Although, he (probably) didn’t realize it.
Screenshot via YouTube
Netflix is out with a new Jerry Seinfeld stand-up special. I loved it. Is there anyone else is the world who can pull off “clean” comedy like Jerry? I don’t think so.
Little did he know, Seinfeld made a wonderful investing analogy for the “active vs. passive” debate where investors battle over whether it’s best to own index funds or to try to pick winning individual stocks. When talking about his own anxiety at the prospect of making small talk with random members of the audience, or the public at large, he states:
“I can talk to all of you, but I can’t talk to any of you.”
Do you see the parallel? Applied to the decision of active or passive, Seinfeld’s analogy works like this: “I can invest in all of the stocks, but I can’t invest in any of them.” It’s such a clean statement that, frankly, I’m steamed to have not thought of myself.
It’s incredibly hard to pick winning individual stocks, just as it’s hard to begin a conversation with a single stranger. So much can go wrong. What’s easy, though, for Jerry and for most investors, is addressing the individuals as a group (whether they’re people or stocks). When you have a the microphone and an audience, just as an investor has a single basket of thousands of stocks, it’s much easier to control the narrative and keep your emotions in check.
Trying to get a single person to laugh on the street is a volatile situation. How many times in a row could you bomb before realizing comedy wasn’t the right profession, and quitting altogether? Maybe you actually had what it takes for a promising career, but hit some bad luck on the street. Put in front of an audience, however, just one person of the group not laughing won’t sink a career. And, you guessed it, when you own an index fund, one company going bankrupt won’t ruin your portfolio. How many times could you make a bad stock pick before exiting the market while potentially missing out on a lifetime of gains? The downside is staggering.
Be like Jerry: Succeed by talking to (and investing in) all of them. Who knows, you may end up amassing more Porsches than him someday.