Cliff Asness Forbes Interview: Efficient Market Theory 'Is Baloney'VW Staff
AQR Capital’s Chief Investment Officer Cliff Asness describes his unique value & momentum quant strategy.
Are Markets Efficient? Baloney, Says Money Man Cliff Asness
Steve Forbes: Cliff, thank you for joining us. You approach investing with an even more unusual background. Can you first tell us about AQR?
Cliff Asness: Sure. It stands for Applied Quantitative Research.
Forbes: Which already tells you something.
Asness: Yes. It definitely is a quant firm. I do let people believe that I’m the A in AQR on occasion. I’m one of the founding partners but I’m not the A. An easy way to think about what we do is we came out of academia. This is more than 20 years ago now, so we’re certainly not academics. But I was a teaching assistant and he was my dissertation advisor, Gene Fama, who just won the Nobel prize.
A lot of what we do, a fair amount original at our firm, a lot of it taken from academia, is to say, “Can we make clients real money with this stuff?” If academics find that this type of stock or this type of currency or this type of commodity wins on average, is that something you’d actually want to bet on, can do in a practical way and what forms can you do it in?
And today we manage about $100 billion. It goes anywhere from very traditional long-only equities, try to do a little better than the benchmark, all the way up to market-neutral, very diversified levered hedge funds. But it all gets down to the same kind of thing. What have we and others found that seems to work over the long term, that we think we understand why it works and can be implemented in a practical way? And not everything can.
Forbes: Isn’t it all about probabilities? You can’t predict the future, but do you feel you can find patterns that generally hold up?
Asness: It’s all about probabilities. And I love that you put it that way. I don’t think it’s different necessarily for non-quantitative firms. We just might acknowledge it a little more explicitly. But I’m in a business where if 52% of the day I’m right, I’m doing pretty well over the long term. That’s not so easy to live with on a daily basis. I like to say, when I say a strategy works, I kind of mean six or seven out of 10 years. A little more than half the days. If your car worked like this you’d fire your mechanic. But we are playing the odds. Some famous findings, cheap stocks, defined simply, price-to-book, cash flow, sales.