Costanza Analysis

  • October 22, 2018
  • by
  • Adam
Costanza Analysis

The Opposite, Seinfeld

There’s a trite quote you’ve probably all heard. Misattributed to everyone from Mark Twain to Benjamin Franklin and Albert Einstein, I — for one — have heard this one far too many times, and yet I repeat it here:

“The definition of insanity is doing the same thing over and over and expecting different results.”

As an aside, this is most definitely not the definition of insanity. That much is clear. What is less clear to me is that if doing the same thing over and over again expecting different results is necessarily wrong. There is significant value in tenacity and grit — trying something again and again and not giving up, even in the face of difficulty, fear, and failure.

It is entirely possible that a person is doing the same thing over and over, yet achieving inconsistent results or failing for reasons unknown. It’s important to understand that a person in such a position is taking serious risks in doing the same thing over and over, but if he or she is (1) cognizant of the risks of not changing, (2) open to the possibility they might actually be wrong, and (3) actively seeking to understand the many known and unknown variables that may be affecting outcomes, then maintaining the course is not necessarily insane.

Having made that aside, considering — and more so experimenting with — new ways of doing things is almost always a positive and worthwhile approach in my mind.

An example comes in the form of George Costanza, noteworthy fictional failure and fake architect. In an episode of Seinfeld, he acknowledges the sorry state of his life and decides to do the opposite of everything he would ordinarily do.

This example was brought to my attention by Cliff Asness, billionaire hedge fund manager and founder of AQR Capital Management. Asness is a proponent of active, quantitative investing methods — as opposed to simpler index funds. I’m not sophisticated enough to have significant opinions on his investing strategies, but I am a big fan of his unique insights and delivery.

If his recent writings are any indication, AQR Capital has had a rough go recently — perhaps not just this calendar year when the stock market’s performance has been less than stellar, but one extending back into the previous nine years, years which saw the Dow Jones Industrial Average grow threefold.

To Asness’s credit, his most recent article looks at his own performance with both honesty and criticism. He ran a thought experiment of sorts, looking to see how his portfolios would have performed had he been like George Costanza and done the opposite with his investments. Call it a Costanza Analysis.

I absolutely recommend the article. I also recommend the general approach. There’s a lot we can learn by deliberately examining both lessons learned and counterfactuals. This is true even — or, perhaps, especially — when done through the lens of George Costanza.

Adam Trone

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