It Stumped Einstein—but the Science Shouldn’t Stump You


Nearly everyone knows that Albert Einstein created his General Theory of Relativity seeking to create a unified relationship between mass, energy, light and gravity. Prior to his theory, the notion that time and light could be bent or shaped by gravity had never even been proposed. Later, empirical evidence proved the validity of seeing the universe in Einstein’s perspective. It was the pinnacle of his career.

Einstein spent much of the remainder of his life seeking an all-encompassing theory of the physical world—and he died never having achieved that goal. The once-revolutionary thinker became entrenched in the belief that there is a definable causality governing everything that could be codified and predicted. He believed it so much that he became resistant to any idea that meant giving up this dogmatic belief. The impetuous young innovator who challenged centuries-old precepts was now out of step with the universe of modern physics that he had created.

Einstein famously remarked that “the Creator does not play dice.” The truth we know now is that quantum mechanics and the laws of probability are just as evident in the universe as Einstein’s laws regarding light and gravity. Simply said, some things just happen due to the random nature of the universe. In fact, it has been postulated that the mere act of observation has an effect on the observed body that is completely independent of any physical mechanism. How is that for abstract?

How does all this square with the world of finance? It suggests that we should be very careful when trying to create any model that implies a cause-and-effect relationship. For example, think about every “retirement calculator” used in the marketplace. They either implicitly or explicitly suggest that doing x, y or z brings about a certain desirable result.

The universe doesn’t work that way. It is a vast combination of fixed, variable and independent factors interacting—and from these infinite interactions come dazzling, wonderful, terrible and unpredictable outcomes.

As an investor, or even in dealing with life in general, accepting the vast unpredictability of the universe narrows our choices of logical action. The first option is to simply wait until all unknown factors become known and then act. Note, however, that we might have to wait a very long time for that to happen. Option two is to actively diversify while seeking to identify each risk—and hedge against them all.

The second course of action places us directly into the path of positive outcome evolution rather than a negative evolutionary path. That is, we can choose to be the tyrannosaurus rex, or we can choose to be a dynamic species that evolves and adapts to changing conditions in order to not only survive, but to thrive.

The opinions referenced in this material are intended for educational purposes only. These opinions should not be construed as recommendations, but as illustrations of broader themes. Forward-looking statements based on past performance are not guarantees of future results. Investment involves risks, uncertainties and assumptions based on changing market or economic conditions. Actual results may differ substantially from the opinions expressed. Neither Provasi Capital Partners LP nor any of its affiliates provide any tax, legal or specific investment advice. Investors should always seek the advice of their tax, legal and/or financial advisors regarding their specific situation.

Frank Muller

As CEO of Provasi Capital Partners, Frank Muller brings nearly 30 years of experience in building and managing multi-channel distribution services. Frank has been a featured contributor in numerous industry publications, bringing his unique insights and perspectives to relevant issues impacting financial advisors and their clients.

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Frank Muller