Cliff Asness, co-founder of AQR and a leading quantitative investor, offers sharp perspective from decades of research. He discusses market efficiency, the endurance of value investing, size and factor implementation, and why behavioural stories shape markets. He also explains portfolio construction choices and the surprising logic behind ‘pulling the goalie’ in late-stage decisions.
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question_answer ANECDOTE
Tech Bubble Memory Against Quitting Value
Asness recalled clients praising sticking with value after the tech bubble while contrasting Julian Robertson closing his fund and leaving.
He used this to show sticking with a belief isn't always bravery but often necessity when you lack alternatives.
insights INSIGHT
Value's Recent Failure Likely Behavioral Not Structural
The 'different this time' story deserves respect but usually fails; Asness leans toward behavioral explanations for value's history.
Recent value underperformance showed fundamentals and other factors stopped working, suggesting irrational price momentum dominance.
insights INSIGHT
Current Growth Leaders Are Real But Overpriced
Today's expensive growth companies are real businesses with strong products, unlike many frivolous dot-com era firms.
That makes current valuations excessive but less blatantly nonsensical than 1999–2000 bubble darlings.
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No one credible ever said that investing was a simple endeavour. It might have some simple guidelines, that if followed are more likely to yield positive results, but the ins and outs of the markets, decisions and their impacts, movements and crashes are never straightforward one-dimensional cases. Our guest today, Cliff Asness, really brings this point to bear, showing the nuance and multiplicity of all the topics we discuss. As the experienced owner of AQR and a wealth of knowledge and insight, Cliff shares a host of ideas and thoughts on as many topics as we have time for. We start off the chat talking about market efficiency before moving into the murky waters of value. We hold value investing to be sound, as does Cliff, yet the last few years have stretched even our commitment to this philosophy a little. The perspective that Cliff is able to share, drawing from his formative years in the investing world in the '90s is invaluable and a lot of what we talk about gets contrasted to the tech bubble of that period. The conversation also covers the size of stocks and portfolio allocation. Although Cliff has strong opinions on most of these issues he does a great job of showing the lack of definitive answers to any one of them, allowing space for new knowledge and outlying evidence to make its mark. We also get into finding the right kind of investor for your own style and goals, the role of good communication in finance and the influential article that Cliff wrote about 'pulling the goalie'. In it, Cliff lays out what the data tells us about certain late-stage situations in which it is statistically wise to make more risky choices. For all of this and a fabulously entertaining conversation, listen in with us today!
Key Points From This Episode:
Cliff's perspective on market efficiency and the impact on his portfolios. [0:03:48.5]
Value investing in today's climate where value has taken such a knock. [0:08:30.8]
Stories and behavioural effects on value; how we understand ups and downs. [0:13:36.2]
Conversations Cliff has had with clients in the tougher times. [0:21:04.5]
Comparing the companies driving growth now with those in the '90s. [0:23:46.2]
The size effect and why Cliff does not subscribe to this philosophy. [0:25:17.1]
60/40 portfolios; are they still alive? Why Cliff thinks you can do better! [0:33:07.7]
Cliff's experiences with institutions and advisors and contrasting the two. [0:36:31.5]
Informed decisions on who to invest with; thoughts on finding the right advisor. [0:38:28.7]
Pulling the goalie and why risky behaviour can work in certain circumstances. [0:40:42.5]
The value of communication skills in the game of financial advising. [0:47:29.7]
How Cliff defines success for his own life! [0:50:07.9]
The Rational Reminder Podcast 