Should investors be following the George Costanza strategy?
Posted
January 31, 2023
It’s episode 110 and the economic data continue to come in strong. GDP growth for the 4th quarter was better than expected. We’re seeing earnings growth relatively strong for the 4th quarter and guidance is not falling off a cliff. The data is coming in much better than what’s been anticipated on Wall Street and the market is following suit. We’re in a bull market. Prices are going higher. But is this a fakeout? Do you need to get to the sidelines right now? Is the economy ready to fall off a cliff? Or is this the real deal?
Contrarian Costanza
In one episode of Seinfeld, George figured that every decision in his life he made was wrong. He decided I’m going to do the opposite. I’m going to become the contrarian Costanza. So the George Costanza strategy is to do the opposite of what you think you should do. Or what the experts are telling you to do. In terms of the market, it worked out pretty well following that strategy over the last couple of months.
Conventional wisdom turns out to be excessive pessimism
Conventional wisdom over the last year was the Federal Reserve is going to have to get so aggressive, they are going to have to kneecap the economy and bring it down. It turns out that was more like excessive pessimism.
The Payne view is always a bit contrarian. Last year is a perfect example. We had every strategist, and every economist extremely negative on the economy, extremely negative on the market. But if you’re diversified, last year you were down around 10%. It’s not that big a deal. And meanwhile, now markets are off to the races. And if you were sitting in cash, you try to time it. You’ve put yourself in a bad position now.
”If you were diversified last year you were down around 10%. It’s not that big a deal. And meanwhile, now markets are off to the races.
Ryan Payne
Germany is another example. Germany was the poster child of the worst place to be last year. They had an energy crisis because Russia invaded Ukraine. Yet Germany is up 40% since September. How can that possibly be? You have to be able to have the fortitude to invest when things are down and when the optimism is not there.
Most of us project the future based on our most recent experience. And as you know, the year went by, the news got