The George Costanza school of trading.

Ever watch “Seinfeld“?

Cracks me up whenever I watch it.

The other night was the episode where George Costanza did everything in opposites.

He saw an attractive woman in the diner, walked up to her and, instead of lying and conning her into a date, said he was a short, bald, unemployed man who still lives with his parents.

She immediately went out with him.

Then, he gets a job interview with the New York Yankees.

Instead of sucking up to the owner he tells him how much the team sucks and why every decision is stupid.

He gets the job.

So what’s the point?

Every time George did the opposite to what he would normally do, what logic and common sense dictates him do, he ‘won’.

It’s the same for trading and investing and the stock market.

Why?

First consider that most retail investors perform badly (recent research from Blackrock shows the average investor has returned 2.1% over the last 20-years compared to the market return of 7.8%).

It could easily be assumed that most people are making the same, albeit broad, investment decisions.

Therefore, if most people are making the same decisions most of the time, it’s not a large leap to assume they’re also making what is obviously a ‘logical’ or ‘common sense’ decision – probably the first one that pops into their mind.

Which immediately suggests that a logical, common sense decision or reaction that initially comes to mind must be the wrong one.

It certainly can’t be the right one – the data would suggest otherwise.

How about the stock market itself, specifically the US?

Many will have you believe the country is an economic wasteland. It’s bankrupt, the fiscal cliff, rising debt, rising unemployment, out of control trade deficits, asset sales and who knows what else? It’s an economic disaster and for the last 10-years the doomsayers have told you to stock up on baked beans and gold.

Yet the US stock market has recently hit all-time highs. Not just the Dow Jones, but the S&P 500 and all the way down through the ranks to the Russell 2000. It’s a dead-set broad based bull market.

In 1936, during the darkest day of the depression when US unemployment was running at 18%, the Dow Jones actually rose 24%.

Where is the logic?

And how is that gold trade everyone is ranting about? Buy gold, buy gold, buy gold. That’s all we hear.

What’s been one of the worst investments over the last 12-months?

Gold.

And then there is Australia, Wayne Swan’s so-called ‘wonder economy’. The economy that every other country in the Western world should emulate.

Our stock market is miles from all-time highs. If you’ve invested in anything outside of the top 20 stocks you’d know you’ve been spinning the wheels for a number of years. It’s gone nowhere.

Where is the logic?

Which is exactly my point.

Logic has absolutely nothing to do with it. Same as making so-called ‘logical’ investment decisions.

Often the first reaction you have to a situation, especially under duress, is the incorrect decision.

So next time you’re faced with a difficult investment decision, ask yourself, “What would George Costanza do?”

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