YouSaid · the spoken record

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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“First, you're being too kind. Of course, I write to do branding. Okay. I run a real world business and I prefer people to think we're good at this. And I think that's legitimate. That's fair. If I write something that people think is lousy or they disagree with or misses the point, it's going to hurt our business.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“But it applied, and caring about price versus anything, even if it were immune to intangibles, was not a very good thing until late 2020 since the GFC. So about 11 years. So I don't think that the real world's always more complicated. Everyone's always looking for single explanations when a lot of things have multiple explanations. So I think this can definitely be part of it, but I don't think it's the main driver.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Those type measures did just about as bad as the ones that were contaminatable. Is that a word? I'm not sure it's a word. Sure. It is now. But it is now. So I definitely think you want to account for that in places like price to book in earnings. And I think collectively, not just AQR, that has been an improvement how we measure value and the world has changed a bit.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Exactly. So I think that maybe part of it, I think it's overdone in a few ways. One, it applies to more than just price to book, but it applies most directly to price to book, where you're not capitalizing things like R&D. It can apply to earnings, but plenty of evaluation measures it has no applicability for. Price to sales. Shouldn't”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“It certainly could have been some of the early part. A lot of quants added adjustments for that along the way. Most of us are not purists saying we're not going to change our models since 1990. The notion, for instance, that R&D that's viewed as an expense. Maybe all of it, maybe part of it should actually be capitalized. Right. Which would go into book value and make a firm look not as expensive”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“And I don't think I don't really think I'll find that. And by the way, this is self-serving. But if your worst times are going to be when everyone else is partying in a bubble and your best times are going to be when that bubble is killing everyone because it's coming down, it's not a terrible property to have. No.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“But has led to some really tough times to wait out. My holy grail would be to come up with something to add to our process that would do really well in bubbles, but not cost us money long term because I don't think we can time these.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“I think I'm somewhere in between. I think I've seen a few in my career. I think they exist. I think they are far more rare than the way a lot of Wall Street refers to them. A lot of Wall Street will say a stock they think is expensive is in a bubble. Single stock can't be in a bubble. Though I do think the tech bubble and certainly by mid-COVID, we were in a various kinds of bubbles. In a bubble, value loses. Course, almost by definition, people want the darlings, but the darlings are not the ones who are out executing. They're the ones with the greatest stories. So the rest of our process doesn't protect us very much. That is an incredibly painful period for our process that both this time, which I think we're still in the midst of, and 99-2000, we've more than recovered from the round trip has been good.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“In a rational market, in a bubble. And here again, I'll try to make this the final time. I'm a gene pharma heretic because I love the man.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“That's on average. Sometimes, thankfully, less often than not, but still quite often, the expensive stuff ends up being worth it or more than worth it. And when that happens, the value factor, the quant value factor, very different than how a Graham and Dodd investor, and we can get into this later, we'll use the term value, that'll suffer at those times, but pretty much the rest of the process you can think of, and we do it all simultaneously, it's not really like one first, then the other, but you can think of it as trying to avoid a value trap. Is this thing high profitability with things changing in the right direction and low risk? Therefore, someone should pay a high multiple. And you want to avoid value just shorting that. That works like a charm.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“The expensive companies By and large, outperformed not on price, which they did also. But they out executed. They grew more in terms of earnings, sales, cash flows. If you were a pure value investor in a quant sense, just buying low multiples, you win on average because on average the price goes too far. The cheap stuff, and there's a risk-based explanation to, again, I'm pissing off Falma constantly on this, but a big part of why you win, we think, is the expensive stuff is better to better company usually, but not that much better, not what's priced in.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Where value is tough. And we had a great, almost a decade because everything else we do worked. Profitability one, fundamental momentum one, low risk one. We don't need value to work. A lot of that is because value lost over that period for what I will call, and Gene Fama will have to forgive me here, rational reasons”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“We are multi strategy. We go through long periods, almost decade long periods where we hardly talk about value. It's one, it's a relatively important factor, frankly, but it's not a majority of what we do. And we go through long periods. A good example would be post-GFC through 2017.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“No, I'm not done. I got to finish off. We're not all value. All right, let's go. This could take the rest of the time. I cleared my”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“And almost anyone who writes will find like they want to make the argument seven different ways because you want to both kill the counter argument and then jump on its grave for a while. Anticipate.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I I've cleared the road for the rest of my thought. The footnotes have three purposes to me. They're where I stick the humor. They are the hedges. Here are the ways that what I just said might have been bull blank, and I could be wrong. And finally, they are sentences I love that my editor did not love. Right. Where we can mutually agree that it's worth a footnote.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, you know, remind me where we were because I'll go off on tangents like you do. But I do write a lot of hedge statements, and I'm kind of famous from my footnotes, both because I stick the humor there, but also I put in all the ways I might be wrong And it's really not a compliance reason. I hope it's more of an intellectual honesty reason. Anyone who's sure they're right is very, very dangerous.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“There are a few reasons. One is there was one point in the very distant past where it was much closer to true. Some of the things like betting against beta quality or profitability, carry strategies or additions over time. So anyone who's even, not the people, a lot of people follow us, but anyone who's followed us from the beginning, it's not crazy that they started out thinking that. Also, I just wrote a piece maybe a few months ago on our website with the highly defensive, worried title. We are not just about value in parentheses except occasionally when we are. Because you do get these periods and value seems to be the worst culprit.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, you can create a, I'm always leery in saying uncorrelated. I just want to put in the Well, we're striving for uncorrelated, but the compliance officer in my head is saying sometimes it doesn't come out to zero all the time, but it comes out close. So you can create a very diversifying stream of returns where if you just want low beta stocks, you are creating a more attractive stream of returns, but still extremely correlated to perhaps your other holdings. So it could be used in different ways.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, absolutely, some do. But if you want to create, if you're a hedge fund person trying to create an alternative investment that's truly uncorrelated. Low beta stocks are still highly correlated to the market. So by going long, low beta and shorting a smaller amount of high beta, and this depends on your preferences and how aggressive you want to be.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“And that's a pretty good number. Hopefully, everyone knows that three out of four is a joke. But you go long, low beta, short, high beta. If you did that on $1 long and a dollar short, you're just massively short the market. Long low bait and short high beta, the betas work. So you apply a hedge ratio, you short less than you long, and you try to create something about zero beta. And that has created a very, like all these things, imperfect, it goes through bad periods, but a very attractive risk-adjusted return in and out of sample long term. And then you can get into theories as to why it works.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“If you're long a dollar of low beta, I sometimes get the sign wrong in interviews. I promise in real life, when we're trading, we get the sign right like three out of four times.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Should be paid. So the problem, of course, is in some sense you could say beta's paid because stocks tend to beat bonds over the long term. But within the market, the so-called security markets line is pretty much entirely flat and has been in sample and at a sample for a ridiculously long amount of time, in a ridiculously large amount of places, meaning low beta stocks have kept up with high beta stocks, which in the simplest theory they're not supposed to. You can use this in a number of ways. You can buy Can make your portfolio out of low beta stocks, earn as much money with smaller swings. Or if you're a hedge fund kind of person and you can use this in long only portfolios too, it's just a little more complicated. You can go long, low beta, short, high beta, but you better apply a hedge ratio.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Bill Sharp. High beta stocks are supposed to return more on average than low beta stocks. And in fact, nothing else is supposed to matter at all. It's a one-factor model. And it's admittedly simplistic, even though people who created it wouldn't tell you it's the be-all end-all, but it's a very useful way to think of things. It gets you down to a very important concept, that diversifiable risk you shouldn't get paid for because you don't have to bear. You get bared for risk you can't diversify away. Beta being a risk you can't diversify away because a lot of your portfolio is already long beta.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“And I forget how many years ago, everything's three letters because Fama and French name their factors three letters. So now we all copy them. And they'll be the first to tell you they were essentially extending work of Fisher Blacks from, I don't know, 10, 20 years ago, where he found that in basic theory, the capital asset pricing model, we all kind of learn third week of an MBA finance class.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Low risk investing at its simplest. Again, all of these, you get 10 quants in a room, which sounds like the beginning of a bad joke. They'll all have different ways and different sets of ways to measure this. But at its simplest, there's a paper by two of my colleagues, Lasse Peterson and Andre Frasini. Andrea Fruzini, excuse me, I left out the last syllable of your name, Andrea. I will never do that again, wrote a paper called Betting Against Beta.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“I imagine it has. Oh, it has, but Morris stayed the same than has changed. Adding new factors, measuring factors better, I don't think that's a change in philosophy. That's just applying the philosophy and digging deeper. Our general belief, starting out with value and momentum at Goldman in the very early 90s, expanding along with the literature, some of which some of our people have helped create to other factors low risk investing, quality investing, fundamental, not just price momentum.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“I remember about three of those years. I'm fond of telling people I have a really good memory that extends to two periods. The last two weeks in high school.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“All the cliches, particularly about children, but about all of life, they're cliches for a reason. You wake up one day and you go, what did I do for the last 25 years? How did this happen?”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“And that was a ton of fun, but it was ridiculous. Yeah. Right. So the nocturnal activity was a little different than writing a dissertation. But working at Goldman, With four babies was very similar to writing a dissertation, which just kind of is your baby.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Equity work is you're Batman. Yeah, that was tied for the craziest time in my life. The other time, my wife and I, with more her than me, we had two sets of twins 18 months apart.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Stanford didn't, and I had no money. So I visited Chicago and not Stanford, and it was a beautiful spring day. So I'm fond of telling people I'm the world's only person to choose the University of Chicago over Stanford on the weather fifth.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“No, Chicago versus Stanford. I got into both. They offered a stipend. PhDs are very lucky they actually pay you to go to school. Everything was the same except Chicago had in its budget to give me money for airfare to go visit.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Not telling the full truth. Goldman said unbeknownst to you, we're looking to start such a group. To this day, I think that's probably true, but I don't know if that was reactive to me, but they did say that and they offered me the job, and I decided the weather in New York City's way better than Laguna Beach, Newport Beach, excuse me, California. I also chose Chicago over Stanford for PhD.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Academic work, but in the real world, both in the sense of seeing if it actually works. And you make more money. Anyone who tells you they do money management over being a professor and never considered that is probably not true that a second.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“They like the paper. They talk to me. They didn't even know I did. I was writing a dissertation on quant equities at night. And they basically offered me a job to start a research group from scratch. Ironically, given what happened later, long-term capital helped my life because circa that time, they were doing extremely well. And suddenly, you know, all businesses, not just Wall Street, something's doing great there. We need one of those. So the notion that we should have some academics helping us out was greatly aided by them. And I actually think there's some brilliant people, though obviously didn't end well there. So there's a little bit of irony that they help. But Pimco is looking to start a group. I went to Goldman Sachs and said, I think this is the perfect combination. I get to do...”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Movie. That's the big question. I'm not going to be flattered whoever it is. Let's just say that. And they won't have any hair, which will be annoying because when I wrote that paper, I had hair. Right.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“After about a year, maybe about a year and a half, I stayed a little longer, I was really feeling like I should get back to some of the academic roots. I was a fixed income portfolio manager and trader, which was a ton of fun. I recommend anyone who does this stuff for a living, trade in OTC market for a while to learn the good, bad, and the ugly of what happens there. But it wasn't like whatever skills they taught me in the PhD program. It didn't feel right. I then got just very lucky. Pimpco out on the West Coast read the first thing I wrote in the Journal of Portfolio Management. The exciting title was Option Adjusted Spreads and a Steep Yield Curve. There's going to be a TV movie at some point.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“And I don't think anyone, including me, succeeds at that. But if you've already produced like a first draft, it can be a couple years in this process to finish it. But it's more yeoman-like work after the first draft. You're just responding to things, running new tests. So I had finished a first draft, went to Goldman to take a year with the concept that an option can only be worth zero. Let me see if I intended to be a professor when I started out, but let me see if I like this.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“No, I did finish the PhD. Oh, okay. I went to Goldman. I had started my dissertation. I think a lot of people leave intending to write a dissertation from a job.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Group that's it though I'm going to mend the story slightly because a few of those things happen more simultaneously I left the PhD program in late 91 to take a year off. I'm now on year 32 of that year off. So it appears to have taken hold.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“So they're negatively correlated strategies. And this doesn't create a 10 sharp ratio, but a holy grail of quantance is to try to find two things that on average make money that hedge each other and value and momentum do, whether it's relative outperformance against a benchmark or absolute performance in a hedge fund.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Would be who's doing better over the last year? It's that simple. I used to dismissively call it the two newspaper strategy. You needed a newspaper, a recent one, and one from a year ago. It's better to have a computer because it's a little faster than you, but you look up and you buy what's going up. It turns out this part is surprising. Both make money over any decent time horizon. Probably not surprising is they are in Geekspeak negatively correlated. If you are a pure value person, and I am a pure momentum person, occasionally we agree. We may get into this later. But right now we're in more agreement than normal because value stocks kind of have the momentum. But more often than not, the cheap stocks are cheap because one of the reasons they're cheap is they've been losing.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Or whatever. You'll get people disagreeing like crazy. At our firm, we prefer a broad tent of giving, we don't think we're particularly great at saying which one is the exact right way to do this. But if you buy low multiples and sell high multiples, either in a long only, beat the benchmark sense, but over an underweight. And you did the same thing everyone does and called me a hedge fund manager. It's about half our assets. Okay. About half our assets are really traditional. We're money managers beat plenty of things don't let us short or lever or any of those hedge fund kind of things. But the principle is exactly the same the overweight in a value strategy would be low multiples. The underweight would be high multiples. If you're running a pure momentum strategy, the overweight, and this is also momentum circa 1990,”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“This may not exist. We're cynics about it, but value momentum and size in the opposite order that I just said, time-wise, size was kind of first, then value, then momentum were the three biggies. And they're still very big in the literature around 1990. Value says, and the original metrics, and I think they've advanced since then. Priced a book was the famous one Fama and French use. They'll be the first to tell you. They do kind of like it, but it has no special standing. It's basically price divided by any reasonable fundamental.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, you're accidentally waiting until yet another quant controversy whether you need both these characteristics in every stock or whether you can have some stocks that are great on one and simply average on the other and the portfolio comes out. But the intuition you're saying is exactly right. Two things at that point, the literature has advanced. This is like quantance circa 1990. You may throw in the size effect, and that was about it.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“And to his credit and my relief, he said if it's in the data, write the paper. And he was very supportive of the paper. He works very closely with dimensional firm I admire greatly. They don't give as much weight to momentum as we do, but they use it in their trading process. So I feel like I've won half the battle on that over time. The only thing you said that I might take a small disagreement with is consistently. We think value plus momentum has a really good risk adjusted return, makes money over the long term. But when you've gone through two-year periods like the tech bubble and three-year periods like 18 through 20, I think myself, my family, and some of my clients might take issue with the word consistently.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, Fama French still don't include it in their official five-factor model. Really? A lot of us think they should. I think that's just a philosophical difference. The way I always describe it is one of the scariest moments of my life was going into Jean's office. I was already his teaching assistant. He had kind of agreed to be my dissertation chair even without a particular topic. And going in and saying, I want to write it. I wrote it. It was more than just this, but one of the main things I want to explore is the momentum strategy and then mumbling. And by the way, it works very well. Because, you know, this is constant fight in academia. If you believe something works, does it work? Because markets are efficient and it's compensation for risk or for behavioral reasons. It's very hard to come up with a rational story, a risk-based story. And I was nervous because he's Mr. Fish in Markets and rational.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“And Wharton's a great school, but PhD program rankings can be different than And almost to a man, because I went to about 10 professors, they said, go to Chicago. Really? And I went, I mean, I got in, I went, and Gene Fama was the man.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I basically discovered him I ended up at the University of Chicago. I was an undergrad studying business and engineering. I decided I wanted to be a professor because I did a job just for money, coding up studies for three Wharton professors. I liked what they did. I said, how do I do what you do? And they said, go get a PhD. I said, where should I go? And they said, close the door because we were at Wharton.”
2023-03-17 · Masters in Business · Cliff Asness on Quant Value Investing · IDENTIFIED FROM THE TRANSCRIPT · source