier hosts Dude Diligence, a multi-day advisor event held at the oldest working dude ranch in America. Not to be outdone, the Federal Reserve also hosted the Jackson Hole Economic Policy Symposium just a couple of hours down the road. While advisors were being enlightened about how to seek to manage risk and provide alpha, the Fed attempted to explain their plan for interest rates.

What Does News Herding Look Like?

In the last week of August, news about the Fed also competed with reporting on Nvidia’s earnings. In the days leading up to Nvidia’s earnings, we were bombarded with stories, commentary, and media coverage about Nvidia. On earnings day, red-alert-style coverage: “all Nvidia, all day.” With all this blanketed attention, investors might think that it is vital that they own Nvidia stock, or that no other stocks are worthy investments.

This example of news herding and information bombing is fuel for momentum investors. For today’s momentum investor, it’s all about the story: AI, semiconductors, data centers in space, whatever is dominating the clicks and eyeballs. Now, with AI, it’s become a circular information loop of confirmation bias and FOMO.

How Does a Story Get Set in Stone?

Consider the SpaceX IPO. For months leading up to the IPO, stories were being linked, commented on, and covered by traditional news sources. What starts as a trickle of information soon becomes a tornado. The most exciting stories rise to the top and get repeated the most, and a narrow popular opinion becomes digitally solidified. AI engines then scour the internet and seemingly set the themes of those stories in stone. Investors could easily find narrative confirmation, and they simply can’t miss out on this opportunity of a lifetime…

What is the source of this circular of information? Information that was mostly published to generate clicks and eyeballs for profit. Not a lot of room for deep analysis, logical interpretation, or a differentiated opinion.

Nvidia vs. Salesforce: Same Day, Very Different Coverage

In the internet age of clicks and eyeballs, the only thing worse than being the center of attention is not receiving any attention at all. It is as if the thousands of other stocks available to invest in don’t even exist. Case in point: on the very same day as Nvidia’s earnings, Salesforce also beat earnings. The difference, though, is that Salesforce stock rose over 20%, far outstripping the gain from Nvidia, but the story was barely covered. It was merely a blip on the blotter.

The interesting contrast is that while these two stocks are both technology stocks, they are perceived to have completely different “stories.” Nvidia is perceived to represent the bleeding edge of the AI transformation: “the future is so bright I have to wear shades.” Salesforce, on the other hand, is perceived to be a business that AI will make obsolete. But that is the story, not the investing outlook.

Fundamentals vs. momentum: software outperforming semiconductors, quarter to date through August 31, 2026. Source: YCharts. Data as of August 31, 2026.

Why Does Herding Create Opportunity for Active Managers?

Information herding leads to investor herding: the same opinions about the same stocks at the same time. However, investors also need to consider a business’s fundamentals and the stock’s valuation and gauge how their opinion differs from the consensus. Any seasoned investor will tell you that it’s that last point that creates the opportunity.

With investment herding being such a strong force in the market today, active managers have a distinct advantage: the ability to clearly see pricing opportunities relative to flawed investor consensus. The more information herding, the greater the investor herding and the stronger the trends, but also the greater the opportunities for differentiated opinions.

Mispricing also occurs on an asset-class level, leaving opportunities for dynamic asset allocators. Following the extreme information herding associated with the Magnificent Seven stocks, the underfollowed and left-for-dead small-cap and emerging markets asset classes have since trounced the performance of the investment herd.

Popular Magnificent Seven vs. forgotten small cap stocks and emerging markets, year to date through August 31, 2026. Source: YCharts. Data as of August 31, 2026.

Is This Time Really Different?

While it is easy to think that what is happening today is unique and that this time is different, this is a story that is as old as time. Charles Mackay first published on the perils of herding in his aptly named book, Extraordinary Popular Delusions and the Madness of Crowds, in 1851.

My career has also been a history book of investment herding episodes: internet stocks, emerging markets, commodities, real estate partnerships, YOLO stocks, and, most recently, the Magnificent Seven. The common outcome through all these herding episodes has been that wise active managers with differentiated opinions have been able to thrive when the trend of the day exhausts itself.

But I digress.

What Does This Mean for Portfolio Construction?

At Frontier, we believe these periods reinforce the importance of looking beyond the prevailing market narrative. Our Strategies combine multiple third-party investment managers with differentiated approaches, giving us access to perspectives and sources of return that may look very different from the consensus.

We also don’t believe today’s winners should automatically dictate tomorrow’s allocations. Our dynamic approach to asset allocation allows us to adjust portfolios as risks, valuations, and opportunities change rather than simply following where the market has already gone.

When more investors are looking in the same direction, we believe there can be greater value in having managers willing to look somewhere else.

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