  The crowd panic and its contagion play non-negligible roles at the time of
the stock crash, especially for China where inexperienced investors dominate
the market. However, existing models rarely consider investors in networking
stocks and accordingly miss the exact knowledge of how panic contagion leads to
abrupt crash. In this paper, by networking stocks of sharing common mutual
funds, a new methodology of investigating the market crash is presented. It is
surprisingly revealed that the herding, which origins in the mimic of seeking
for high diversity across investment strategies to lower individual risk, will
produce too-connected-to-fail stocks and reluctantly boosts the systemic risk
of the entire market. Though too-connected stocks might be relatively stable
during the crisis, they are so influential that a small downward fluctuation
will cascade to trigger severe drops of massive successor stocks, implying that
their falls might be unexpectedly amplified by the collective panic and result
in the market crash. Our findings suggest that the whole picture of portfolio
strategy has to be carefully supervised to reshape the stock network.
