Heisenberg principle at work in small caps and value?


It may be too late to pick up the "free desert" of higher returns from small caps and value stocks, suggests Larry Swedroe, as their historical outperformance is now common knowledge. In the past few years, markets have quickly bid up the share prices of these names alongside numerous publications and studies proving their superiority as investments. "One of the characteristics of an efficient market is that once an anomaly is discovered, the very act of exploiting it will cause it to rapidly shrink and eventually disappear."

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Comments (13)
  • heywally
    , contributor
    Comments (275) | Send Message
     
    So, no more buying the dip then? Trade for the anomaly? GL.
    21 Apr 2014, 11:39 AM Reply Like
  • tom field
    , contributor
    Comments (72) | Send Message
     
    Strange metaphor. As I recall the Heisenberg Principle, one can detect the energy level of a small particle or its location but not both at the same time. Next up, Schroedinger's cat; is it alive or is it dead?
    21 Apr 2014, 11:55 AM Reply Like
  • Pairs Perfect
    , contributor
    Comments (154) | Send Message
     
    Schroedinger's cat; is it alive or is it dead?

     

    Yes it is.
    21 Apr 2014, 04:05 PM Reply Like
  • Roderick Llewellyn
    , contributor
    Comments (98) | Send Message
     
    That's not EXACTLY what Heisenberg said. Indeed, you cannot detect either energy, location, momentum etc exactly. More precisely, it says (in one form) that the product of the uncertainty in the momentum and the uncertainty in the position must be greater than Planck's constant (divided by 2*pi). So you can crank up the measurement accuracy of one but that will invariably reduce the accuracy of measuring the other of the pair, but in any case you can never exactly measure either.

     

    Where this applies in the investment issue is the idea that the Uncertainty Principle is due to the act of measurement itself, and it's often initially justified that way. So as people report on an anomalously good investment or strategy, that very act affects the results.

     

    This is something of a misunderstanding of the physics, as it appears that Heisenberg is not merely the result of measurement but is built into the universe itself - which simply doesn't contain these pieces of information precisely, so the analogy to investment is probably not great, but you get the idea :)
    23 May 2014, 11:48 AM Reply Like
  • brent_vossler
    , contributor
    Comments (276) | Send Message
     
    Depends on who you ask - Leonard, Penny, or Sheldon. BBT
    21 Apr 2014, 12:08 PM Reply Like
  • Market Trends Investor
    , contributor
    Comments (1266) | Send Message
     
    Sooo when you find that obscure market anomaly.....keep it to yourself and don't blab about it - as doing so will hasten its demise.
    21 Apr 2014, 12:17 PM Reply Like
  • Vinced D.
    , contributor
    Comments (9) | Send Message
     
    As I remember, the Heisenberg principle also stated that as soon as you measure something you affect its performance. By the same token, as soon as you make an observation of a market phenomenon the advantage you had over other investors soon disappears.
    21 Apr 2014, 12:30 PM Reply Like
  • User 15736282
    , contributor
    Comment (1) | Send Message
     
    free desert? desert has one s but dessert has 2. just remember you always want a second helping of dessert, the second s is the second helping. i learnt that in grade 2.
    21 Apr 2014, 12:35 PM Reply Like
  • Jake2
    , contributor
    Comments (681) | Send Message
     
    As applied to criminal investigation: a clue may not necessarily be a clue. It may just be someone's idea of a good time.
    21 Apr 2014, 02:08 PM Reply Like
  • tmow
    , contributor
    Comments (488) | Send Message
     
    Sure, just like the seasonality of the stock market. Oh wait, that was "well known" in the 70's and it still as valid today as it was then. Human nature is human nature...very little changes.
    21 Apr 2014, 03:00 PM Reply Like
  • First1billion
    , contributor
    Comments (101) | Send Message
     
    Sounds like love and hate situation. I think more upside first before bigger drop.
    21 Apr 2014, 04:27 PM Reply Like
  • buyitcheap
    , contributor
    Comments (1902) | Send Message
     
    I thought it the Heisenberg principle was when all else fails, make meth in the desert? THEN go have dessert....
    22 Apr 2014, 02:19 PM Reply Like
  • Kyle Spencer
    , contributor
    Comments (1240) | Send Message
     
    An efficient market should, an efficient market would, but the market is routinely inefficient and value stocks are short term unattractive by definition, so no, value's historical outperformance is unlikely to disappear any time soon.
    29 Jan 2015, 03:46 PM Reply Like
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