Should investors be following the George Costanza strategy?

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 more down, and the market got more volatile.

Anticipation is mitigation. Corporate CEOs last year were worried about a slowdown, just like everyone else. So what do they do? They got proactive very, very quickly. They start to rewrite their business in anticipation of things slowing down. So all this proactive activity is happening to make sure that their balance sheets stay in check. And that’s why you always see the surprises in the positive because that anticipation is already happening as we’re worrying about things, people are actually taking action.

As the talking heads are telling us that the economy is slowing they’re starting to reduce their earnings estimates. So when the estimates are met with the actual earnings, the market’s not surprised by that.

Bear market illusion. To some, it seems these bear markets last longer in their mind than they actually do. They do things like lock themselves into a 4% CD. Well, the market’s up 6% now, and you have to wait a whole 12 months to get that 4%. And you’ve missed that move in the market. So it’s amazing how quickly times can change and markets can change.

Emerging markets are up 10% as we’re recording this. You don’t get that return back. You’re not going to make any money unless you’re invested in the market.

”Your boat's not going to go anywhere unless your sails are up.

  Chris Payne

$5 trillion sitting in money market funds earning 4%.  But what happens when you don’t get 4%? And that 4% is over 12 month period. You’ve already missed the one-month period where you’d have a 50% better return.

Think of the FOMO as the market rallies. With 5 t