Seinfeld is hands down one of my favorite television shows of all time. The incredible scripts exploring the nuances of everyday life coupled with the exceptional cast made the show such a joy to watch. But how in the world can Seinfeld have anything to do with investing? And George Costanza? Really?? Let me explain.
In one memorable episode entitled “The Opposite”, George Costanza is having coffee with Jerry and Elaine at Monk’s coffee shop and is lamenting his lot in life. The discourse goes as follows.
George: Why did it all turn out like this for me?...It became very clear to me sitting out there today, that every decision I’ve ever made, in my entire life, has been wrong. My life is the complete opposite of everything I want it to be….
Waitress: Tuna on toast, coleslaw, cup of coffee?
George: Yeah. No, no, no, wait a minute. I always have tuna on toast. Nothing’s ever worked out for me with tuna on toast. I want the complete opposite of tuna on toast. Chicken salad, on rye, untoasted with a side of potato salad and a cup of tea.
Elaine: Ah, George, you know, that woman just looked at you.
George: So what? What am I supposed to do?
Elaine: Go talk to her.
George: Elaine, bald men with no jobs and no money, who live with their parents, don’t approach strange women.
Jerry: Well here’s your chance to try the opposite. Instead of tuna salad and being intimated by women, chicken salad and going right up to them.
George: Yeah, I should do the opposite. I should.
Jerry: If every instinct you have is wrong, then the opposite would have to be right.
George: Yes, I will do the opposite. I used to sit here and do nothing, and regret it for the rest of the day, so now I will do the opposite, and I will do something.
George walks over to blonde lady seated at the counter.
George: Excuse me, I couldn’t help but notice that you were looking in my direction.
Blonde at counter: Oh, yes I was, you just ordered the exact same lunch as me.
George: My name is George. I’m unemployed and I live with my parents.
Blonde: Smiles and says, I’m Victoria. Hi.
Doing the opposite becomes George’s new way of life. Investors could also benefit from a dose of doing the opposite when it comes to dealing with the emotional side of investing. I would make the argument that THE hardest part of being a successful investor is managing your emotions. I have experienced this personally as a professional investor and have seen it manifested many times in the market over these past 15 years. The most recent example that comes to mind dates back to early 2016 and extends to today. As you may recall, the stock market began 2016 with a significant downdraft. In fact, it was the worst start to a year in history. At the lows in February, the broad indices were down 15%. At that time there were numerous bearish articles being written in the media and reports being issued by some large Wall Street firms advising clients to “sell everything.” This after stocks had declined 15% in six weeks. So, investors became more bearish and less inclined to commit new money to stocks when they had been marked down 15%? Why? Plain and simple, fear.
Turning to early 2017, one could observe the daily cheerleading on CNBC as the Dow Jones Industrial Average was flirting with breaking the 20,000 level for the first time. For weeks on end CNBC had a banner on the screen for Dow 20,000 watch. Now many of the talking heads are unabashedly bullish predicting further gains ahead. This in spite of stocks rallying 10% since the November election and many valuation metrics at the second highest level on record. So it seems the more expensive stocks become the more eager investors are to buy them. Why? Psychologically speaking, it feels good to buy stocks when markets are rising and everyone seems to be making money. In other avenues of life, be it buying a car, clothes, or a home, consumers actively seek out a good bargain, choosing to purchase when things go on sale. It is a cruel irony of investing that most seek to run from stocks when they are getting cheaper and are on sale (i.e. a bear market) and are anxious to buy them as prices race higher.
One of the keys to being a successful investor is to practice your inner George Costanza and do the opposite! Become more cautious as stocks trend higher and valuations become more expensive, and become more greedy and willing to buy stocks during a decline when they are on sale. As Warren Buffett famously said, “Be fearful when others are greedy, be greedy when others are fearful.” Easy to say, very hard to do in practice. Practice your inner George Costanza.