Practice Management

Take cue from Costanza: Do the opposite of your gut

Nov 18, 2012 @ 12:01 am

By Jason Kephart

Financial advisers could learn a thing or two from George Costanza of “Seinfeld” when it comes to investing.

Faced with unemployment and living with his parents, Mr. Costanza, one of the neurotic characters on the 1990s hit television show, chose to start embracing his counterintuition — doing the exact opposite of what his instinct would usually guide him to do.

It landed him a job with the New York Yankees.

Advisers might not want to go as far as doing the polar opposite of what their gut tells them when they make investment decisions, but using counterintuition could in fact lead to improved results, Michael Mauboussin, chief investment strategist at Legg Mason Capital Management, said last Wednesday at the Schwab conference.

People take one of two main views when they make a decision, he said.

The most common is the “inside view,” which is when people typically gather lots of information, combine it with their own input and then project into the future, Mr. Mauboussin said.

"OUTSIDE VIEW'

The problem with using the inside view is that it gives too much weight to an individual experience, rather than considering all available factors, he said.

“We love to think of ourselves as independent and fact-based, but much of our decision making is based on the situation we find ourselves in,” Mr. Mauboussin said.

That is why advisers should begin to look at things using the “outside view,” which addresses an issue from the perspective of what has happened in similar circumstances in the past. That allows advisers to ask: “When other people have been in this situation, what happened?”

jkephart@investmentnews.com Twitter: @jasonkephart

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