AQR's Cliff Asnes argues that markets are becoming less efficient due to social media. It destroys the independence required for the 'wisdom of crowds' to function, creating feedback loops that amplify biases and lead to bouts of irrationality, similar to how it has made politics more extreme.

Phenomena like bank runs or speculative bubbles are often rational responses to perceived common knowledge. People act not on an asset's fundamental value, but on their prediction of how others will act, who are in turn predicting others' actions. This creates self-fulfilling prophecies.

Unlike physical sciences where observation doesn't change the subject, the stock market's behavior is influenced by participants watching it. A market can rise simply because it has been rising, creating momentum loops. This "self-awareness" means price and value are not independent variables, a key distinction from more rigid scientific models.

The maxim "buy low, sell high" is psychologically hard because it forces you to act against the crowd's emotional consensus. It's like flying by instruments when everyone else is calm and looking out the window. This act of trusting abstract data over social proof feels deeply unnatural for humans.

Connected via social media, retail investors now act as a powerful, coordinated market force. They identify and pile into themes, moving beyond meme stocks to influence broader trends. This behavior, unconstrained by institutional benchmarks, makes markets 'streakier' and forces institutional funds to follow their lead.

Keynes compared professional investing to a newspaper beauty contest where the goal isn't to pick the prettiest face, but the one the average competitor will choose. This highlights how short-term markets are driven by guessing others' opinions, not by fundamental analysis—a game very few can win consistently.

An asset's price is ultimately determined by what someone is willing to pay, making the market a game of predicting collective human emotion, much like trading baseball cards. Even fundamentally sound assets can crash if sentiment turns negative, meaning investors are gambling on the emotional state of others.

The expectation that universal, instant access to information would lead to more efficient markets has been proven wrong. Instead, it has amplified sentiment-driven volatility. Stock prices have become less tethered to fundamentals as information is interpreted through the lens of crowd psychology, not rational analysis.

In the market swarm, underperformance relative to a benchmark leads to client calls and redemptions. This pressure acts like 'bites from behind' in a locust swarm, forcing managers who are underweight a hot sector to capitulate and join the herd to avoid losing assets.