Remember the episode of the TV sitcom Seinfeld when perpetual failure George Costanza realized his life would turn around if he would act counter to his own intuition? “If every instinct you have is wrong,” Jerry tells him, “then the opposite would have to be right.”
Investing is one area where it really pays to think counterintuitively, says top investment advisor Ben Carlson, CFA. Instead of panicking when stocks pull back, lean into the pain and load up because that is when stocks are on sale. During bull markets, on the other hand, be mindful and disciplined.
Instead, investors are finding reckless ways to compromise their long-term returns—by mimicking the moves of hedge-fund billionaires, chasing hot investments and tinkering with their portfolios.
Here are seven ways that Ben Carlson sees investors risk losses by channeling their inner Costanza—and the opposite moves you should consider to keep your portfolio safe and profitable…
What your instincts tell you to do: Tinker with your portfolio to keep up with the shifting economy and financial markets. Reasoning: It will lead to better outcomes if you grab the steering wheel and make adjustments based on changes in geopolitics, interest rates and stock sector leadership.
Counterintuitive move you should make: Do nothing. As long as you have a long-term plan and allocation in place, this is the best investment decision most of the time because taking action often sabotages your returns. Investing giant Peter Lynch liked to say, “Far more money has been lost by investors in preparing for corrections, or anticipating corrections, than has been lost in the corrections themselves.” Tinkering also leaves you with a “salad buffet” portfolio—a little bit of everything collected over the years. Reality check: If you really feel compelled to buy or sell something, do an inertia analysis first. Pull up a list of your brokerage account’s trading activities over the past year. Compare your actual investment returns with what the returns would have been had you made no changes to the initial portfolio.
What your instincts tell you to do: Choose complex strategies you don’t quite understand instead of simple ones. Reasoning: If you invest in simple, diversified index funds every month, there’s no way you can get an edge or expect better-than-average returns because anyone can do it. Wall Street has made it easier to outsmart the market with a wave of new investment exchange-traded funds (ETFs) that use derivatives, proprietary algorithms and other hedge-fund techniques.
Counterintuitive move you should make: Favor simple over complex for better long-term results. When it comes to making money in the stock market, no points are awarded for the degree of difficulty. In fact, getting “average returns” from a simple index fund is outperformance because so many other investors opt for risky strategies and wind up underperforming the broad market. Moreover, simple strategies are easier to stick with during rocky times because they often have long track records, a more defined range of returns you can expect and less volatility. Finally, simple strategies cost less—expenses are one of the few factors that you actually have control over as an investor. Important: Simple doesn’t necessarily mean easy or thoughtless. It just requires you to do more thinking and make hard choices upfront about how you want to invest and how much risk you are comfortable with.
What your instincts tell you to do: Mimic the investment moves of legendary hedge-fund managers. Reasoning: These billionaires have more experience and success than you’ll ever have. So if Pershing Square CEO Bill Ackerman announces that he’s shorting 30-year US Treasuries or Ray Dalio, CIO of Bridgewater Associates, reports in his fund’s quarterly SEC filings that he’s moving into Chinese stocks, it feels like a smart bet.
Counterintuitive move you should make: Ignore the trades that billionaires make. Why should their investment moves apply to you? They don’t share your circumstances, time horizon and risk profile. You have little context as to why they made a trade in terms of their own portfolio needs or strategy, and those moves could be months old by the time you hear about them. Even more important, if a bet these managers make goes south, it won’t affect their retirement date or when they can pay off their mortgage, whereas a big loss could compromise your future.
What your instincts tell you to do: Feel the FOMO (Fear Of Missing Out)! Reasoning: Obsess over how fast other investors are getting rich in meme stocks or artificial intelligence. If you fail to make a substantial speculative bet now, you’ll kick yourself for blowing a rare opportunity.
Counterintuitive move you should make: Get rich slowly. Warren Buffett was once asked why, if his investment ideas were so simple and he was so rich, didn’t everyone just do what he does? To which Buffett replied, “Because nobody wants to get rich slow.” What Buffett, who generated 99% of his wealth after age 65, meant was that your best odds of creating wealth is to settle on a solid long-term investment plan, trust in it year after year, and let compounding work its magic. Example: Even modest returns on your money can turn into very large numbers over time. If your stock portfolio earns 11% annualized, your wealth will double every 6.5 years, and a $50,000 portfolio can grow to $1.6 million in a little over 30 years.
What your instincts tell you to do: Protect your portfolio against the threat of runaway inflation and large drops in both stocks and bonds—like we’ve had in the 2020s.
Counterintuitive move you should make: Avoid fighting the prior war. We have no idea what big risk or crisis investors will face in the future, but it’s unlikely to be the same as the ones in the recent past. After the 2022 bear market, some investors were shocked that bonds failed to provide protection in their portfolios, so they sold their bond funds and loaded up on stocks and alternatives that hedged against inflation. You should position your portfolio to meet your personal long-term needs, not to be prepared for “black swans,” unforeseen events with extreme consequences.
What your instincts tell you to do: Time the bull market we’re in right now. Reasoning: You can chase hot stocks and sectors, then cash out near the top before prices collapse.
Counterintuitive move you should make: Cope ahead. No one wants to hear about being responsible during a rip-roaring bull market…just like no one wants to hear about the virtues of buy-and-hold during a soul-crushing bear market. Anticipate that you will fall victim to greed and fear during extreme markets, and set up automatic rules so you’ll know the right decisions to make. Example: My colleague Josh Brown, CEO of Ritholtz Wealth Management, says that earning 5% on a risk-free one-year US Treasury has led to enormous cash positions for many investors. But yields on cash are likely to fall in the coming years. Brown says his own cash bucket has a ceiling on it. Once a predefined level is breached, he moves anything over and above that into his investment accounts. It’s automatic so he’s not guessing all the time or remaining addicted to his growing cash position.
What your instincts tell you to do: Stay out of stocks as you get older. Reasoning: They are just too risky.
Counterintuitive move you should make: Accept that as a long-term investor, your money is going to be incinerated on occasion. That’s the price of admission. You need to manage risk, not avoid it. Here’s the weird thing about investing: Over long periods, financial markets appear pretty calm, a steady, gradual rising line on a stock chart. From 1984 through 2023, the S&P 500 Index returned an average of 11.3% annually. A $50,000 investment grew to $3.2 million over that period. But short-term, returns were terribly jagged. Stocks could plunge one month and soar the next. There were only three years in the past four decades when the S&P 500 Index actually had returns close to an 11.3% average. The biggest risk factor in achieving these long-term returns is you…your temperament to handle uncertainty and follow your investment strategy without wavering.
