Santiago loves his sheep and is devoted to them. However, Santiago recognizes early on that he does not want to resemble them in terms of how he lives his life. The sheep represent the herd mentality. They move as a group, and are indistinguishable in terms of the lives they lead. Their existence is banal, concerned only with the subsistence of living. They have no consciousness of the pursuit of their Personal Legend. They choose not to engage in such a quest. They do not follow an inner voice. Santiago understands that his being is fundamentally different than the sheep.
The sheep are an embodiment of people who live their lives in accordance to what is. This base existence form of consciousness is precisely the opposite of Santiago, who is living life in terms of what can or should be. The sheep represent the people on Santiago's journey who fail to embrace their Personal Legend. An example of this would be the Crystal Merchant, who dissuades Santiago from envisioning what can be from what is:
I don’t know anyone around here who would want to cross the desert just to see the Pyramids. They’re just a pile of stone. You could build one in your backyard.
The symbolism of the sheep in this statement is the lack of imagination, the lack of vision, and the lack of transformational understanding about reality. This is an example of the sheep. When Santiago says that he is "between my flock and my treasure" it is because he is poised between his pursuit of idealism and hope and the type of mentality that the crystal merchant expresses. For Santiago, the world of individuals who simply see what is and accept it represent the sheep, something that he recognizes as the antithesis for his own being in the world.