230 THE INTUITIVE INVESTOR
This paradox is a little like saying that a certain person is not
tall, nor of average height, nor short. This is clearly unsettling; it
even unnerved Einstein. Nevertheless, modem physics accepts the
Uncertainty Principle and is open to the possibility that the uni-
verse is not deterministic.
The same problem can be seen in investments when trying
to attribute performance to various factor bets in a portfolio: If
we ask whether the excess return was due to a small-cap exposure,
we can say “yes”; if we ask whether it was due to a low P/E ex-
posure, we can say “yes”; if we ask whether it was due to a low
beta, we can say “yes”; if we ask whether it was due to a high
yield, we can say “yes”; and so on. The more one focuses on a
single factor, the harder it is to disentangle the effects of the others.
When new factors are found that account for excess returns, they
further complicate the picture, much like when physicists find new
elementary particles.
Some of you may be thinking, “Oh brother, this is snooze-ville,
all this technical talk about physics.” Well, did you ever consider
what it’s like for me at holidays? No, I thought not. I get this stuff
nonstop: particle this, electron that. Or I get my uncle talking my
other ear off about tax regulations. So, do I have any sympathy for
you? Heck no!
Pardon me—I digress. Hang in there, dear reader. This line of
thinking actually leads to some very interesting possibilities for using
intuition as an investment tool. Meantime, as I got hit with physics
from one side and finances from the other, I began to wonder what
a physicist might make of the stock market.26-29 ware 230 1/19/01, 1:19 PM