Bloomberg Radio host Barry Ritholtz speaks with Cliff Asness, who cofounded AQR Capital Management — which has $100 billion in assets under management — and serves as its chief investment officer. Also an active researcher, Asness has contributed to publications such as The Journal of Portfolio Management, The Journal of Finance and The Journal of Financial Economics, and has received a variety of accolades, including the James R. Vertin Award from CFA Institute in recognition of his lifetime contribution to research. Asness earned his master's in business administration as well as his Ph.D. in finance from the University of Chicago.
This is Masters in Business with very Rid Holds on Bloomberg Radio this week. On the podcast, this will be my shortest introduction ever. Clifford Astenus and I just go over the entire universe of quant factor and value investing. It is a master class. And if you don't believe me, I'm just going to shut up and say, with no further ado, my conversation with a Qrs cliff Astness. Let's start out a little bit going over some of your background. You get your PhD at the University of Chicago, where you are the teaching assistant for some obscure prof named Gene Fama. Tell us, 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 Warton pros. 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 doorc Because we were at Wharton, and Wharton's a great school, but PhD program rankings can be different than sure and they and almost to a man, because I went to about ten professors they said, go to Chicago, and I went. I mean I got in, I went, and Jane Farmer was the man to say the very least. So your doctoral thesis asserted that consistently beating market averages was attainable by exploiting both value and momentum. In other words, you took Farmer's value factor and added your own twist, which was momentum, which eventually became a Farmer French factor. Right, yeah it Farmer French still don't include it in their official five factor model. 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 if you believe something works, does it work because markets are efficient and it's compensation for risk or for behavioral reasons and momentum inherently, And I think we all knew this instinctively back then. It's very hard to come up with a rational story or risk based story. And I was nervous because he's mister efficient markets and rational, 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 affirm 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 eighteen through twenty, I think myself, my family, and some of my clients might take issue with the word consistently. So let's let's put a little more meat on those bones to define what we're talking about. You want to identify the cheapest value stocks, but only own those that seem to have started on an up swim. That seems to make some sense. Yeah, you're you're accidentally waiting until get 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 it's exactly right. Two things. At that point. The literature has advanced. This is like QUANDT Financi Cerca, nineteen ninety. You may throw in the size effect and that was about it, which we're going to talk about in a little a little while, because I've read some papers that suggests may not exist. We're cynics about it. But but value, momentum, and size in the opposite order that I just said. Time wise, size was kind of first, then value, then momentum with the three biggies, And there's still very big in the in the literature around nineteen ninety value says in the original metrics, and I think they've advanced since then. Price to book was the famous one fam in 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 so it could be priced to sales, price to earnings, priced to whatever. You'll get people disagreeing like crazy. At our firm, we prefer a broad ten of giving you. 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 when over and underweight, and you did the same thing everyone does, and call me a hedge fun manager. It's about half our assets. About half our assets are really traditional where money managers beat, you know plenty of things. Don't let us short or lever or any of those hedge fun 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 nineteen ninety, 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 recent one and one from a year ago. It's better to have a computer because 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 geek speak, 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. So they're negatively correlated strategies. And this doesn't create a ten sharp ratio, but a holy grail of quand finances to try to find two things that are an average make money that hedge each other, and value and momentum do whether it's relative our performance against a benchmark or absolute performance in a hedge fund. So let's talk a little bit about how you ended up launching a QR. Following your PhD dissertation, you end up eventually heading out to Goldman Sachs to effectively established their quantitative research groups. 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 ninety one to take a year off. I'm now on year thirty two of that year off, so it appears to have taken hold. So you're a PhD school dropout. No, I did finish the PhD. I went to Goldman. I had started my dissertation. I think a lot of people leave intending to write a dissertation from a job, and I don't think anyone, including me, succeeds at that. But if you've already produced, like a first draft, it could be a couple of 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 let me see it. I intended to be a professor when I started out but let me see if I like this. 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 is a ton of fun. I recommend anyone who does this stuffer a living trade in OTC market for a while to learn the good bed and the ugly of of of of what happens there. But it wasn't like whatever skills they taught me in the PAHD program. It didn't feel right. I then got just very lucky. Pimco out on the West Coast read the first thing I wrote in the Journal of Portfolio Management. UM. The exciting title was option adjusted spreads and a steep yield curve. Um. There's gonna be a TV movie at some point. Who's going to play you in the movie? That's the big question. I'm not gonna be flattered whoever, who whoever it is. Let's just say that, UM, and they won't have any hair, which will be annoying because when that when I wrote that paper, I had hair, right they the paper, they talked 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 business, it's not just Wall Street are 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 it'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 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 it's probably not never not telling the full truth. Goldman Um 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 or but they did say that, and they offered me the job, and I decided the weather in New York City's way better than Luguona Beach, Newport Beach, excuse me, California. I also chose Chicago over Stanford f PhD. So you don't care about whether obvious No Chicago versus Stanford. Um, I got into both. Yea. They offered a stipend. PhDs are very lucky to actually, hey, you to go to school. Everything was the same, except Chicago had in its budget to give me money for airfare to go visit. 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. Based on the weather, I'm more intrigued by the concept of you, uh sort of Bruce wayneing uh fixed income during the day and at night your equity work is your batman. Yeah, that was tied for the craziest time in my life. Um. The other time my wife and I with with you know, more her than me. We had two sets of twins eighteen months apart. Oh my goodness, um, 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 um with with with four babies, um, was very similar to writing a dissertation, which is kind of is your baby I could? I can imagine. So so we we started talking about a QR in ninety eight. You leave Goldman to launch that this is your first congratulations. I like to say a quarter century. It has more ground O case, it definitely does. It's amazing how quickly quarter century goes by. That's the truly shocking thing. 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 twenty five years? How did this happen? 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. I think that's probably true for a lot of people. It just depends on where you peaked. Yeah, personally, if you peak in high school or you peak in college. That's that's where all your memories are most vivid. So so, given a QR has been around for twenty five years, how has your investing philosophy evolved over that period? Assuming it's changed at all, and I imagine it as it has, but more has 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 nineties, expanding along with the literature, some of which some of our people have helped create UM to other factors, low risk investing, quality investing, UM fundamental, not just price funds. But let's let's define those UM like I think we understand what quality investing is, but what is low risk? Low risk investing at its simplest. Again, all of these you get ten quants in a room, which sounds like the beginning of a bad joke. Um, they'll all have UM different ways and different sets of ways to measure this, but at its simplest. As a paper by two of my colleagues Lass Peterson and Andrea Frazini. Andrea Frazini excuse may have left out the last syllable of your name, Andrea. I will never do that again. Um wrote a paper call Betting against Beta, UM and I forget many years ago. Bab everything's three letters because faming 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, ten twenty years ago, where he found that in basic theory, the capital asset pricing model. You know, we all kind of learn third week of an NBA finance class bill 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 all. It's it's a one factor model, and it's admittedly simplistic, even though people who created it won'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 it 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 should be paid. So the problem, of course is in some sense you can say betas 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 add a sample for a ridiculously long amount of time in a ridiculously large amount of places, meaning low beata 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. You 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 lowbay a short high beta, but you better apply a heade ratio if you're long a dollar of high bay. Excuse me of low beta. I sometimes get the sign wrong in interviews, I promise in real life, when we're trading, you get the sign right like three out of four times, and that's a pretty good n 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 a dollar along on a dollar short, you just massively short the market. Long lowbat and short high beta. Beta's work. So you apply a hedge race. Here you short less than you long, and you try to create something about zero beta, and that has created a very you know, 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. So what where I was going to ask you is if low beta returns just about the same or almost the same as high beta, why the complexity? Why not just own low beta and it will give you, on a risk adjusted basis a better return than high bad. 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 beata 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, but you're eliminating that. Yes, you can create a I'm always Lerian saying uncorrelated worries. Well, I were 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 beata stocks, you're creating a more attractive stream of returns, but still extremely correlated to perhaps your other holdings, so it could be used in different ways. So well, I think when most people think of a QR, they think value shop. But as I'm doing my homework to prep for our conversation and finding all my previous notes, you don't just wing this. No, I try not to. I've done it on a raid down val I just waned it with But with you, I feel like I have to come in loaded for bear. Let's say that's a good accident to Wall Street joke, right on purpose, not so accident. Okay, good, um, you know I have a whole I have all I got a million of it, right, I got am well teed up waiting for you. So people tend to think of a QR as a value shop, but really you're a deep quantitative shop with a lot of different strategies. Let's talk a little bit about the various ways you guys invest money. Well, let me, can I back up for second talk about why people think of us as a value Absolutely. There are a few reasons. One is there was one point in the very distant past where it was much closer to true. Um. Some of the things like betting against made up 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 has 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 um. Not even even half of your headlines, yeah are hedged fund now, Well, you know, remind me where we were, because I'll go off on tangents like you do. But but but I do write a lot of head 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. Um, and it's 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. The footnotes allow you to get past that point. Yeah, I love saying. First of all, we hate to kill our darlings, anybody rights, but secondly, you could very easily get stuck somewhere. All right, let me just throw this in a footnote, be done with it, and keep going. And it allows that. Okay, I've cleared the road for the rest of my thought. The footnotes have three purposes to me. There where I stick the humor, they are the hedges. Here are the ways that what I just said might have been bull blank and uh, and I could be wrong. And finally, they are sentences I love that my editor did not love where we can mutually agree that that that it's worth the foot that it's worth the footnote. But and they do, by the way, your editor just yes, is you god? I gotta deal with Cliff today? Just throw it in the footnote and keep going. It's helpful to have a weights paper batsket. I used to use a separate doc that I would whatever it was, something something something edits So when I would get stuck, I would let me just move the sentence this paragraph year because it's interfering with the narrative. And almost anyone who writes will find like they want to make the argument seven different ways because you want you want to both both kill the counter argument and then jump on its grave for a while. Anticipate a good editor will say, pick your one or maybe two best arguments and go with those. Um and and footnotes again are useful. So digression aside, Let's go back to the multiple strategies. Oh, I'm not done. I got to finish all right, Um, this could take the rest of the time. I cleared my schedule through dinner. 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 it's not a it's not a majority of what we do, and we go through long periods. A good example would be post GFC through twenty seventeen, where value is tough. Yeah, and we had a great almost a decade. Because everything else we do work um profitability, one fundamental momentum, one low risk one. UM. 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, meaning the expensive companies buy and large outperformed, not on price, which they did also, but they out executed. They grew more in terms of earning sales, cash flows. If you are 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 too. Again I'm pissing off Fama constantly on this, but you 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. That's on average sometimes thankfully more 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 qual 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 than 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 in a rational market, in a bubble. And here again, I'll try to make this the final time. I'm a gene farm a heretic because I love the man who specifically says, what's a bubble? Yeah? 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 as expensive is in a bubble. Single stock can't be in a bubble. It has, though, I do think the tech bubble um and and certainly by by mid COVID, we were in a various kinds of kinds of bubbles in a bubble value loses. Of course, almost by definition, people want the darlings, but they but the darlings are not the ones who are out executing. They're the ones with the greatest stories. Um. So the rest of our process doesn't protect us very much. Um that is incredibly painful period for our process that both this time, which I think we're still in the midst of and we've more than recovered from the round trip, has been good but has led to some really tough times to wait out. Um 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 and I don't think i'll I don't really think i'll find that. And by the way, um 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. No, No, it is absolutely not. So we're going to talk more about value and growth later, but since you brought this up, I want to just throw a couple of ideas at you about that decade that followed the financial crisis, where not only did growth outperform value, but really thoroughly trounced it. So there are a couple of theories I've heard that I think are worth discussing. First, the decade before, at least the eight nine years before the financial crisis, value was winning and growth was getting killed. So you started from a relative uneven place. Maybe some of this was catch up. But the theme I kind of find more interesting is that prior to the financial crisis, Wall Street and the markets had systematically undervalued intangibles patents, copyright, algorithms, etc. How much of that twenty ten's rally was catch up for by intangibles, 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 nineteen. The notion, for instance, that R and D that's viewed as an expense, maybe all of it, maybe part of it should actually be capitalized, which would go into book value and make make a firm look not as expensive. A company that spends a lot of money doing R and D is investing in the future exactly, so I think that 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 and D. It can apply to earnings, but plenty of valuation measures has no applicability for price to sales. Is should make it's I don't see where you think about intangibles. What's the price and now what revenue is it generating? And those type measures did just about as bad as the ones that were contaminatable. Is that a word, I'm not sure, but it is now um, So I definitely think you want to account for that in places like price to book in earnings, and I think collectively, not just a qr UM. That has been an improvement how we measure value and the world has changed a bit, but we it applied, and caring about price versus anything, even if it were immune to intangibles, was not a very good thing until late twenty twenty since the GFC, so about eleven years. So I don't think that you know, the real world's always more complicated. Everyone's always looking for single explanations when a lot of things have multiple explanation. So I think this can definitely be part of it, but I don't think it's the main driver. Nuance is wildly underrated in finance, to say the least. Let's talk a little bit about your research and writing. And I want to quote your favorite publication, The New York Times, who wrote about you. Quote. He built a public reputation for his willingness to write and say what's on his mind. In academia, he's known for witty, biting papers he writes for such publications as The Financial Analyst Journal. I know you don't write to do branding, but what do you personally get out of a fairly steady stream of deep, thoughtful academic papers. First year 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 LEGiT'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. So I won't pretend part of it is not a business decision, but it's really not most of it. A lot of it is the DNA. Three of our four founders met at the PhD program at the University of Chicago. We consider writing academic or often that that kind of area in between academia and applied. You know, we've written a lot of papers in the Journal of Finance, the JFE, and that's true academia. A lot of our work shows up in great places like the Financial Analysts Journal and the Journal of Portfolio Management UM, which is kind of the nexus between those two. This will sound childish, but a fair amount of this is just personal consumption. We enjoy being part of that world. We grew up thinking part of the way you measure success is whether you influence the intellectual debate um, whether and and and and how you're regarded in those circles. And it's just part of our utility function. I do think a few things first. I always point out I don't know the exact breakdown, but a fair amount of what we do is public. But there's a fair amount that we think is proprietary. And there are things that I would have a QR researchers hunted it down and killed if they published. Yes, UM, my compliance area would like you to know that I'm I'm speaking hyperbole. I would like you to know that I'm not um. But there are there are things we think, you know even if there are things we think the world will discover where you think you're somewhat ahead on and we do try to walk that line on But a lot of what we do is, you know, is the value strategy cheap um someone role writer paper saying the betting against beta strategy is really all only small cap stocks and will respond to that. So it's really not giving away some of the stuff which I think does exist that is really unique. It does go to our taste and I do think besides just the the the advertising aspect, I think one que benefit to our business is we hire a lot of PhDs, including professors. We hire some full time and we have very strong relationships where they work kind of halftime for us. Usually they get to work full time for their school. Also, it's a great deal can they get to multiple jobs. And that's because what they're doing for us is also what they're researching. It's it's actually quite beautiful. I don't think we get taken nearly as seriously in that world, meaning it would be a recruitment challenge. You can say to a professor, you could write for your whatever you're working on, you can help us, and if you ever want to publish with us, we can play with Exactly. It's absolutely twofold. They're allowed again, within the stricture of if it's staggeringly proprietary, no, But broadly speaking, we're helping their academic career also because we're okay with them writing about a lot of this, and that's very attractive versus a firm that says you can't say a word. Second, I don't think we could have even access to these people to the same degree if we weren't producers as well as consumers of this research. You get a different respect level when you're publishing, at least occasionally in some of the same journals they are, and you've become enough of an institution that affiliation with AQR doesn't look bad on anybody's resume, and vice versa allows you to have access to some of the top academics that are out there. Absolutely, there are exceptions. I think, you know, kind of near the end of twenty twenty, maybe people were being quiet about that affiliation for a while. That was a short term performance. Yeah, I had nothing to do with your research. I'm kidding, I am. I am proud of the fact that I do think a QR on an academic resume doesn't at least doesn't hurt and maybe even helps. I would, I would say, you're being um, humble, beyond necessary. I can fake that at times. All right, Well, you know, if you can fake sincerity, that's that's all right. That's right. So let's talk about a couple of your publications that I was amused by. In late twenty nineteen, you wrote, bonds are freaking expensive? How do you invest around that thesis? Because going back to the bull market and bonds that began in nineteen eighty one, it felt like bonds were expensive throughout the whole twenty tens. What made you finally cry our uncle in twenty nineteen and say, all right, no muss. Well, first of all, I'm gonna somewhat disappoint you saying we do not take very big bets on views like timing asset classes based on valuation. Auntie Ellman and I wrote a paper I forget the exact title. I think one of them was called sin a Little, where we say timing the market and this applies to the bond market as well as the stock market. Is an investing sin, and ultimately we recommend you sin occasionally and a little. Not that I've done all my homework, but that was November seven, twenty nineteen. It's time to sin. Well, I've researched it recently, and you wrote it three years ago. I'm actually bad at keeping the catalog of my own work. There's there's a lot going on here. The one year referring to was about value timing, and it's really the same concept. We do believe that when that if you systematically follow a legit, meaning you're not forward looking, you're only looking at backward data. Try to time the stock market, the bond market, or even value based on how cheaper rich it looks. They usually have very very modest positive long term risk adjustive returns. As you said, you can go through long, long periods where they're overvalued and get more overvalued. Um. We do use valuation in concert with things like momentum and profitability and things where where now it starts to be better because it's negatively correlated to those and all else equal. If you have momentum and you're not overvalued, it may be better right if you if you're using the momentum, how much does timing really matters? It's in there with more um um that piece on bonds being freaking expensive um, which is going to eventually be a technical term. I'm gonna push it that I stressed in there. I don't know how to time this um. This is a five to ten year view. I know. I tried various methods of looking at bonds. This was well before the yield back up and well before the inflation spike. UM. Compared to any forecast or trailing version of inflation, and doing that consistently through time, bonds were about tied with giving you the least they've ever given you and tied for worst is I think expensive. How someone reflects that if they are taking a long horizon, now we can get into the tina there is no alternative equities didn't look great either. UM. I think a lot of why we publish these long term forecasts, and my colleague at the Eelman and is really the master of this is both we're interested in it and our clients really seem to value it, but we don't trade on a ten year forecast. UM. Let me give you an example, a ten year forecast. Let's say you have value has power, and that's even disputable, but we believe it does. To tell you, is this going to be a better or worse than normal ten years going forward? Very often the answer will be we predict positive returns, but considerably less than history. Okay, what do you do? Are you just hedging or is that a that's genuinely often a prediction from a from a model, sort of like the forty percent number? What are the odds of this happening? You can't be wrong when you say, yeah, this stuff is always wishy washy. You know, Statisticians never say we know this. They say the chance we're wrong is small, but it's also intellectually accurate. You don't ever know something, But imagine you have a forecast. Stocks usually make ten percent a year, and don't hold in any of these numbers. We think they're gonna make five percent a year, but not negative. You know what someone is who shorts for the next ten years or underweights against a benchmark. You know what happens if you short a positive but smaller than historical return, If you lose less than you would over history, and you get to go to your client after ten years, well, I lost your money for a decade, but the good news is I lost you less than I would have used lost over the average decade. And it's a good example where forecasting the ten year period can be interesting and can be vital, right if you're anywhere from an individual to a pension fund, saying how much do I have to save to retire? What you're going to earn on that money is an important number, but it's not necessarily a timing actionable number. For years, my dad it wasn't spreadsheet. It was a little piece of paper, and it was probably calculated all wrong, because I believe it or not, my dad was a enumerate. My mom was a math teacher, So okay, I got it from somewhere. But he had that little sheet what do I need to retire? Which I think everyone has in some extent, including institutions. So we think that number is really important. But I do not recommend trading on just valuation, except that sin a little. When things get I like to joke to one hundred twentieth percentile um. The joke, of course, is there's no such thing as one hundred twenty is beyond our lifetime experience. It's yeah, it's beyond anything we've seen before. It would have been twenty percent above the prior one hundred percentile. It's the new hundred percentile. And we've really tried hard and we can't find any rational reason for it. A small move. Don't be a hero, because again, these things can get crazier and crazier. That's the sin a little. We recommend sinning a little, and occasionally I recommend that burying your personal life also in a very different context. You can apply that anyway you would like. UM. And so at that point in twenty nineteen with bonds, I think we would have told people we probably own a drop less than normal on a really long horizon. But mostly we're telling people, assume you're gonna make less now the late twenty nineteen, UM, it's time for a sin I think it was. I think I tried to use is it? Is it pronounced vineal or venal? A mild sin um? You got you got two Jews here, we need a Catholic um. The what I basically said, it's time for I'm gonna say vineal value sin a veneal value timing sin um. And I was looking at the spread between cheap and expensive. What we I want to say we created this that is probably false. You never know who created things privately and didn't share them. We were the first to publish on this, UH, and it was back in the tech bubble. This is a twenty four year old result from nineteen ninety nine, very similar period to particularly nineteen and twenty value killed we think irrationally, so the other parts of the process don't help extremely painful huge recovery UH afterwards, but during the teeth of the pain, we wanted a measure of how dream it is. And you can't always just look at returns. Returns tell you the pain you're in. But if those returns were say, justified by massive you know, earnings growth, right, if your earnings double, your pee stays the same and your return and that didn't make you more expensive. If it just was a great result, and some of that can always be in there, so you want to be prospective. So we built this measure that's very simple. All the academic and implied work that was published at the time sordid stocks on valuation measures generally went long or overweight the cheap, and shorter or underweight the expensive, and really never addressed how cheap and how expensive you always get a spread. I'm fond of saying otherwise your spreadsheet is broken or every stock is coincidentally selling for the same price to sales. But sometimes that spread is huge, and sometimes it's very tight, and it does correspond to times that would intuitively strike you as frothy spread. The more attractive the valuation, the lower value the value stocks versus the growth. Value looks better versus growth on a three to five year horizon. It's also not pure. Value is never a great timing tool. I think you do put yourself on the right side of so called catalysts. When valuations are that extreme, bad catalyst for you will hurt a little, and good catalysts will help a lot. But but but it's still I wrote this in late twenty nineteen because spreads were approaching something I never thought i'd see again. They were approaching the tech bubble peaks. Really, that's shocking. In ninety nine before the what do we have off the pandemic lows the sixty eight percent gain in the SMP, and then the next year another twenty eight percent on top of that. So this is late. This is the late we were not there yet. And I'm talking about the spread between cheap and expensive, not not the whole market. The entire market if you like a Schiller cape or something was much worse in nine nine two hit about forty five, where it hit the low to mid thirties at the peak in two thousand. Same way, the indicator that when the schillcape is very high, the pe is very high, the ten year perspective returns are low. We don't actually go short something because of the schillarcape. It seems like it's been on the high side for decades. Yeah, that's one of the main ones Auntie and I look at and saying, it's pretty hard to make your money actively timing based on only the schillar cape. It is much more reasonable to have a valuable ten year modification to historical norms because the shillocape is high or low. But in late twenty nineteen I wrote this, It's time for a veneal value timing sin. I wrote that I'm ignoring momentum or trend here um, which is against a lot of our philosophy, and and largely because I thought this was epically crazy and it could come back very very quickly, just because on average, trend and momentum work on average. You want to be able to do something that works on average many many times. You only had one shot at this, right If this came back in a three month melt up for value stocks, you could miss a lot of it if you if you didn't do this, um so, And it turned out if I'd listened to trend plus value it has worked out well for us. It would have been even a little better. So there's a little bit of a moral story. I give you my faults as well as my but I wrote this thing, and then about I don't know four or five months later, I wrote a follow up piece saying, no sin has ever been punished this violently and this quickly. I will make an excuse, but I think as excuses go, it's one of the better ones. It's called covid. Um certainly that was not in my predictive power. Um Also, I think the market reacted ex posts certainly crazy to covid Basically, you remember, all you needed to own was Peloton and Tesla, and values were going to cease to exist in the lockdown. Well, Tesla started running up in anticipation of being added to the S and P before just really went next The value as we are almost anyone else measures it was destroyed over the first six months of COVID, and it turned out not to even be directionally true. The value stocks fundamentals, what I call them executing outside of what the market cares about, just executing their companies was actually strong, even including the pandemic, so the fear did not materialize. We thought those spreads got crazy, but they as approached as opposed to approaching tech bubble highs. Never thought i'd see in my career again after the tech bubble. Admit I got that wrong. They blew past it, well passed it when COVID hit, and we stuck to our guns and even added to that tilt a bit. We tried basically any explanation that someone from the outside, a strategist, a pun did, a client, consultant, or internal that we could come up with for why we might be wrong. You know, the way I think of these is, you've got to keep a really open mind, consider why you might be wrong, test that story, and if at the end of the day, there's something that's unprecedentedly crazy looking and you have after keeping that open mind rejected those stories for then you got to plant both feet and say I will not be moved. And I think we've gotten pretty good at that over time. I never wanted that one thing you asked earlier about investment philosophy changing, and we went off in twenty other fun tangents. One major way my investment philosophy has changed is at the beginning of my career thirty years ago. Really, if you go back to the Goldman days, if you had asked me what will make a great investor? Quantitative in my sake but in general, I would have probably given you an arrogant answer that, oh, just being smarter than other people, you know, being smarter than other investors than the market as a whole. The arrogant part is the implicit assumption that kind of comes along that I'm one of those people. At the I still think this is a bold statement. Smart is good. I don't think I haven't changed the sign on smart, but I now think long term success half the battle is after keeping that open mind. You can't skip that step. If you decide you're right, having an extremely ordinary sticktuitiveness to you is an equal partner to being smart, all right, So I'm gonna just edit what you just said for a moment because I understand exactly what you're saying, but I want to rephrase it. So intelligence in the market, those are table stakes. You have to assume everybody you're trading with and against is intelligent, even if it's not true. You have to assume that that's what's on the other side. Hey, I don't know who's on the other side of my trade, but I'm gonna assume they know at least what I know, if not more. What you're also sort of suggesting is you have to learn when your high conviction trades become I stick to my guns and ride this out, even if I'm wrong for a quarter or more or four this will eventually work or eleven because I know these numbers precisely. Because drawdowns have this amazing subjective. We borrow the term from physics time dilation, even though we use it differently, where you will look at if you look at a back test or even real life returns and you see a fairly horrible drawdown, but you know it ends well, you look at and go. Of course I'd stick with that. It's a great process. Look look at what it delivers two three years. As some of these can take. They are an eternity. Everyone wants quarterly numbers, which means you've gone back to people eleven times, twelve times and said we stink again. It becomes a proof statement the world and your show is a partial antidote to this. But the financial media does a great job of coming up with stories why whatever's working is the truth and whoever's losing right now? Um, so you're defending yourself. I do think we've done a great job of sticking our guns at these times. But I do worry that some years at the end of my life have been used up. What's the quote? There are some days at last decades and some decades that well, we talked about children. That's an example of decades to go by. In days, draw downs are an example of days that go by. Days it feels far longer than it really is. And what I might call I don't think it's a real term, but statistical time. When can you actually say this is wrong? Um, it's pain time. When you're in pain, time goes much more slowly. Time flies when you're having a good time. And this is the inverse and and this is this is perhaps self serving, but this raising us a rational after being open minded and cynical. Sticktuitiveness to half the battle is also why I think some of these things last and don't get arbitraged away in a reel as late as twenty seventeen, which again was a bad period for value but a very good period for us, and our firm grew. Most common question I'd get, particularly in public forms, would be, and it's an intelligent question, if this is as good as it looks like, why is in an arbitraged away? And I literally I did not expect or want to be as right as I was over the following three years. But I would say, particularly having lived through the tech bubble, you have no idea how hard this can be to stick with. At times it is not that easy. It seems easy now over full cycles. And I am schizophrenic about this. Half of me hates it because these times are hell, but half of me realizes that if they didn't exist, right, this every value manager on Earth, and it's probably applies to non value, but this is people like everyone every discipline on Earth in finance. Anyway, I'm gonna I'm gonna steal your line. You don't get the full glory of the upside without suffering through the out of favorite down. So West Gray, someone you and I talked about before we started, Um, has a great I think it's West's term. It is exactly where you gonna pain no premium. Oh no, I was gonna say even God would get five. An active manager is a line from Lestina said no pain, no premium. Um. I'm not good at I'm good at offering attribution. I'm not always good at actetting. But they're both awesome. So um, But I do think there's truth to that. My favorite story which I'm gonna make you listen to now, Okay, this is from the tech bubble. I am probably late ninety nine, early two thousand, UM, at home at night talking to my new wife, and I'm whining, and and worse than whining, I'm cursing up a blue streak about how stupid and crazy this world is, none of which I can repeat even with the lax or laws today on George Carlin, seven words, I still wouldn't go through what I was screaming that night. And she said to me, she only said one sentence. The rest was implied. She said, I thought you make your money because people have some behavioral biases and the rest is implied. She's saying, but when those biases get really ugly and they make really big mistakes, you whine like a stock pick. So wait, you're a quant and your wife is a behavioralist. My wife has a master's in social work, so I guess, I guess behavioralist is accurate. And anyone who's been happily married, which I'm going to search, she is and she can Rebut if you invite her on to me for for for a quarter century, is it has to be a bit of a behavioralist. But what we all want, which will never get, is a world where there are opportunities. We're active investors. We think we make the market a more efficient place. We think we make capital markets better. That's important for society. But we exist to a large extent to take the other side of errors and and and correct that. We don't want a world with no errors, because there's nothing to do. We want a world with there are significant errors. And after Barrier Cliff puts the position on eleven minutes later, the market realizes we were right and hands us our money. That doesn't work, though, And it doesn't work that way, it is almost perfectly calibrated to make sure most people can't do it. Um I like that phrase it I don't. I wouldn't say it's almost perfectly calibrated. The countryside is littered with people. By the way, I don't know how much I know you spend time on Twitter. We'll talk about that on Investment TikTok, which has since shrunk dramatically. I love it. I never got on investment well. I access it via Twitter. Do you like wrap your stuff on INVESTMENTO? Do you ever do? You may put it to a son trimality might be more proprible. What I love is so what what TikTok calls investing TikTok? I called Dunnan Krueger TikTok. And my favorite is the young couple, both good looking people who choose the way we The way we make money is we only buy stocks that are going up, and once they stop going up, we sell them, and that's how we subsidize our whole lifestyle. I am not paraphrasing. That is like a verbatium quote, as as one of jagadician Tipman or the two academics who really deserve prior place of momentum. But it's one of the very early discoveries of momentum. I always got to give them the there's a little truth to what they're saying, but they don't do it. Tend to do it in a very disciplined way, and very often um individuals and institutions and professional investors tend to be what I call momentum investors. At a value time horizon, they look at something that's been strong for three five years and it's got to keep going and at that time arising. You want to be a contrarian, not a momentum investor. So I feel obligated, as a co author of some of the momentum stuff to defend that a little bit. But this is not adding up well for these people, I promise. One last thing about it. A running joke I've had for years is people, in describing this kind of thing often subtly use the wrong tents. They talk about buying what has been going up, but the implication is it is going up, and you just gotta watch your tents. Very easy to identify what has going up, and it's part of our process. By the way, I would not be a pure momentum trader momentum has what the geeks will call a very bad left tail. Some famous periods of reversals in market, the most famous spring of two thousand and nine when we came off the GFC. Yeah, for multi factor it was actually enoughing value did well enough that it was not particularly but if you were a pure momentum investor, that was a very very ugly period. So in another way, I think this couple that I've never watched is probably getting it wrong. Yeah, to to say the very least, So I could talk about your publications forever. There's a few that I feel like, why don't I throw three or four at you and you tell me which ones you want to talk about? Stock options and the lying liars who don't want them, stock buybacks, unmitigated good or incomprehensible evil. That's a paraphrase. AQR Zone research has disproven the size factor and undermined long term investing or for what is volatility laundering? Okay, I mean I'm gonna I usually lie about this, but I'm gonna try to be quick and just go go through them. Stock options and the lying liars who don't want to or won't expend somebody forget the exact title. It was a player in an Al Franken book back in the back in the time. I think Rush Limbaugh was the was the was the villain in his title. This was particularly post tech bubble. There's been this issue forever that stock based compensation, be they options or particularly if they're options, are not considered an expense of the company. That the paper I wrote, does this beat to death. Let's look at the twenty two ways you could argue this and why they're all stupid. The best argument is the simplest one. These people accept a lower salary and want these things. Obviously they're costly ultimately to shareholders. What's a little said? And I won't go through all the other subtleties. What's a little sad? As We kind of won the battle in that current accounting standards make you expense stock options, and that was a change, but we also lost the battle because plenty of firms, particularly in the tech world, still issue kind of ProForma earnings that don't expense them, and a lot of Wall Street analysts, to their shame, in my opinion, let them get away with it. Use those numbers. They're just not real. Let's go to one of your favorites buybacks, buybacks. You gave this manichean evil or good. My positions, actually, I don't say it mildly, but much more mild than that. My position is they're largely in nothing. They're largely um, very close to a dividend, you can say, and you can argue there are a more tax efficient, more tax efficient dividend. And by the way, I don't take a great stance on how they should be taxed. That's a separate issue. I take a stance on the idea that they're evil. Um. And by the way, that this is one of the fun ones today because it's horseshoe theory. Both the left and the right hate buybacks. Yeah, it's kind of interesting, isn't it. It's just, you know, for different levels of numeracy and paranoia. Um, they think this is just a scam. Again, there could be forty arguments for why buybacks are neutral and are not the evil thing you think. We give you one argument. Sure, in a world where companies do buy backs and other companies don't, the companies that do buy backs tend to perform better than the ones that don't. They that's been a very mild effect. But it has been true, and it's been a relevvely short term. Now is it. Whether it's causation or correlation is a whole nother conversation. If it is causation, the most likely estimate, which is not crazy, as management has more information than you do about about the stock. And by the way, if they, if they, 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 relevely small effect. But that's interesting because you make such a I've watched you. You and I have debated it on Twitter. But I've watched you and I'm not so far from your position. But I've watched you demolish people on Twitter as if it's a giant. Hey, this is like the value effect. It's not. It's 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. Um, but the simplest way to explain it now, let me give you two quick ones. One is most of it is a re allocation or other stocks. When most investors get participate in a buy back, they put it in back in the stock market, run in another stock. It's a diversifier. 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 earn 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. Right. Bonds, often corporate bonds can have covenants that say you can't lever beyond a certain point, and if buybacks pushed past that point, then there's a legitimate argument, but that's contractual. The bond holders should be a lawsuit that would stop that. I think I think got to be pretty much. I think UM buybacks also get a little demonizes because incorporations do do this UM for some reason I do not understand. They often couple them with the executive stock option grants we talked about before, and I think there is a little subterfuge going on there. They don't want to share account to change a whole lot, and because questions will be asked. I think that's the most valid criticism is, hey, you're really hiding all this exact compensation by doing a expense 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 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. Yeah they're I think you've deleted a bunch there. I don't know if they're around where anyone could well. I challenge you to find them, knowing I've deleted them that this is part of my strategy. But it regardless if you look at what we wrote. The derangement we write about is how much people hate them buy back derangement syndrome. Yeah. We titled both a h an academic paper in the journal Portfolio Management and a Wall Street Journal editorial. So you know, from whence the derangement comes? I know, trump arrangement. No well no, no, no, by the way, it used to go back to bushed arrangements. Oh, it's not just trying to remember it from yeah. No, So you know, when you get older, the memory start at some point there was there a Millard Fillmore direction. I'm not that old, I'm not that much older than you. But it's just all of the anecdotal examples that people my two faces. Back in the day, Dell was notorious for top ticking the market when announcing their stock buybacks. But now you have the train derailments and they had a buyback last year, so of course the buyback is the reason why they didn't upgrade their breaks, and that example become it sort of colors everybody's here. You respect them, Medigliani and Miller. Firms should and I'm not saying theories 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 terminism can be exaggerated. So if they need the money they should be investing. They can raise money in debt and a lot a lot of the buybacks, by the way, and you could argue leverage has its own problems. But have been a corporate treasurers thinking that bonds were more overvalued than stocks, so they should buyback stock and sell another arge during the twenty tens, it's very rational to borrow cheap and buy back stock. Yes, essentially, And and that means and we show this in our 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, and in an argument, every side pixes and chooses their favorite examples. This is a company that brought back that then did great and uh and and you know Apple has brought back a ton and sometimes they're criticized for that, and I'm like, it's it's well, it's fairly well, It's worked out fairly well for them. They don't say 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 of of buybacks, so I think I'm mainly yelling into avoid saying this is just not that big a deal, but it's politically too good for populace of both stripes to yell about to go away. Huh really really interesting. Last week actually I interviewed Maria Vassalu from Goman Sack's Asset Management, who painted out that within the small cap effect really is a microcap effect and if the small cap has effect has disappeared, Well, first, let's let's talk about your research. Was there ever truly a small cap effect? I'll start out saying I don't know if I don't think I've met Maria, but she's right, Um, was there ever? Is the right question. There's a little bit of a of a Keanu Reeves matrix thing going on here. Is there really a spoon red pillars? Yea. Our 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. UM essentially or in the early eighties, UM, the original capital asset pricing studies look pretty good. Seemed like beta was rewarded, and that later got revised also um but then hole started appearing in that pure one factor world. The first major one was that even after accounting for beta, small cops caps generally have higher betas they move more. If the market goes up five percent on average, they might go up seven percent as as a group, So you're suggesting it's just a more risk they're they're more volatile as a rule, and beta's composed of correlation and volatility. I think it's more of the volatility than the correlation driving, but they're higher beta. The cap m or all theory says you should make more money if you're 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 that 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. In any study, you need to make an assumption about what people actually got out of that delisting way. You're suggesting this whole thing is just survivorship bias a little bit though 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 else equal, making small cap a little less attractive because your data has 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. Those betas are generally under estimated 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 more than 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 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. Their betas should have been higher. More of their return should be just attributed to the market going up, and it's not. And basically between those two things, there's nothing going on small caps and this is not a bad thing. Small caps need to be priced reasonably efficiently versus large caps. One thing, by the way, that's kind of surprising, given how much more coverage is on the better known big caps and how often these are orphans. 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 affects that quants and academics believe in value being again, maybe maybe the poster child, but not the only one, do work better among small caps. So long cheap short expensive in small caps and 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 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. That's very small. 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 and just and that we're finding is no longer. We don't think it's supported, at least if you only adjust for beta. Just to make everyone's head hurt. We have an additional paper showing that using the more modern factors that weren't even around in the eighties when guys like Ralph Bonds and a few others were were looking at the small cap effects, 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 unprofitable. 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 penalty of modern factors. Small cap against the market is not a bargain. What about the microcap against the small cap? Why does think to have something 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 and the higher beat is from illiquidity. But whatever, if there's something left, it is disproportionately coming from microcap, that's true. Let's talk a little bit about one of the things we haven't discussed, which is macro, and twenty twenty two was kind of a good year for macro at least if you want on the right side of the trade. Um Why why why was last year so unique? Well, it's it's interesting we haven't talked. We've focused largely on stock selection and value um. A big part of our business is actually macro um. 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 an early inside of ours, when frankly about nineteen ninety five 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 work like this, you'd fire your mechanic. Right If your car work six out of ten days, that would be pretty bad, but it's pretty great as a 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 a releavely recent innovation and super important 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 and carry and other things, but we run some really focused on both economic and price trend factors um 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 right, 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, meaning commodities, currencies, anything that you bond with commodities, currencies, equities, bond futures, and we've actually expanded that to what we call a lot of alternative trends UM more esoteric commodities, yield curve shape trades. Even the equity factors themselves, even though we're talking macro show. 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. Um sometimes you accept the medium or high correlation, but it's mostly about the risk adjusted return of the acid itself. 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 draw downs in the equity market, but this combination has always been a nice edition of portfolios and attractive to people. It got very loved after the GFC when it really did what it was supposed to and you had a giant trend that lasted, it felt like forever. Yeah, 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. They didn't make it. Didn't make a lot of money either October nineteenth of eighty seven, which saw a small trend start to start in about August, but not that much. And obviously COVID was trend following was not how to protect yourself. There was no trend to follow out of the blue. A pandemic hit exogeneous shocks 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 DFC, unlike value loss money versus growth, value loss versus growth. But still people started to lose interest in it. They got excited after the DFC. And then if there is an insurance like aspect, which I think there is, to trend following ten years of a wild bull market, a lot of people start going why do I need Why have I been wasting this money on insurance? And then last year and not I think it started in parts of twenty twenty one, and it's it's still continuing a little bit this year. But last year was a blowout year for both trend following and UM and even the more general macro investing that considers relative value. And it's exactly the year it's supposed to help him. UM consider a rival insurance strategy. Always owning puts sounds expensive. It is expensive, and sounds like it doesn't work most of the time. I've had huge Twitter fights whit and it seemed to leave about this UM. But like you and Bose Weinstein both seemed to go at him politely about and you both have the shot it out. I did what I would I always do. I started out politely. It didn't necessarily it didn't necessarily end there. And I will say I think it seems 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 the differences, you bring a certain degree of personal humor and charm. Well, he can perhaps does not make fun of himself that so you know, will you all exist on a continuum and everybody sort of slots in in different places. Absolutely, I find you much more accessible and warm and fuzzy. Listen, his books are groundbreaking. He's no one's going to argue that he's not brilliant. You're more accessible on Twitter than he is. I do try to be um the so a strategy he's been involved with for a long time. That kind of corresponds to his black Swan books. It's a very good book, m's It basically is one liner a giant things happen more often than we quote normal model, normal distributions say. 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, But my colleaguante Elmanan is getting very lucky in that same he wrote a book called Investing in a Low Expected Return of Environment right before twenty twenty two. So you can write something it's absolutely right and correct, but timing luck thirty six and we're almost there. When did that come out? Like, at least one of the book was none. The difference between Auntie and na seems books they're actually real and meaningful, and that book was just nothing but none for pure fun at the end. You can ask me about that again. But the strategy that seemed 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 liked to seem saying, actually, we we whoever he works with, does this much smarter than pure rolling of puts. It's not equal size every year, A million other ways to spend that. But but he doesn't like the basic finding that Aunty is. He wants both and I won't give him both. Um puts work really well and crashes Yeah right, March of twenty twenty October nineteenth of eighty seven. Huge. Uh. The their 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 failed to help with. They did not particularly help in twenty twenty two. There was no crash quick well, no too slow for the puts um in twenty and then you snapped right, But that was March of twenty twenty I'm sorry now, you're you had it right given your time period. The puts helped like crazy then, and managed futures didn't. In twenty twenty two, managed futures helped like crazy because it was a long slow developed in June, 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 they hedge different things. Puts hedge bolt from the blue crashes U and trend following hedges long slow crashes. I will make the self serving claim that long slow crashes are tend to be more deliterious to your wealth long term things. A lot of short term crashes reversed soon afterwards. They're really about surviving. UM, So I will make a small commercial for how we do it. But if someone a little bit more reasonable than the seam wanted to go, all right, it is costly, but it's less costly than you think, and maybe we should combine these two. I'm I'm I'm wide open to that, but in twenty twenty two, and frankly, I don't think you know 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 there's great macro vall when people don't know what's gonna 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 is special, So it's dangerous to go. We have more uncertainty now than normal, But I do think I'm gonna 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 gonna happen. You don't know if we're gonna 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. So let me let me push back on the more uncertainty, okay, because I cringe every time I see someone on TV say that, me too. When I gave you a long caveat that, I feel did it did? But and yet you still went jump right, Which is, you know, when do we ever know what's going to happen in the future, When do we have a high degree of confidence. I take the behavioral side, which is when people are talking about uncertainty, what they're really saying is, hey, we're having a hard time lying to ourselves about how little we know is going to happen, and we're starting to get nervous. So macro val might be the good descriptor for that where you can't pretend you know what's going to happen, because it's so I want to say uncertain, but that's the wrong word. You just lose yourself confidence in knowing what might happen. We're directionally the same, and I did also as part of my caveatside I still wouldn't time this very much. I do, and I admit I want to. I explicitly want to count of the belief that people might think we've missed it. Managed futures is it's one a decade, huge positive. It adds up to good over the whole decade, but it means reverts now. We see no tendency for that real historically. No, it's a trend following strategy. If it starts to get it wrong, it'll switch its mind pretty pretty quickly. Actually, the fundamental trends that we've added in the last five to getting closer to seven or eight years, we think have made the strategy materially better. It's no longer just your grandfather's trend following strategy where you follow a price. We think that always has a role for a portfolio. In 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. So, given the fact that you've been investing now for thirty five years something along those lines in your lifetime, have you ever seen a ten percent spike in inflation or of five percent rise in rates as an investor UM five percent 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. I know for a fact because I looked at it recently, that I've not seen uh, you know, five six percent inflation in my career. UM. Now, 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 than than than a than a more discretionary manager. But we do have one advantage. UM. Sometimes they're they're maligned correctly, but sometimes they're over maligned. Back tests 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 the core stock selection strategies. An Auntie is again I keep quoting Auntie. You should have had him on instead of I did, I know you did? I know you did. Um. But if I'm going to quote them all the time, why not just go go go to him? Um. 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, But that's a tautology. Macro wise, this very little relation, there's very little consistency to it. Um. That's actually I think a good thing. Um. 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 it's 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 without 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. So when you're looking at back tests and you're heading into twenty one and twenty two, how are you thinking about the risks and do you make changes? Do you just suffer through twenty and twenty one waiting for twenty two, or are you gradually shifting the portfolio mix before you make it to the promised land. 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 mean, it's the six blind men describing the elephant, and which is my favorite parable, But we're really just talking about different aspects of what takes place in risk market for value. Yeah, well, to be honest, when 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 twenty twenty and say we're gonna have to wait, and in fact it by waiting till March twenty twenty two. Mark your can the well. The funny thing is value actually started turning around in late twenty twenty. Everyone calls it twenty twenty two. That value has been coming back since since COVID started to to to well. Once everything got way crazy by the end of twenty It's not. This is a little hindsight bias, but it makes sense for people to Sorry, let's peel a little off here and rotated. No. Absolutely, And 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 on net from here, say you know, one day go up again doesn't really help you. If it's gonna go down more, then it's going to go up in the future. It has to be on net right not this time. Um I won't say I didn't break other things, but that's just between me and whatever strewn around my office. Um So, value on its own. Yeah, well, sometimes we do wait catalysts or famously people look for catalysts. Obviously momentum both price and fundamental. You could 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 at X post, but I don't think anyone can consistently do that. You look at the peak of the tech bubble in March of two thousand, You look at the peak of the valuation bubble in stocks, which was kind of October of twenty twenty. 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 egregiously valued, the odd 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. Following strategy, it was a better timing story. Again, it didn't make money for a long time, but didn't lose a lot, and both from some price trends, but I think even more from fundamental trends. We started to see the fundamental trends that could lead to a more inflationary environment. Again, it's not us sitting around making inflation forecast We're not macro econists. Fundamental trends are things like those actual economists revising up their inflation forecasts. Growth trends are things like GDP surprises aggregated for the whole for the whole world, if you're doing the oil of equities or country by country. Those did a really good job of getting ahead of the inflation that came. So there, I'll say on the value side, I'll say we didn't do it very good job on the catalyst, but we did a really good job on sticking with it and has paid off on the trend following and macro side, i will say, I'll give us higher grades on the catalyst side as to the timing, but that's naturally what it's trying to do right by definition. Really fascinating. So the past couple of years we've seen a huge performance of value over growth. What does that mean looking forward? How much persistency does that value advantage have? Especially following a decade of growth advantage. It's funny it takes a much longer time for excesses to get squeezed out of the market than people think, particularly if you're on the wrong side of it. You're like, if you're a growth stock investor, the last two years, I'm in such pain. This has to be extreme. No, We again, we start with measures that don't look at returns, that look at the actual valuation ratios of stocks. And at the peak of the bubble in twenty twenty, a few months after COVID it by far the widest ever north of the tech bubble after two plus phenomenal years. It is now. The last time I looked which a couple of days ago, it was at the eighty nine percentile, so still wildly Yeah. Also tactically I said, I think I did. I tilted a little too early because I went on just value, not on trend. The trend is now at its back, so we're at you know, nothing is a certainty that can be huge reversals in any trend into room. I don't want to predict the next quarter, but we are still very excited. We're seeing still a mispricing that prior to COVID, I would have considered almost close to tide with the most extreme ever, and we're seeing the wind at it's back. So again I don't want to overpromise. The short term can always make anyone look silly, but on a few year horizon, we are super excited about value. So the Goldman Sachs nonprofitable tech basket and there's another basket of low quality stocks they've crushed it in twenty twenty three. Is this just a dead cat bounce? What does this mean? Is the cycle changing or what's happening in your least favored part of the market. This is going to be a hard one because it's confusing. Yeah, I'll tell you that in advance, but it's it's confusing in a different way. I think even than you're thinking break up what's going on into pure measures of junk no valuation here, low profitability as Goldman does against high profitability, and Goldman's not wrong about that, though not surprisingly the results are right LOWBATA against high beta that we often consider part of quality. All else equal, you'd prefer a low beta. All else is not always equal, but if you can have less vol and less sensitivity, it's a good thing. Profitability choosing more profitable and underweighting or selling low profitable, and beta choosing low beta and underweighting or selling high beta. As a together, as a group and individually have had a really bad start to this year for the exact reasons you're talking about. It has been a junk rally now here. I'm hoping to blow your mind a little bit. Go ahead the way we measure value, and keep in mind everybody does it a little different any You could have ten great people here and they're all going to have their own favorite ways. One thing we do is is since nineteen ninety five when we wrote a paper on this, we don't allow value to take an industry bed. We try to make it apples to apples. Everyone talks about value in terms of like tech versus textiles. You can't fully remove it in a bubble. These are all correlated, but we think value value can be hard to compare. Valuation ratios can mean very different things in different industries. So um, but broadly speaking, are and compliance gets nervous when I talk about performance to the public, but I will tell you value has had a Alane has had a very strong start to this year. Which you would not guess if I told you it's a junk rally. Now they can happen simultaneously and perhaps for different reasons. Now, this is actually much more normal historically when junkier when when profitability and value are often negatively correlated because the cheap stocks are often unprofitable. Um So when the profitability factor, if you will, is doing well, it has at least a decent negative correlation. It's been stronger in the US than globally, but it's negatively correlated value. So what's going on this year is more normal, but that is not what was going on for the prior a few years. Value and profitability in particular, we're highly correlated because in a bubble, remember, in a rational loss for value we can do well. Profitability does well in a bubble. It's not the profitable stocks that are throwing to the moon. It's the story stocks. So let me take the other side of the bubble claim and say, hey, stockscott overvalued in twenty twenty one, But was it really a bubble? We're down what twenty percent on the SMP the NAZAC. That seems like a run of the mill draw down and not a full on crash. One of the hard parts is in a fun way because they're all relevant. We're mixing a few different things. There is the level of the overall stock market and the overall bond market, and then there's internal to the stock market, how cheap stocks did against expensive stocks, how profitable stocks did against unprofitable stocks hedged without a market exposure. Right. People have used the term everything bubble, which is really wrong. Everything can't be in a bubble at once by definition, by the way the opposite you can short the values. And we were in a depression, not a bubble. But there were some correlated things going on for the market as a whole. The move in the stock market in one year was big, not something we don't see occasionally. This is this is not on the seem to lead black swan moment. The move in the bond market was very big, closer, but still not a black swan. The moving sixty forty maybe not still black swan, but was far more extreme than either alone because they happened at the same time. Time. You saw that again, Auntie, It will be the first to admit he looks like his timing is better than it really was, because he's been saying this for a while, but that was the core of his work. He does a ten year forecast on the outlook for sixty forty what current valuations coal. It's more complicated this, but cold the Schiller cape for stocks lower expected real returns when the Shiller cape is high, and just really yields on bonds yields versus economist forecast of inflation, and he takes sixty percent. Here's the genius math to get to sixty forty. He takes sixty percent of the stock forecasts, adds it to forty percent of the bond forecasts. That number hit the low. Ever, at least as we can monitor it. I won't say the rot the end of twenty one. Call it yeah, that's pretty good time. I always feel guilty when I say ever, maybe in the Roman Empire it was worse, but we can't. We can't measure it in the measurable universe that we have. And sixty forty. I'm gonna try to get this right. Sometimes we talk global, sometimes we talk to you us. Call it. It's made about four and a half percent real meaning over inflation over the long term. That's actually quite a nice real return. We're used to talking about nominal returns make and almost half bonds, So four and a half percent real is a very nice um. Auntie's forecast, which I think is is quite useful, obviously got down to below two. It was in the high ones at the end of twenty twenty one, just looking at current valuations and saying how does that usually play out over ten years. By the end of twenty twenty two, after all the pain, I think it got into the just about three really, which that's surprising given that we're now looking at rates in the four to five percent ring. Well, remember this is real, and right now this gets back to you challenging me on is there more uncertainty. It's pretty hard to come up with a really good ten year forecast of inflation right now, but certainly positive is forecasted. So five cash is interesting again, I'll say that, but how interesting it is depends a lot on what your actual inflation outlook. Bonds are interesting again. So basically, the fairly massive trade off was still only a one year trade off after a thirteen year bull market. You don't fix, and not all of that bull market was bubbly. A lot of that was fundamentals, but a lot of that was repricing things getting more expensive. You don't fix thirteen years of getting more expensive in general in one year. I'm not sure you want to because you've got to go down a lot more than we did. So Auntie's number, which I agree with U instead of four and a half, he'd probably use in the low threes. Now, as if you're sitting there saying, what do I need to retire? What's that number? Um by no means are we certain that three is irrational? That we need to get four and a half? Four and a half. And I know you've heard these arguments may have been just too good of a deal historically. For instance, for much of how you saying sixty forty has been arbitraged away or is it just the environment we're in it, it may have been repriced higher price to a lower expected return. Here's my favorite argument for that, and it's it's not a complicated one. Very few people actually got the four and a half percent weal the costs of investing in various ways were far higher today, and almost all portfolios were not like index funds today. They were you know, you had a broker who so a lot of friction and the effective volatility of your portfolios double the markets because you owned a handful of socks. So both the top line was lower because he didn't get you didn't really get it, and second you were facing higher risks by choice. But the index fund concept didn't exist for much of this time, so and even when it exists, the concept existed, you couldn't execute on it. So basically, I think the three today may this is very arguable, but maybe as good as the four and a half historically in terms of what you get to keep and what risks you have to take to get it. At below two, and this is art, not science, nobody can tell you what this no should be. At Below two, I an aunty and a lot of people didn't think that's too low, that doesn't make any sense. But above three maybe I I you know, I think pimp goes a super firm, but I hate to give competitors any credit anytime, But we maybe have a new normal, lower than normal, lower than historically normal. That's really really interesting. All right, So now I gave have you for five minutes, which means this is our speed rounds and these answers have to be less than sixty seconds. Are you're ready, I am all right. So first we'll do a quick three part curveball one minute. How early do you pull a goalie when you're down one, two or three goals? When you pull? You pull a goalie if you're down one at about five and a half six minutes in the last period, in the last period. All this can be situational. Our model is simple. Right, if it's in your own zone, you put the goalie back in for a while. All sequel. The two goal result is the one that always shocks people. You pull about eleven minutes, you're essentially paying playing the last period. You're playing half more than the period, and the ideas you're out of the money option losing by three, four or five, it's the same. It may have pride issues, which is not in our model, but it doesn't have standings issues. And three I actually forget the number, but I think it maybe before the third period. Got it? Uh M? A poker tournament in April? Are you participating this year? Since about since the GFC, which really had nothing to do with it. It's just coin sent little timing. I have only played poker in every third year in that charitable tournament. My skills to the extent I ever had any I was never a great poker player because I have a short attention span and a lot of poker is being patient, willing to stare at somebody for seven hours so you can remember what they did six hours ago. I had fun with poker I had. I think I was pretty intuitive. I didn't. I don't lose a time, but I probably lost money in my poker career. First time I ever, I learned poker to play in this Math for America tournament. I didn't know seven or hold him. I didn't know how to play. And my second year I played and I came in second day. There's so much random chance in one tournament over time. Poker's pure skill over anything. It's very similar to investing over sure horizons. It's really not. But one of the worst things that can happen to you as an investor or a gambler is to get lucky early. Yep. Absolutely the best thing for you is the walk into a casino and lou No matter how smart you think you are, you think you're smarter than you than you were, always looking for that hit a dopamine. Yeah, I don't know if I'll be able to get you an answer this in under a minute. Marvel or DC, and what's your favorite Marvel film? UM? I do like both. I'm a I'm a comic book fan. I was reading this is how I learned to read. I'm more of a Marvel guy. Um, though sometimes DC's great, it's varies who who current Wryter Crop is better. M favorite movies hard. And what I'm saying is, if you go find other people who have asked me this, I'm not claiming full consistency at varies whole time. I think the original first Iron Man that kicked off the MCU is an underrated movie. It's a damn good movie, and not in the MCU. Before the MCU, the first X Men movie, I don't remember even how great it was, but it was the first time we saw maybe Michael Keaton's Batman in eighty nine, but from me, certainly with Marvel, it was the first time I saw a superhero movie or TV show that didn't look ridiculous, that looked the CGI and the effects caught up. That was good. So I think there was a milestone. So those two, I'm gonna throw two at you because I think they're they're both have a so it's a lightning round. But you're disagreeing with you, I'm I'm I'm impending, all right. Deadpool and Guarding to the Galaxy both have a certain sense of humor. Aways that's right, always seem to be missing from the rest of the mark. I love those um as and and it's not some some people want to be purist and say that's not how the common books were. They're wrong. If you're really they had they were wise cracking during every fight. So I do love those for the combination of humor. X Men didn't have much humor. I'll admit that Iron Man one did, mainly because Robert Downing Junior is just hilarious. He was so good. So I do like the ones with humor. So let's talk about favorite books. What are you reading? What are some of your all time favors? Can I rant one more section? Marvel movies? Um, you didn't ask me when my least favorite are? Oh, go ahead. They should find every copy, which is hard digitally these days. Doctor Strange and the Multiverse of Madness. Yeah, and they should bury it in the sun. Let's move on. That's all I want to say about that. Well, you're not a fan of Doctor Strange Terrible. I'm a big fan of the character. It makes me even angry. Let's talk about favorite books. What are you reading that? What are some of your favorites? My all time favorites tend to be in the sci fi fantasy world, not surprising given our comic Are you a big dickhead? Um, I've read a bunch by him. That's one of the odd questions I'll get, By the way, I am a self professed to head. And when I say that, people who don't know Philip nay Dick in my career of going to comic book conventions, I've not heard that term. Oh really, It's very common on the internet, and it's really the one thing fun about him is he's written a lot of things that became like famous movies that no one knows. It's the Schwartzenega movie. They did two of them total. Recall, right, we can remember for your wholesale? Was that short story? My my all time choice? One is very cliche. Go ahead, Dune I loved. There are a couple of Frank Herbert books that are just amazing. First The Dune Friend. Yeah, the first two Dune books I thought were great, the first one much better than the second one. Then they got totally weird, very messianic, religious odd that was always a thread three a thread, but it became all that. But I loved Dune complex book. You know, sci fi or fantasy sometimes gets a simplistic, childish label. Dune blows that away. Um. The last movie was the first time I've seen doing reasonable on TV. Don't even start me on sting of dueling with the swords that were in the book. Um. Also, I'm a big fan of some of the old pulps, like the original Cone stories by Roberty Howard in the thirties. Not we're not talking. I'm not against him, but I'm not talking about Arnold Schwartzinker's Cohnan And I'm talking about the stuff that appeared in like weird tales serialized and then became books. I think Roberty Howard, he unfortunately killed himself very young. Um, and no one, you know, no one remembers him, but hes now he didn't. He created Conan and his writing was so rich, like dripped with feeling and color. So I was a big fan of that. This actually segues nicely into what I'm reading now go on, because I am rereading the original basic Lord of the Rings, which you use the term table stakes before. That's table stakes for a fantasy fan, like every other summer. As I I like the Hobbit, I never liked the full Lord of the Rings I have. Now I'm liking it more. Um. I have found historically I have a small tolerance for twelve pages of Elvin poetry, um which I think Tom bomba deal. For some reason. The character scared me as a kid, even though he's not very scary. So let me ask you this question. But I'm miyamore now. So I love both The Hobbit and the Lord of the Rings, and well, everybody loved Peter Jackson's I thought it was way too dark within the Lord of the Rings. Within the original, there's a balance between the hope and the fear. I think that's that's fair and ultimately hope when so it's it's it is a po So they take you to this really dark place and it's almost like the ending is tacked on. But by the way they going over a minute, it's completely your fault. So I own if you go through Token's experience of World War one and then writing in the World War Two. He really had that light and dark um going on, but it was balanced. But but but I did enjoy the movies because part of it is just saving a fan your whole life, seeing it come to life in such a glorious I do not recommend the extended versions. I've steered clear of that because the same reason they were already a little too long, and the extended versions basically, like Bilbo says, goodbye eleven times, you have like eleven elegic kind of I'm not trying to pronounce that right, but he's going away. Um, So I don't recommend that. But I do love those movies. I'm reading that now. I'm reading David Rubinstein's book on investing, largely because in May, April or May, he's going to interview me. Oh good, I'm terrified of because he may have seen some of the things I've said about private equity over time. I'm kidding, he knows about those. He still wants to interview me, but I gotta be prepared for that one. He could care less, can I say that? I mean, yeah, there there are people who are you know, And I use the phrase wrong. It's actually could not care less, but everybody says could care less, which you know you're all right. Are two adult questions we say, for the very ends, What sort of advice would you give to a recent college grad interested in a career in value investing, quantitative finance, or even academia, um, in broad general, a financial career. I'll go with I don't like either. And if someone tries to only steer you to lucrative careers, that's not a happy life. If people only steer you to find your bliss, well, if you're not the best in the world at your bliss and the bliss doesn't actually pay you anything, it's not such a great thing. I got into finance because I liked it, Because I work for these professors, I found an interesting thought. I'd be a professor at not everyone has to follow that route, but you want to blend those two things. The only concrete advice I'll give people young people, and I say this all the time, is try very hard not to chase what's currently hot, particularly starting out your career. Don't try to be suicidal. But but going into what's currently hot, you're gonna be five years off every time. Um, So I would back off that and if someone is really considering a career in value investing, recommend investing. As I said earlier, at least half your time in building up your psychological endurance level. You think it's all about balance sheet and income statement analysis, No, about half of it is the right personality and the right emotional makeup and the right partners. Our final question, what do you know about the world of investing today? You wish you knew forty years ago when you were first getting your feet wet. Going back, there's always been this tension in academic finance and an applied quantitative finance in why these things worked. And we talked about it very briefly earlier. If you find if someone shows you a great baptest, there really three possibilities. One is it's gibberish data mining. And let's assume it's not that that they've just tortured the data. Let's assume you think it's real. It can work because you're taking an actual rational risk and being compensated for it, or what's called often called behavioral finance. Some people are making errors. I often take two Nobel laureates my gene Fama as one end and Dick Thaylor, also at Chicago as the behavioral a lot of other great people in this field. I don't mean to make it so these two, but I would say you could do worse than those two. Absolutely, and I'm a fan of both. If if you ask me who I think is more right now, Like, I think Gene's contributions are actually the biggest in the entire world of finance because a lot of the field won't exist without him. But that's a different question of who's right. I think I would have been seventy five twenty five in the Gene camp when I left Chicago, even finding momentum, and now and now I think it'd be seventy twenty five. And all that means is more of why our stuff works, I think is taking another side of behavioral biases than a rational risk premium than I used to. And we're all a prisoner of our lived experience, right, living through both the tech bubble and those last five years to and change terrible, to and change very good. All that it may have overinfluenced me. You know, sometimes you see more crazy events in a career than the average. But I've definitely moved. I've still vote Ginge, the MVP of academic finance throughout all of Again, I'm impugning the Roman Empire throughout all of history, but I probably have moved more towards the behavioral side. That someone's got to be on the wrong side of the trade, and if you quantitatively identify who that is, they seem to work very well and harm absolutely. Cliff, thank you for being so generous with your time. We have been speaking with Cliff Astins. He is the co founder and just general all about Town managing principle at AQR Capital Management. If you enjoy this conversation, well check out any of the previous ones we've done over the past nine years. We're coming up on almost five hundred and you can find those at YouTube, iTunes, Spotify, wherever you find your favorite podcasts. Sign up from my daily reading list at ridolts dot com, follow me on Twitter at ridolts, follow Clifford Asnes on Twitter at Clifford Assness, and you could check out all of the Bloomberg podcasts at podcasts. I would be remiss if I did not thank the crack team that helps put these conversations together each week. Justin Milner is my audio engineer. Attica val Bron is our project manager. Paris Walds is my producer. Sean Russo is my head of research. I'm Barry Ridults. You've been listening to Master's Business on Bloomberg Radio.