THE UNCERTAINTY PRINCIPLE
By Lais Costa
In 1927, German physicist Werner Heisenberg first formulated the uncertainty principle.
Without delving into the details of quantum physics and mathematical deductions, Heisenberg's uncertainty principle demonstrates that it is not possible to simultaneously and precisely know both the position and the momentum of a particle.
This is because the measurement of these variables (position and momentum) alters the particle's state. In other words, the very method of measurement interferes with the particle being measured and changes the final result. Furthermore, the greater the precision of the position, the greater the uncertainty of the momentum, and vice versa.
Ultimately, the disturbance of the system leaves intact only the existence of a degree of uncertainty.
Perhaps Heisenberg's formulation is not very familiar, but the concept of the impossibility of completely eliminating uncertainty should be.
Even so, we are tempted, on a daily basis, to seek definitive explanations and answers.
We fall into the trap of looking back and, through a posteriori analysis, constructing a narrative about mistakes and successes that now seem obvious. Kahneman, Tversky, and Fischhoff gave another elegant name to this: hindsight bias.
We are tempted to look back and ruminate on various aspects of our lives: if I had chosen a different degree, if I had married someone else, if I had not taken that trip…
At the moment of decision-making, we choose a path with no guarantee of where it will lead.
However, every time we interact with the chosen road, we become agents of change along that path and, consequently, of its outcome. In other words, what we imagined would have been the alternative path would not necessarily have led to the destination we now desire.
We will only know the ending if we walk through it.
For most Brazilian assets, 2021 was not easy. Investors may think: I should have reduced my equity positions at a certain point, or I should have increased my fixed-income exposure at another moment. However, they forget that, by interacting with the market, the scenario could have been different.
Analogously to Heisenberg's principle, the greater the certainty about an investment thesis, the worse the technical position. An overwhelming concentration of investors in a given position can lead to highly disruptive market events at any sign of a breakdown in conviction.
In other words, the greater the certainty of an investment's return, the lower its probability of materializing may be.
At the end of the first week of 2022, making projections for the end of the year, in the face of so many uncertainties, can be dangerous. However, the desire to predict the future may be less harmful than the attempt to look at the past through the lens of hindsight bias — contrary to the laws of physics, mathematics, and behavioral economics.
Very well, then — let us look forward. Concerns regarding pandemic dynamics, the emergence of new bottlenecks in global supply chains, monetary tightening in developed economies, presidential elections, and other factors we cannot precisely identify at this moment all reinforce the importance of a diversified allocation.
The FoF Melhores Fundos Blend portfolio represents the synthesis of our convictions regarding diversification across asset classes, both in Brazil and abroad, within the current regulatory framework for the general investor.
We, the team behind the Os Melhores Fundos de Investimento series, are certain of one thing: 2022 will be an absolutely uncertain year. Despite everything, do not stop engaging with it.