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Cliff Asness

lines on the record: 200
first: 2023-03-17
most recent: 2023-03-17
sittings or episodes: 1
sources: podcast

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“You could lump into the catalyst camp, so we do look for some of that. But some of the things when the absolute peak occurs, which is a timing level that I think is beyond any of our ability, somebody always nails it ex post, but I don't think anyone can consistently do that. You look at the peak of the tech bubble in March of 2000. You look at the peak of the valuation bubble in stocks, which was kind of October of 2020. Why it peaked there, not three months earlier or six months later, even with the benefit of hindsight. I don't think we have great stories. I think when things get agreedly valued, the odds get more and more on your side. Again, good catalysts will help you more and bad, will help you less. And sometimes our job is to plan our feet and say, we will not move. Now on the macro trend falling strategy, it was a better timing story. Again, it didn't make money for a long time, but it didn't lose a lot. And both from some problems.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Broken clocks at AQR. Is that right? Not this time. I won't say I didn't break other things, but that's just between. Me and whatever's strewn around my office. So value on its own, yeah, sometimes we do wait. Catalysts are famously people look for catalysts. Obviously, momentum, both price and fundamental.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“No, absolutely. But if you go back a couple of years earlier, value spreads were very wide. And yeah, we were saying we don't know when this will turn around, but it will, and importantly unnet from here. Saying will one day go up again doesn't really help you if it's going to go down more than it's going to go up in the future. It has to be on net.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Calendars. I saw that tweet from you. Well, the funny thing is, value actually started turning around in late 2020. Everyone calls it 2022. That value has been coming back since COVID started to. Well, once”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Describing the elephant. for value yeah to be honest when it does look unexplainably after that keeping that open mind attractive and we do that sin a little we do just wait Now, Barry, of course, we didn't sit there in 2020 and say we're going to have to wait. And in fact, by the way, we're waiting until March 2020.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Again, you and I have been bouncing back in a great way between quantitative stock selection and the more macro. Trend following, and the stories aren't precisely the same. I”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“That's actually, I think, a good thing. It means if you do this for asset classes, there's obviously correlations. Higher growth and lower inflation is good for stocks and good for bonds as they mix up. You can get different results, low growth, low inflation is dynamite for bonds, how it comes out for stocks is a little bit more iffy. But when it comes to factors, doesn't mean there aren't some big factor events, but they occur in all environments where not a great pattern. So again, we do think we're a pretty good diversifier to a lot of the rest of the world that is much more linked to the macro cycle.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“He has done a lot of our work on showing the environments that factor investing tends to do better or worse in by factor and as a group. This is for stock selection. And some things, if you want to make it a tautology, yeah, when the spreads between cheap and expensive go way wider value does lousy. Tautology macro wise, this very little relation, this very little consistency to it.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“The core stock selection strategies on Auntie is, again, I keep quoting Auntie. You should have had him on instead of me. I did. I know you did. I know you did. But if I'm going to quote him all the time, why not just go to him?”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“I know for a fact because I looked at it recently that I've not seen 5%, 6% inflation in my career. I do think, you know, I'd be happy to share with you. Quants have some disadvantages. There's less we can know about any one individual situation than a more discretionary manager. But we do have one advantage. Sometimes they're maligned correctly, but sometimes they're over maligned. Backtest can be really helpful. Because just because I haven't lived through inflationary periods doesn't mean we can't look at inflationary periods. And that is a quant advantage. And frankly, with the exception of the trend following strategy, which I think when giant stuff happens, it does tend to do better.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“5% rise in rates over long periods we've seen them, but not anything like the recent period, and maybe not even. It's been a downtrend in rates over my career. I'm trying to do this in my head.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“We think have made the strategy materially better. It's no longer just your grandfather's trend following strategy. We follow Price. We think that always has a role for a portfolio. We don't know if crazy stuff will continue or we'll go back to normal. Again, if things do go back to normal. Yeah, maybe your managed futures don't help you very much, but everything else goes back to helping you. So we think the case is at least, let me just be more mild, at least as strong as it normally is. And we think it's pretty strong. I will back slightly off my sin there of forecasting.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“I did go there We're directionally the same, and I did also, as part of my caveat, I still wouldn't time this very much. I do, and I admit I explicitly want to counter the belief that people might think we've missed it. Managed Futures is it's one decade huge positive. It adds up to good over the whole decade, but it mean reverts now. We see no tendency for that historically. No, it's a trend falling strategy. If it starts to get it wrong, it'll switch its mind pretty quickly, actually. The fundamental trends that we've added in the last five to seven, I'm getting closer to seven or eight years.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“So it's dangerous to go. We have more uncertainty now than normal, but I do think I'm going to do it. I do think we have more macro uncertainty now than normal. So I like it a little more than normal, but mostly our argument is you don't know when this is going to happen. You don't know if we're going to have another two years of this. And by the way, if we don't have another two years of disaster, you're pretty happy everywhere else.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm wide open to that. But in 2022, and frankly, I don't think going forward, I'm mildly, I don't do a lot of timing of our own strategies. I said it's a sin. Most of what I recommend is always having some allocation to trend following. There'll be long boring periods where I hopefully won't lose you a ton, but won't make you a ton. That's usually a pretty good time for the rest of your portfolio. Over time, it should add up to a positive, which it has. And it should help a lot in these one, two-year gigantic events. If I had to time it, I'm a little more bullish than normal. It tends to do better when this great macro vol, when people don't know what's going to happen. Boring times where nothing is really going on is not your time for puts. And I do think we have, you know, I'm a little leery of saying this because I laugh when people are always saying now especially.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“And puts, I don't think, really helped at all. The premiums got very high. And there was no big crash. And that's not an environment. If you like puts more than I do, you think the cost is lower. A portfolio of the two as an insurance product could make a lot of sense because Hedge different things. Puts Hedge bolt from the blue crashes and trend following Hedges long slow crashes. I will make the self-serving claim that long slow crashes tend to be more deleterious to your wealth long term. A lot of short-term crashes reverse soon afterwards. So I will make a small commercial for how we do it. But if someone, a little bit more reasonable than Naseem, wanted to go, all right, it is costly, but it's less costly than you think, and maybe we should combine these two.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“That was March of 2020. Oh, 20, I'm sorry. You had it right given your time period. The puts help like crazy then, and Managed Futures didn't.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“But he doesn't like the basic finding that Auntie wants both. And I won't give him both. Putz work really well in crashes. March of 2020, October 19th of 87, huge, their leakages in terms of premium over the long haul that doesn't have crashes is larger than what they make. And there are some bear markets that they fail to help with. They did not particularly help in 2022. There was no craft. Too quick. Well, no, too slow for the puts. In 2022. Down 44.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“For pure fun at the end, you can ask me about that again, but the strategy Nassim favors is buying insurance through the options market. Tests of the simplest form, as my colleague Auntie has done say that loses a boatload of money, including its huge victories. In crashes. I have no problem with someone like Nassim saying actually we, whoever he works with, does this much smarter than pure rolling of puts. It's not equal size every year.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“But my colleague Auntie Ilmanen is getting very lucky in that same. He wrote a book called Investing in a Low Expect to Return Environment right before 2022. So you can write something that's absolutely right and correct, but timing luck.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“But it's an important message. He got very lucky that he wrote a timeless message about an hour and a half before the GFC, right?”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“I do try to be. So a strategy he's been involved with for a long time that kind of corresponds to his black swan book. It's a very good book. It basically is a one-liner. Giant things happen more often than quote normal model, normal distributions say.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“It didn't necessarily end there. And I will say, I think Nasim's absolutely brilliant. He's just also insufferable at times. It's a dangerous combination. You know, I may be less brilliant and less insufferable, but I might have some of the same characteristics, which is a dangerous mix when you...”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“But last year was a blowout year for both trend following and even the more general macroinvesting that considers relative value. And it's exactly the year it's supposed to help in. Consider a rival insurance strategy, always owning puts.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Will do that. But most serious bear markets we've seen aren't a day. They are a few years of pent-up, crazy or an economic event that leads to a few years the other way. And that's where trend following really shines. The decade after, ironically, pretty similar to value. Well, not as bad. Trend following simply didn't make a lot of money in the decade after the GFC. Unlike value lost money. Versus growth, value loss versus growth. But still, people started to lose interest in it. They got excited after the GFC. And then if there is an insurance-like aspect, which I think there is to trend following, 10 years of a wild bull market, a lot of people start going, why have I been wasting this money on insurance? And then last year, and not I think it started in parts of 2021 and it's still continuing a little bit this year.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“And I should say trend following is not a panacea. You have bolts from the blue. Neither of these were very bad for trend following, but they weren't. It didn't make a lot of money either. October 19th of 87, which saw a small trend start to start in about August, but not that much. And obviously COVID following was not how to protect yourself. There was no trend to follow. Out of the blue, a pandemic hit.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“trend following has always, I think, forever. People are looking for both. And it's not free. You can create a higher risk adjusted return if you don't want to hedge giant drawdowns in the equity market. But this combination has always been a nice addition of portfolios and attractive to people. It got very loved after the GFC. When it really did what it was supposed to.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“That you're buying with futures. Commodities, currencies, equities, bond futures, and we've actually expanded that to what we call a lot of alternative trends, more esoteric commodities, yield curve shape trades, even the equity factors themselves, even though we're talking macro Yeah, show some tendency to trend. But that dual mandate is a little bit different than most. Most investments you would like a low correlation to other things. Sometimes you accept a medium or high correlation, but it's mostly about the risk-adjusted return of the asset itself.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“As a strategy. So we've been using value, momentum, even for market direction trend has become an increasingly, it's probably the most important part of what we do in the macro side with economic trends, not just price trends being And last year, trend following in particular, which is a subset of macro. I will tell you we also run some where we consider relative value in carry and other things. But we run some really focused on both economic and price trend factors. That we've always described as having kind of a dual mandate. Long term it's supposed to make money. It's not a crazy thing for an investment to do. But it's supposed to do particularly well in really bad times. This is a Managed Futures industry, the CTA industry, trend following has had that property over time.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, it's interesting. We haven't talked. We've focused largely on stock selection and value. A big part of our business is actually macro It is, I often say we do less than people think. They think we do all these different things, but a lot of what we do in macro and early insight of ours, when, frankly, about 1995 at Goldman Sachs was if you... Look at the factors. Again, it was really value, momentum, and size at that point And apply them to macro decisions, what country to be in, what currency to be in. They had similar efficacy. They worked in the statistical sense. I always say statistical sense. If your car worked like this, you'd fire your mechanic Right, if your car works six out of 10 days, that would be pretty bad, but it's pretty great as a.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Why does that seem to have some well, again, even including that, I think we see most of the small cap effect go away when you adjust for the delisting again and the higher betas from illiquidity. But whatever, if there's something left. It is disproportionately coming from micro cap. That's true.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“We have an additional paper showing that using the more modern factors which weren't even around in the 80s when guys like Ralph Bonds and a few others were looking at the small cap effect. So I can't say they should have used them. Small cap tend to be bad on some of the newer factors. Betting against beta, profitability, they tend to be fairly profitable. If you adjust for that, they should do even worse. In a modern sense. And ironically, you get back to a small cap effect, but only if you adjust for kind of the full panel plate of modern factors. Small cap against the market is not a bargain.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Quantitatively supported. We don't think it's supported, at least if you only adjust for beta, just to make everyone's head hurt.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“That's very interesting. But the so-called small cap effect, it often gets conflated with that. It is not small value. It's that small is better than large.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think that does show up in something you anticipated me. I'm about to say, these get confused occasionally. I do think many of the factors, anomalies, effects that quants and academics believe in. Value being again, maybe the poster child, but not the only one do work better among small caps. So long, cheap, short, expensive, and small caps. Certainly has a higher gross risk adjusted return net, they're more expensive to trade. I still think that's going to be the truth, the case net, but it's a little more arguable. But I have no problem with someone saying, I love small value because I think value probably does work better.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Their betas should have been higher. More of their return should be just attributed to the market going up. And basically between those two things, there's nothing going on. Small caps, and this is not a bad thing. Small caps seem to be priced reasonably efficiently versus large caps. One thing I will, by the way,”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Those betas are generally underestimated by conventional techniques. If you do a quant geek's favorite thing, regress the monthly returns on small versus large on the market, you get up beta, you get a positive beta. Small has a higher beta than large. So if you go long, small and short, large, you have a positive beta left over. A lot of small doesn't trade every day. If you look over a few months, those betas increase. If you do statistical work, we include the response of small, not just to this month's cap-weighted market, but to the last few, it tends to get into the small cap prices slowly. But that's still real. So we've underestimated their betas. If their betas are underestimated, meaning we thought they were too low, we've overestimated their alphas.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“A little bit, though not. You know, with well-intentioned people had assumptions for delisting returns. The general consensus, and my expertise does not lie here, but the general consensus is they underestimated the negativity of those delisting returns. All I'll see well making small capital less attractive because your data has not accounted for enough. Where we jumped in is again, remember we're not talking about the small beat large. We're talking about does it beat it beyond its beta? Is those betas, and we're not the only ones to do this too. Shoals and Williams looked at it a while ago.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“They're more volatile as a rule. And beta is composed of correlation and volatility. I think it's more the volatility than the correlation driving, but there are higher beta The cap M are all theory says you should make more money if you're a higher beta, but not more than that. And the findings were not that small cap makes more money. That's not that interesting. The findings with small cap makes more money than implied by their higher betas. So even more. Over years, some of the work, a lot of the work being ours, but not all of it, has been revised. Two big revisions, the second one we really were a big part of. The first was simply revisions to the databases. Small cap stocks delist more often than large cap stocks. Any study, you need to make an assumption about what people actually got out of that delisting return.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Our view is there never really was one. Our view is not that there was one and it got arbitraged away, which is a different way to view it. Essentially, in the early 80s, the original capital asset pricing studies looked pretty good. Seemed like beta was rewarded, and that later got revised also. But then Hull started appearing in that pure one factor world. The first major one was that even after accounting for beta, small caps generally have higher betas. They move more, if the market goes up 5% on average, they might go up 7% as a group.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“I'll start out saying, I don't think I've met Maria, but she's right. Was there ever the right question? There's a little bit of a Keanu Reeves matrix thing going on here. Is there really a spoon? Red pill us. Tell us what?”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, essentially. And that means, and we show this in our more formal paper, there wasn't room to do it in the Wall Street Journal, that investment has really not suffered on net. You can always pick and choose in an argument every side picks and chooses. Their favorite examples, this is a company that bought back that then did great. And Apple has bought back a ton and suddenly they're criticized for that. And I'm like, it works well fairly well. It's worth selling price, right? It's worked out fairly well for them. Same with Buffett. They also have a ridiculous amount of cash Apple on the book. So it's not like they needed the money. Buffett is a huge defender of buybacks. So I think I'm mainly yelling into a void saying this is just not that big a deal, but it's politically too good for populists of bull stripes to yell about to go away.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Here you go back to Mediglione and Miller. Firms should, and I'm not saying theory's perfect, but as a starting point, firms should pursue all positive net present value projects. And I do think most management tries. I think the short termism can be exaggerated. If they need the money, they should be investing. They can raise money in debt. And a lot of the buybacks, by the way, and you could argue leverage has its own problems, but have been corporate treasurers thinking that bonds were more overvalued than stocks. So they should buy back stock and sell.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I challenge you to find them knowing I've deleted them. This is part of my strategy. But regardless, if you look at what we wrote, the derangement we write about is how much people hate them. Buy back.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“And it jibes with the lying liars stuff. But it is not the buyback per se that's bad. The buyback is still a neutral. They're paying a market price for the security. So there I wish people would be more precise. So largely on buybacks, I think, and again, maybe in contrast to some of my more aggressive things I've tweeted on occasion, I want you to find those tweets.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“That's got to be a pretty much a tiny small. Right. Buybacks also get a little demonized because incorporations do do this. For some reason, I do not understand They often couple them with the executive stock option grant we talked about before. And I think there is a little subterfuge going on there. They don't want the share count to change a whole lot because questions will be asked.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“That says you can't lever beyond a certain point. And if buybacks push past that point, then there's a legitimate argument, but that's contractual. The bondholders should fight that.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Diversifier, actually. So, you know, a company that has great investment opportunities is seeking more capital and a company that doesn't should be giving capital back. So that's how it's supposed to work. Second is even more basic. And this does not get enough play. The shareholders own the money. They own the money. If there's cash on the balance sheet or assets on the balance sheet, the shareholder, it's the shareholders. If they choose to move it to, there's only one group that's allowed to get upset at them. If they choose to move it from the company to their own balance sheet, which is not stealing because they owned it when it was in the company. Bonds, often corporate bonds can have covenants.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“It's much smaller. If I've done that, that is one of my many Twitter exaggerations. I will not claim that I always keep a calm head on Twitter. But the simplest way to explain it Now, let me give you two quick ones. One is most of it is a reallocation in other stocks. When most investors participate in a buyback, they put it back in the stock market run in another stock.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“The conversation. If it is causation, the most likely estimate, which is not crazy, is management has more information than you do about the stock. And by the way, if they do believe the stock is undervalued And very often this is public information. They're just saying we're really undervalued. Right. They should be buying things back. It's voluntary whether you sell, and those who don't choose to sell will benefit from that. So I have no problem with that. It is a relatively small effect, potentially. That's interesting.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source