Old Man Yells at the Cloud

Summary

Podcast Summary: "Old Man Yells at the Cloud"

Title: The Compound and Friends
Episode: Old Man Yells at the Cloud
Release Date: November 22, 2024
Host: The Compound (Downtown Josh Brown, Michael Batnick)
Guest: Cliff Asness, Founder and Chief Investment Officer at AQR Capital Management

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1. Introduction to Cliff Asness

The episode kicks off with Downtown Josh Brown and Michael Batnick warmly welcoming Cliff Asness, a revered figure in the investment world. Cliff shares nostalgic anecdotes about his early days, including his adeptness at fractions—a skill he humorously deems "useless today."

Cliff Asness [00:00]: "I'm old enough, of course, that I can do sixteenths and eighths math pretty well, which is useless today..."

2. Personal Anecdotes and Early Career

Cliff reminisces about the old payment methods using "eights and teenies," highlighting the bygone moments of his career.

Cliff Asness [00:36]: "I'd like a dime bag of Ginny Tens anyway."

The conversation then shifts to Cliff's tenure at Goldman Sachs, his transition to founding AQR Capital Management, and the challenges faced during this pivotal career move.

3. Transition from Goldman Sachs to AQR

Cliff details his departure from Goldman Sachs, emphasizing the creation of a new quant group independent of the firm's constraints.

Cliff Asness [02:19]: "We did stay about three weeks after a few of us quit to transition to the people who would take over for us which I think went a long way to smoothing over the relationship."

He discusses the initial independence of AQR, not being incubated within Goldman Sachs, and the ensuing tensions with former colleagues and the broader investment community.

4. Public Commentary on AMC and Market Reactions

Cliff shares his experience appearing on CNBC to discuss AMC, a prominent meme stock, and the subsequent backlash from the retail investor community.

Cliff Asness [05:37]: "Individual stocks is just, you guys know, not something you ask a quant about."

He candidly addresses the challenges of being labeled a "public enemy" by meme stock enthusiasts after his remarks.

Cliff Asness [08:06]: "I learned that I was actually saying that they could be right for all the quant stuff in the world."

5. The Less Efficient Markets Hypothesis

The core of the discussion revolves around Cliff's recent research on market efficiency, where he posits that markets have become less efficient over the past three decades.

a. Overview of the Hypothesis

Cliff asserts that the stock market's efficiency has declined, making disciplined value-based stock picking both riskier and potentially more rewarding in the long term.

Cliff Asness [24:25]: "I'm more sure that periods like the .com bubble 99-2000 and then 19 and 20 culminating but not caused by Covid. It was already as we measure it crazy pre Covid."

b. Three Hypotheses for Declining Efficiency

1. Indexing and Passive Investing: Cliff argues that the rise of passive, cap-weighted indexing has reduced the number of active managers, potentially leading to less price discovery and increased inefficiencies.

   Cliff Asness [62:49]: "Indexing is the devil or it's absolutely nothing to do with it."

2. Prolonged Low Interest Rates: The era of extended low interest rates has influenced investor behavior, correlating with wacky market activities and misplaced optimism.

   Cliff Asness [61:14]: "If you have super low interest rates, but it is correlated with some wacky behavior."

3. Technological and Social Media Impacts: The advent of social media and instantaneous information dissemination has created environments where markets can be swayed by irrational mobs rather than independent, informed decision-making.

   Cliff Asness [85:19]: "I'm saying this could be a reasonably part of crazy episodes."

c. Impact of Technology and Social Media

Cliff delves into how social media platforms foster echo chambers, leading to extreme market movements and reducing overall market efficiency.

Cliff Asness [86:07]: "Markets being efficient depends at least a fair amount on the famous idea of the wisdom of crowds. But the wisdom of crowds depends on a relatively independent crowd."

6. Volatility Laundering and Private Markets

The discussion transitions to the concept of volatility laundering in private equity and credit markets. Cliff critiques how private investment firms report lower volatility figures by not reflecting true market risks, misleading investors about the actual risk-return profiles.

Cliff Asness [79:02]: "I've seen more extreme numbers in private credit..."

He emphasizes the disparity between reported volatilities and real market exposures, underscoring the challenges investors face in assessing true risks.

7. Pet Peeves: Misrepresentation in Investments

Cliff expresses frustration with misleading representations in investment opportunities, particularly in private markets where transparency is often lacking.

Cliff Asness [86:46]: "How you just throw in A random insult to Michael straight away."

He underscores the importance of honesty and transparency, admonishing the behavior of firms that deceive investors about their strategies and risk levels.

8. Favorites: Comics, Movies, and Personal Interests

Shifting to lighter topics, Cliff shares his passion for Marvel comics, appreciating their relatable characters and real-life problems compared to more fantastical storytelling.

Cliff Asness [96:43]: "I was a Marvel more than a DC person. I liked dc. I read them, but I was Marvel."

The conversation also touches on favorite movies, with Cliff expressing enthusiasm for certain Marvel films while critiquing others.

Cliff Asness [97:14]: "I like the Snyder cut. Was the full Justice League Snyder cut."

9. Closing Remarks and Ways to Follow Cliff Asness

As the episode wraps up, Josh Brown and Michael Batnick encourage listeners to follow Cliff Asness's work through his blog and Twitter handle for more insights.

Cliff Asness [103:30]: "That's my blog. It's very sporadically done... If you go to AQR's website, there's a section called Cliff's Perspective."

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Notable Quotes:

• Cliff Asness [00:00]: "I'm old enough, of course, that I can do sixteenths and eighths math pretty well, which is useless today..."
• Cliff Asness [08:06]: "I learned that I was actually saying that they could be right for all the quant stuff in the world."
• Cliff Asness [24:25]: "I'm more sure that periods like the .com bubble 99-2000 and then 19 and 20 culminating but not caused by Covid. It was already as we measure it crazy pre Covid."
• Cliff Asness [62:49]: "Indexing is the devil or it's absolutely nothing to do with it."
• Cliff Asness [85:19]: "I'm saying this could be a reasonably part of crazy episodes."
• Cliff Asness [86:07]: "Markets being efficient depends at least a fair amount on the famous idea of the wisdom of crowds. But the wisdom of crowds depends on a relatively independent crowd."

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This episode offers a deep dive into the evolving landscape of market efficiency, the implications of passive investing, and the intricate dance between technology and investor behavior. Cliff Asness provides a blend of personal anecdotes, rigorous academic insights, and candid opinions, making this a compelling listen for those keen on understanding the complexities of modern investing.

Transcript

[Cliff Asness]

I'm old enough, of course, that I can do sixteenths and eighths math pretty well, which is useless today, but not my kids. I'll be like, that's 0.375. And they'll be like, well, how'd you know that? I'm like, so the thing is, I could have figured it out anyway, but I know it instantly because that was the world.

[Josh Brown]

We used to get paid on eighths and teenies. That's how they paid us.

[Michael Batnick]

Teenies.

[Josh Brown]

Yeah.

[Michael Batnick]

Jay Teeny, Rob teens.

[Josh Brown]

Steen, babe. We used to get.

[Michael Batnick]

So our president, his name is Jay Tinney. Siri calls him Jay Teeny, which I love.

[Josh Brown]

We used to get paid on eights and three eights and if we made a market in the stock.

[Michael Batnick]

You talking marijuana?

[Josh Brown]

No, I'm saying that's how we used to get paid.

[Cliff Asness]

Yeah, yeah. I'd like a dime bag of Ginny Tens anyway.

[Michael Batnick]

They are crushing my crush.

[Josh Brown]

You and I are not the same. I was Series 7 licensed in the 90s. Do you understand that?

[Cliff Asness]

I was on the buy side.

[Josh Brown]

You were, you were always.

[Michael Batnick]

You are definitely not the same.

[Cliff Asness]

But I spent my. I spent my first year and a half at Goldman before starting the Quant group, being a buy side portfolio manager and trader for fixed income. So I was on the phones. I was. You know the tension, by the way, when you call four dealers and your entire job is to take the low and try to remember I'm buying here. And the fact that some fixed income securities are quoted in interest rate, particularly like, like zeros. And some are quoted, and most are quoted in price. And remembering, not only do you have to take the high, but which way the high goes? I got. Let's just say I got it right most of the time.

[Josh Brown]

But where's, where's the tension with the guy on the other end of the phone?

[Cliff Asness]

You're saying, you're talking generally you put dealers in comp. I have no idea how they do it anymore. By the way. This is like 35 years old. They use probably a drone strike instead.

[Josh Brown]

It's market access. It's a software program.

[Cliff Asness]

You know, you want to buy $100 million of the 10 year treasury, you call up three to four dealers, you tell them to make you a market, and then you, very quickly, because the market's moved, get back to one, say done. I am talking about the low tech way. We did that with pencils, writing on paper. And we did get it right. But there was a tension, like, you really don't want to buy the second to the low because then you have to reimburse the client for the difference. Father Goldman did not appreciate that.

[Michael Batnick]

Do you have a funny Goldman origin story or is it pretty boring?

[Cliff Asness]

It's pretty boring. I was a professor of mine from undergrad who ended up going there and my best friend ended up working for this professor and they. I was in the PhD program in Chicago and they said come for a summer. I went for a summer. I had a good time. They said come for a year. You can write your dissertation from here. And I'm on like year 32 of that sabbatical. Seems like it's going to stick.

[Michael Batnick]

Did you guys seed AQR by yourself or did you have one?

[Cliff Asness]

Yeah, no. 100% employee owned. Later we sold the stake to AMG but in the beginning it was based on savings and can we raise that? It was a little scary like starting any new firm. But no, it's just us.

[Josh Brown]

But you didn't do it as an incubated thing inside of Goldman?

[Cliff Asness]

No.

[Josh Brown]

You broke away and started.

[Cliff Asness]

No, they were a little mad at us.

[Michael Batnick]

Yeah, no kidding.

[Josh Brown]

They would have liked to have had a piece of it. Right.

[Cliff Asness]

I didn't even go there. We had built up a fairly big quant group so it would have been a little weird because we were going to be directly in comparison competing with the group we left behind. We did stay about three weeks after a few of us quit to transition to the people who would take over for us which I think went a long way to smoothing over the relationship. They asked us to John Corzine and then head of Goldman Sachs. It was like a governor commuting my sentence. I had a three month garden leave and he cut it to six weeks because we helped transition for three weeks. So there was tension particularly to the people I reported to because you know, we were making a fair amount of money for Goldman and we were leaving. It's always going to be tense. Yeah, yeah. The other thing we had in our pocket at the time is the sell side very much wanted to trade with our new firm. So we had advocates at a different part of the firm than where I left the buy side of Goldman. But the sell side was kind of excited because for legal reasons we could do very little business with our own firm when we the buy side of Goldman generally again this is 35 year old knowledge but generally doesn't trade a lot. Pretty much never for a U.S. institution with the sell side just considered a conflict of interest for obvious reasons. Didn't stop the people who ran futures from Every about six months they would call me up and yell at me that we're not giving Goldman Sachs any of our business. They would hear that were doing a ton of business elsewhere and I'd say that's cause it's illegal. And they'd go, oh, and that bought me another six months. And then you guys know you have the exact same watch on we do.

[Josh Brown]

And there are only two others of these in existence.

[Cliff Asness]

I own that watch and I could have worn it.

[Josh Brown]

No, no, no. There's an inscription on the inside.

[Cliff Asness]

I don't own the inscription, but the classic.

[Josh Brown]

Well, this is the Panda first. The Panda Daytona.

[Cliff Asness]

I just have a submariner.

[Michael Batnick]

For our 10 year anniversary, Barry bought us this.

[Josh Brown]

He has a sub too.

[Cliff Asness]

This is a very bougie.

[Michael Batnick]

Josh bought me that.

[Josh Brown]

I bought Michael the watch that you're wearing as a gift. Barry bought four of these for the four founding partners. And that's cool. On the inside they all have a portrait of Barry laser inscribed.

[Cliff Asness]

Well, as long as he's wearing a shirt.

[Michael Batnick]

There we go.

[Josh Brown]

Cliff, before we start, what is your Nvidia price target year end, if you don't mind.

[Cliff Asness]

I don't know the current price of Nvidia. You know, I don't know you. Did you see my blow up with the whole world over amc, I've seen all your blows. Okay, this is, this is relevant. Individual stocks is just, you guys know, not something you ask a quant about. So I'm going on CNBC. I hadn't been on in about 10 years. So we like them, but it's just, you know, we're institutional, we don't know. We don't necessarily know if our clients want to see us there. That man over there who runs our public face.

[Josh Brown]

What's up, Kevin?

[Cliff Asness]

Kevin Infante. Wonderful guy. No one else should hire him. He's actually Carol. No, we had had a really rough 19 and 20 and then we were proven frankly. Right. And he did one of. One of these. Now it's time to go on and tell people we were right. So I go on, we do a prep call for this and they say you gotta give us some individual stocks that you like and don't like.

[Josh Brown]

You gotta. They told you you have to do that?

[Cliff Asness]

They probably said it nicer than that. But that was it. Essentially, it was like this segment. Everybody does that and I'm like, that's just ridiculous for a quant. I usually don't know.

[Josh Brown]

Hold on. What show did you go on? What time did you know? Were you on? 3 stock lunch I don't know.

[Cliff Asness]

Kevin, you're on. You're on the podcast now. Closing bell.

[Josh Brown]

Oh, I get that. I get that.

[Cliff Asness]

So eventually I agreed, subject to being able to explain a bit why this is just for fun. I could be wrong about these three. We could have a great year. I could be right about these three. We could have a terrible year. Typical portfolio of ours will have 800 longs, 800 shorts. I told my team though, try to make the stocks interesting. I don't want to mention names no one's ever heard of. So they gave me one of the major meme stocks amc that was bad on everything a quant or I think a non quant could ever care about. It was a high multiple on. Very high multiple on the things you could even do it on and on a business.

[Josh Brown]

Secular decline, low quality, high valuation, bad management, everything.

[Cliff Asness]

Short sellers hated it. They were selling shares instead of buying back shares. There was like nothing. But in typical me fashion, I made it worse than it had to be. I. I'm trying to explain in my mind, I'm trying to explain how silly it is for me to talk about an individual stock. But I ended the segment with but we're only. Our short is all of 12 basis points. Yeah. So the crazies can't even hurt us.

[Josh Brown]

Yeah.

[Cliff Asness]

It turns out. And this will shock you guys.

[Josh Brown]

Apes that.

[Cliff Asness]

That. That's. They're well named. Crazy people generally don't like being called crazy.

[Michael Batnick]

Shocking.

[Cliff Asness]

I learned that I was actually saying that they could be right for all the quant stuff in the world. Something could happen and it could be taken over by another firm. I was actually trying in my own weird way to be humble and in my own normal way, it came out arrogant and nasty. So I became public enemy number three to the meme stock world.

[Josh Brown]

They thought you were one of the people trying to short their account balance. Cause they don't really know what you mean when you say who is public.

[Michael Batnick]

Enemy two and one?

[Cliff Asness]

Number one is Ken Griffin. By far. A lot of the people who are hating on Melvin. Yeah, well, he's kind of out of it. Their old victims are not their current. The Ken Griffin allegedly. And Ken denies this. And I believe Ken had Robinhood quote pull the buy button that day. By the way, their whole thesis is if that didn't happen, the stock would be worth a thousand times more.

[Josh Brown]

By the way, Ken Griffin makes no money if people stop trading the stock.

[Cliff Asness]

So Ken Griffin doesn't. They don't even realize that they're trading with Ken Griffin. There's great irony there. The second public enemy is Gary Gensler, who just quit today. I saw having nothing to do with my story. The funny part is they think that Gary is in bed with Ken Griffin on this. To keep them down.

[Josh Brown]

It's the opposite. They have no idea.

[Cliff Asness]

I can't imagine two people on Earth.

[Josh Brown]

Yeah.

[Cliff Asness]

Less likely to be in bed together.

[Michael Batnick]

Watch your math. We don't want to get pinched on here by the apes.

[Josh Brown]

Hey, don't feel bad. Barry Ritholtz decided to mock. What's the kid's name?

[Michael Batnick]

Ryan Cohen.

[Josh Brown]

Ryan Cohen. At the height of GameStop mania, he decided to send a tweet saying like, Ryan Cohen doesn't know how short selling works or something. We had a denial of service attack on our website. So you're in good company. A lot of people didn't know better. Steve Cohen didn't know better.

[Cliff Asness]

No, that's exactly right. I certainly knew this was a weird world, but I had not paid that much attention. I mean, I saw GameStop even though I'm a quant, I do. I'm glued to the markets all day. The depth and breadth of the fever swamp. Yeah, I grossly underestimated and without taking a political partisan stance because I think it's everywhere. Very similar to our politics these days. That's tribal in terms of just people getting funneled to more and more extreme views trying to figure out what's true versus not true. Because it's all out there on the Internet and the craziness looks. It looks as well formatted as the truth.

[Josh Brown]

You could relate to this, though. If somebody puts half their net worth into one stock and somebody who's way richer than them comes out on Twitter, which is an equal. Kind of like everyone is up against everyone else. They're gonna get mad. You're going to be like, why is this guy trying to keep me poor?

[Cliff Asness]

Yeah.

[Josh Brown]

So it's. It's. You could understand like where that passion comes from. So we.

[Cliff Asness]

No, I get it. It was. There was actually sad at times and I actually tried to be nice. It never worked. A few times I'm like, look, I'm the only one telling you the truth. I'm not allowed to give financial advice, though. I get yelled at. I could talk about stocks and not. But nothing directly advice. I came perilously close. As close as I can come to saying don't put half your money or all your money in one meme stock. I feel like that's.

[Josh Brown]

AMC has since blown up and so did the apes thing. Did anyone Ever come back and say.

[Cliff Asness]

And to be honest, I can't even gloat about that because if I thought that was going to happen, even as a quant, I'd be short a lot more than 12 basis points. But it's down, like in the 90% range since I went on TV and. And did that. So I assume we made a little bit of money on that. And to this day, I cannot tell you if we're long or short it. I refuse to.

[Josh Brown]

Look, we're going to kick another hornet's nest real quick. Okay?

[Cliff Asness]

I have a feeling it'll be an hour.

[Josh Brown]

I'm not ready for you yet. I'm not ready for you yet.

[Michael Batnick]

Go to the 30 seconds.

[Kevin Infante]

The second point I make is if you look at Microsoft, for example, 98.5% of the equity value of Microsoft is based on forward expectations of quarterly earnings, and 1.5% of the value of Microsoft is based upon tangible liquid assets. And another way to say it is Microsoft is 144 times levered to their quarterly earnings if they earn 3 billion a quarter, or X billion, whatever the number is. A quarter, it's more than that, I guess, but you multiply it by 144x, right? And if they miss by a billion, it's 144 billion where you move. And the reason why operating companies are like that is because the SEC 33 act and the SEC 40 act required that operating companies hold no more than 40% of their liquid assets and securities. So normally they'd use treasury bills. And treasury bills, as we just showed on that chart, are toxic. It's toxic capital. It's poison. You might as well just inject poison into your veins, right?

[Josh Brown]

And of course, that is Michelle Obama. So that's. That's Michael Saylor. He's got the hottest stock in the universe, if you could call it a stock. It's basically a repository of leveraged Bitcoin. And it's.

[Cliff Asness]

No, it's three times.

[Josh Brown]

That's right.

[Cliff Asness]

I don't know how to respond to that. Where Kevin will be. Okay. All right, let me let it rip, Cliff.

[Michael Batnick]

Let it rip.

[Josh Brown]

Look at Kevin's laser eyes.

[Michael Batnick]

Cover your ears.

[Cliff Asness]

I don't usually talk this way on classy podcasts like you, but that entire thing was the dumbest thing I've ever heard. You know, that meme or that video where the guy goes, what you just said here, and he goes through a long Billy Madison. I have. I don't even know what it means. Companies are the present value of their Future. Can I ask you a question? Cash flows.

[Josh Brown]

This is not non Michael Saylor related though. Can I ask you a bigger question?

[Cliff Asness]

Yeah.

[Josh Brown]

This guy has arguably pulled off the greatest trade of the era so far. His stock price is up 650% year to date. His market cap is now bigger than Starbucks. 100 billion a touch today. Does it matter if somebody gets it so right? Even if their reasons are insane to you in your book, is there an asterisk next to the obvious thing he just pulled off?

[Cliff Asness]

Doesn't matter to his bank account.

[Michael Batnick]

Exactly.

[Josh Brown]

Agree.

[Cliff Asness]

It does matter as to what lessons to learn going forward. Because on average, and I'm not, I don't even have a very strong opinion on crypto. I'm not a guy who's done a deep dive on it. I have a natural old man cynicism that you creating money by burning oil doesn't seem.

[Josh Brown]

It's a spectrum. I'm somewhere on the spectrum. Close to you.

[Cliff Asness]

I think money has a little bit of magic to it. What any of us consider legal tenders outside of a Jackson Brown song. It gets a little. It gets a little confusing. If someone does something you think makes absolutely no sense or wins the lottery. In this case, he won the lottery. It doesn't imply a rational action going forward. Do I bet on all lottery tickets now? Most lottery tickets collapse.

[Josh Brown]

Worthless.

[Cliff Asness]

And on net, buying lottery tickets costs you money. So the lessons to be learned from one guy who won the lottery are close to zero. Okay, maybe he's brilliant and maybe Bitcoin is worth much more than I realize. Maybe he's a brilliant Justin Schrader.

[Josh Brown]

Yeah, we'll start.

[Michael Batnick]

Hang on, hang on.

[Josh Brown]

We'll start. We're going to talk more about what.

[Cliff Asness]

The hell have we been doing?

[Michael Batnick]

And for the record, for the record, Microsoft did 25 billion in earnings, not 3 billion last quarter. So let's. Let's get it on. Let's get it on.

[Josh Brown]

All right, all right, Nicole, let's clap it up.

[Michael Batnick]

Whoa, whoa, whoa. Stop the clock. Here's a word from our sponsor.

[Josh Brown]

Listen up, folks. Time could be running out to lock in a historic [e-mail].

[Michael Batnick]

The Fed just did a rate cut a couple of weeks ago. There's more on the calendar. So who knows how long these rates are going to last.

[Josh Brown]

That might be great for you. If the Fed is cutting, if you're in the market to buy a home, it's not great for the interest that you're currently earning on your cash. What's the solution? Possibly the public bond account. If you want to lock in a 6% or higher yield with a diversified portfolio of high yield and investment grade corporate bonds, you might want to act fast. Go to public.com compound for more information. Michael, read the disclaimer. Okay, what are you on? Your email falls.

[Michael Batnick]

It's over. Brought to you by public investing member FINRA and SIPC. As of 926 24, the average annualized yield to worse across the bond account is greater than 6%. Yield to worse is not guaranteed. Not an investment recommendation. All investing involves risk. Visit public.com disclosures Bond account for more info.

[Cliff Asness]

Welcome to the compound and friends. All opinions expressed by Josh Brown, Michael Batnick and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.

[Josh Brown]

167 Ladies and gentlemen, welcome to the greatest investing podcast on earth.

[Michael Batnick]

Very humble Cliff.

[Josh Brown]

My name is Downtown Josh Brown. For first time listeners, we appreciate you welcome. We love to see you with me as always, my co host, Mr. Michael Batnick. Michael, say hello to the folks.

[Cliff Asness]

Hello.

[Michael Batnick]

Hello.

[Josh Brown]

Daniel is here. Nicole is here. A very trepidatious Kevin of AQR is here. Rob Duncan. Guys, I want to thank you so much for the unbelievable ratings and reviews for the last couple of shows. The Mike assemblage joint is already at 40,000 views and counting. What we do on what we do on Adam Parker Is that 60,000? 50. 50,000. It's going crazy. Guys, thank you so much for listening. I said today when I walked in there's no way this isn't gonna be the best show of the year. It's just, it's impossible. We have someone here today who I am such a huge fan of intellectually. Somebody that I learned something from every time he speaks. And I think that you guys will walk away from this show feeling the same way. May I please introduce to you the eminent Mr. Cliff Asnes.

[Cliff Asness]

Thank you, Josh.

[Josh Brown]

I'm gonna give you the full intro. Okay? Cliff is a founder, managing principal and chief investment officer at AQR Capital Management. Prior to co founding AQR Capital Management, he was a managing director and director of Quantitative research for the asset management division of Goldman Sachs.

[Michael Batnick]

Research.

[Cliff Asness]

You know I say finance name actually it's funny you say that. It was poorly named. We immediately close to immediately started running client money directly. But there was another quant group so I think it was easier to get us in by calling us research.

[Josh Brown]

Research.

[Cliff Asness]

You did nail.

[Josh Brown]

No, he wants me to say research.

[Cliff Asness]

Oh, is that what you're fighting about?

[Michael Batnick]

Finance. You must do. Say it.

[Josh Brown]

I say finance.

[Cliff Asness]

My kids make fun of me for this.

[Michael Batnick]

What do you say?

[Cliff Asness]

I say both. And they say. When I want to sound pretentious, I say finance.

[Josh Brown]

That's me, too.

[Michael Batnick]

That's all.

[Josh Brown]

I knew I loved you, dude, you're from the South. Cliff is on the Ambassador board of the Journal of Portfolio Management, where he is a frequent author.

[Cliff Asness]

Okay.

[Josh Brown]

That's the whole thing. I want to tell you how I first became aware of you. I don't know if you remember any of this in the wake of the financial crisis. The most popular or during the financial crisis. The most popular finance blog other than Barry's was Deal Breaker.

[Cliff Asness]

Yeah. And they weren't huge fans of mine, but that's okay.

[Josh Brown]

They loved you. They wrote about you every day.

[Cliff Asness]

Different sense of love.

[Josh Brown]

Okay.

[Cliff Asness]

Yes.

[Josh Brown]

For Bess Levin, in the early days of Dealbreaker, you were the main.

[Cliff Asness]

SNL loves Donald Trump. That kind of.

[Josh Brown]

You were the main character, though, for a while. And I was a comic book collector back in the day. And all the pictures of you, they thought they were ridiculing you by putting pictures of, like, your comic book figurines. Somebody like myself was like, no, this guy's awesome. What are we talking about?

[Michael Batnick]

Was it during the Quant drake?

[Cliff Asness]

This was 2007, 2008, maybe the years afterwards. I still use for some avatars, one of their graphics, which is like, me with Captain America shield on my office, punching a computer monitor at the same time. I just. It was really. You know, Bess is not my favorite person. She was not very kind.

[Josh Brown]

You replied back. This creature, Bethlehem or whatever her name is.

[Cliff Asness]

Oh, my God. I don't remember this at all. But I will say it sounds like me.

[Michael Batnick]

Your moment of weakness.

[Cliff Asness]

It sounds like me. Yeah. When your moment of weakness spans 22 years of your life, your moment starts to be a little.

[Josh Brown]

I knew Bess back then, and I know that you were, like, one of the people that she actually liked the most. Steve Cohen. The people that she mocked the most were the people that she found to be the most interesting.

[Cliff Asness]

And she will.

[Josh Brown]

If you ever get to meet her, you will hear that directly from her. Anyway, that's when I first started reading your stuff, and that led me down this rabbit hole of your research, because I'm like, what is this guy about? And this is early days for me, getting serious about understanding investing. I don't have a background where anybody like ever sat me down and said, this is how it all works. So your papers and your stuff was critical for me to understand things like quantitative finance and factors and all the various things that you talk about. So I wanted to say thank you for that. Really appreciate it. And anything that I have gotten wrong subsequently is not your faul.

[Michael Batnick]

So, Cliff, how many papers have you written over the years?

[Cliff Asness]

Oh, my God, I have no idea. But it's got to be north of 50. It depends what you count as a paper. If I do it, 11 single space page blog post. Is that a paper? It could be much more than that. If you count those published, it's probably 30 or so.

[Michael Batnick]

So you just wrote one that we're going to talk a lot about today. What keeps you going? Like, why are you like, I need to do another paper?

[Cliff Asness]

What keeps me going? In writing specifically or in business in general?

[Michael Batnick]

No, no writing.

[Cliff Asness]

Okay.

[Michael Batnick]

Haven't you said it all?

[Cliff Asness]

I actually just love it. When we started AQR and when we decided to leave Goldman, believe it or not, at least a small part of our motivation was to be able to write and say what we wanted. And not just me, the other guys too, but maybe me most and Goldman, it was a great place to me. I have no problem with it. But you are somewhat constrained in what you're allowed to say. If you're anti a certain kind of investment and Goldman makes a lot of money from that, there's a house view and you can only deviate so much. And I sense that early on it was a small part. Most of why we left was naked greed. Let's be clear. Anyone who says I left Goldman Sachs to start a hedge fund to save the world is probably not telling the truth. You could help save the world along the way. That's really nice, but probably not your main thing. So I write because I do love it. You probably can tell when I see something out there that I think is wrong and I'm not always right. This is my opinion. But when I see something I think is wrong, I get a weird. You talked about comic books. My wife tells me I have a spider man complex. With great power comes great responsibility.

[Josh Brown]

Oh, I was going to say like a very strong sense of good versus evil. There's a little bit of that.

[Cliff Asness]

There definitely is, though. I want to be uncharacteristically humble and go, my sense of good and evil, I'm not always right. But when I think someone's saying something misleading or wrong or for some reason I think it's my job to fix. I don't know why and sometimes I don't get to it. Like you guys, I have a long list of topics I want to write on but eventually I get to most of them.

[Michael Batnick]

All right, so the latest one is the less efficient market hypothesis. And there's a lot of people who would argue that the market has gotten more efficient over time because there's so many where players speed move so much faster and you tackle all of this. So let me just use your words and then we can riff on it. So you start with saying it's fair.

[Cliff Asness]

To use my own words.

[Michael Batnick]

A relatively efficient stock market is important for society. We agree the author believes the stock market has gotten less efficient over his now quite long career. And if so, this means disciplined value based stock picking is both riskier and likely more rewarding in the long term. What does the long term mean to you?

[Cliff Asness]

The long term means a period in which even if you're right, your investors have left already very.

[Josh Brown]

That's the actual long term?

[Cliff Asness]

Yeah, well that's the practical definition because you know, everyone talks about the long term. I think, I think there I'm talking about the next 10 to 20 years. I don't want to if I think the market is prone to these bouts. And one thing I don't think I was clear enough in the paper is I'm not sure the market is less efficient every day I am more sure that periods like the.com bubble 992000 and then 19 and 20 culminating but not caused by Covid. It was already as we measure it crazy pre Covid. I think the markets are more susceptible to those bouts of insanity. That's I'm an ex gene fama teaching assistant that I still worship at his altar on many things. So me using the word insanity, it's a little road to Damascus moment I'm not used to.

[Josh Brown]

But do you think things have gotten less efficient?

[Cliff Asness]

Yeah, I do.

[Josh Brown]

Why do you think that is?

[Cliff Asness]

Well, first let me diminish expectations. Impossible to prove this stuff. I say at the very, very beginning of this piece. A lot of this is career retrospective old man 50th anniversary. I've been writing in it for 30 of these 50 years. Opinion. First Michael mentioned speed. I actually concede at the very beginning of the paper that yes markets probably faster. Information probably gets into prices faster. I don't think prices being accurate and what accurate means can be debated how to measure it. You need some model of what. What does it mean to be accurate. But I don't think speed has much to do with accuracy. If you have a strategy based on thinking things are misvalued, it could be a simple one like the quant multiple long, low, multiple short high. It could be much more subtle like a Graham and Dodd manager where they're looking. Yes they want to pay low multiples, but they also want all the other things that quants want too. We just call them different things. If that is accurate or inaccurate, it has virtually nothing to do with the market. Going from 10 minutes for information to get into prices when I was 22 to 10 milliseconds. Now these are one to three year holding period kind of strategies. The notion that speed matters. Speed matters. If you're competing on speed, if you're a high frequency trader and you have a bigger leg or latency than the other high frequency traders, you will not.

[Josh Brown]

Have a happy experience and speed is the only thing.

[Cliff Asness]

But for a lot of formal quantitative strategies that aren't hft, of course quants are almost by definition hft, excuse me, HFT is almost by definition quant. But for a lot of longer holding period quantitative strategies, one of the standard things you do is imagine you figured out what you wanted to buy and then waited three days or two weeks to buy them. And that's a robustness check because if it, if a lot of the back tested alpha goes away then you are essentially predicting the next two weeks. And that's very rarely the case. You could take all the Fama French stuff, the other factor stuff, the more modern stuff that modern quants do. And a lot of it you can wait a friggin week and it's almost as good.

[Josh Brown]

In 2013 they gave the Nobel Prize in economics to Fama and Bob Shiller at the same time. They shared it. There was a third guy I think, Lars Hansen. Okay, I'm not sure what his belief was, but it strikes me Fama and Shiller, while they were friendly in real life, they believed opposite things. FAMA believed that no sense in trying to beat the market because everything's already priced in before you even wake up. And Shiller believed this whole thing is being driven by human emotion all day, all year, therefore something. Doesn't sound like he was an active investor either though, because when pressed on television, Shiller would say I just put my money at Vanguard anyway. But having opposite beliefs about how efficient versus how emotional the market is, they share the prize. To your earlier point, none of this can be proved.

[Cliff Asness]

Yeah, the Nobel committee punted on that one. And it's. It's pretty fair because it's still being widely debated. It's not like there's. It's not like they can just say who's right. So the debate has been very valuable. And I think they said both these guys are brilliant and they've contributed to the debate. Let them split it. Lars Hansen, by the way, is awesome. And I actually feel kind of bad because he gets forgotten a little bit.

[Josh Brown]

He was overshadowed by these two big.

[Cliff Asness]

Face names only because he's not fighting with anyone.

[Josh Brown]

But what was his theory?

[Cliff Asness]

Lars has done a lot of things, but mathematical ways to test these models is really what he excelled at. He's a great financial economist, but he's also neither Fama nor Shiller, and I'm not telling tales out of school. Would be considered a great mathematical economist. Lars would be. He absolutely deserved the prize. So I just want to give him his due. Fama should have gotten a sole prize, by the way, about 10 years earlier. I'm still a little pissed about that, even if I think the market's less efficient now.

[Josh Brown]

He was a mentor of yours.

[Cliff Asness]

I was his teaching assistant for two years and he was co chair of my dissertation committee.

[Josh Brown]

Now, you wanted to prove that momentum was a factor, and he said, if it's in the data, write the paper.

[Cliff Asness]

You know, if you're going to look at all my other podcasts, this is going to be really boring.

[Michael Batnick]

I got you, I got your back. Don't worry about this.

[Cliff Asness]

I'm just. I'm kidding you. Yes, that is exactly what happened. It was the closest thing to a religious statement I've ever heard from him. I'm not saying he's not a religious man, but I was nervous asking him because I had these preliminary results. I wasn't the first. There are two authors, Jaggedesh and Tippmann, who I think should get pride of places always, like, who invented it first. They deserve it for the, quote, momentum effect. Even that when we sign Academics discovered this. There were tons of people trading on momentum in the real world prior to academics. So who discovered something first is always out there. But I was very early and I went to his office and I said, I want to write a dissertation, at least partly. And there were some other things focused on studying this price momentum strategy. And then I distinctly remember this, I cowardly mumbled the second part. And it works very well. And Gene was like, what was that?

[Josh Brown]

Because it shouldn't exist in his framework.

[Cliff Asness]

Well, with any. If you do a back test and we can get into the problems with backtests. But if you have a successful backtest, really good historical returns over a long period. There are always three possibilities. One is you just tortured the data till it confessed. It's overfit. And it's always clear when you have very silly the super bowl effect. I'm sorry, I don't care how many years in a row it's right. I'm not buying because an NFC team won. If it's not that, then it's real. If it's real, it is either because what you were long or overweight and it was riskier than what you're short or underweight and you get paid a risk premium. That's the kind of Gene Fama fish and market story. The Bob Schiller and Dick Thaler won a Nobel Prize for this too. It's not just Bob is very often the thing that is long was actually mispriced against the thing that was short. In some sense you got to argue what mispricing means with a lot of factors. There's an interesting argument to be had with the so called value factor, which I think should be called the low multiple factor. That's a side story. I fall on the inefficiency side these days. But you can make a credible argument that it represents, say a Great Depression risk where maybe those companies will cease to exist. Momentum is very hard to reconcile with a risk model. Risk does not mean occasionally loses money or occasionally gets killed. Right? That's not risk you should pay for if you can diversify that away. Risk is something you either can't diversify away or tends to happen when it's most painful to happen. So things that lose in bear markets you might say are riskier. If there's an asymmetry, you don't really see that with momentum. It's very hard. It's also exceedingly simple. Nowadays we and many other quants will have much more, hopefully sophisticated, hopefully not, you know, overfit, but hopefully sophisticated ways to measure momentum. But what I wrote my dissertation on was what I jokingly called the two newspaper strategy. You needed a newspaper from a year ago and from one relatively recent newspaper. And you needed to be A computer works better than a person because you want to write them down real fast, but you buy the ones that are up and sell the ones that are going down. That making money with no clear thing to point out where it's riskier is a real blow. Gene is very nice about it. He's not a big fan of the fact that momentum works but he acknowledges it does. And he calls it the single biggest blow to the three and then the five factor model.

[Michael Batnick]

It must drive you nuts. We're going to get to your pet peeves. I know. Yes, we're going to get to your pet peeves later. But when people will tweet something dumb happening in an individual security and go, efficient markets. And first of all, the person saying that has definitely not beat in the market over any meaningful period of time. So, for example, like our friend Economic who you interact with tweeted, microstrategy market cap now 90 billion on $30 billion of Bitcoin. Whatever. And then Michael Antonelli tweeted the meme of the intelligence investor book going in the garbage. So just because dumb shit happens does not prove that the market is inefficient.

[Cliff Asness]

No, not even close. You know, if you're making the full Gene fama argument. And even Gene doesn't think markets are perfectly efficient. He shocks the class about the third week at Chicago by telling them perfection is ridiculous. He thinks that's a great way to start to think about it. And he thinks they're probably more efficient than I or probably you do. But he doesn't think that he allows.

[Josh Brown]

For dumb shit to.

[Cliff Asness]

Occasionally he allows for dumb shit and nobody's going to stop individual dumb shit. Is there pervasive dumb stuff that you can make very low risk profits off of right now?

[Josh Brown]

Sort of.

[Cliff Asness]

Well, keep in mind, I'm at least a mild heretic from Gene. I am saying I do use the word bubble, one of my pet peeves way back when. And you are correct, I have some new ones, but in 2013 was overuse of the word bubble. And I literally talked about a bubble in a single stock. That's not a bubble. To me, you might argue that's a mispriced stock. But a bubble has to be fairly pervasive. And this is a subjective definition. Still, you might think one is a bubble.

[Josh Brown]

A bubble is a stock you didn't buy before it went up.

[Cliff Asness]

Yeah, well, that's a funny way to put it. But a bubble, say, in a market is. I have tried very hard and I can't come up with remotely plausible assumptions that would make this price fair. Now, again, your answer might not be the exact same as mine.

[Josh Brown]

What you consider plausible is the tough part there.

[Cliff Asness]

Yeah. Though that's why I reserve it for very rare times, you know, at the very beginning of my career and I was not actively trading, but I think the Japanese market in the late 80s when, you know, the stock market, the palace was. Palace was worth like more than California or something. I don't know. Yeah. More than Earth.

[Michael Batnick]

Yeah.

[Cliff Asness]

Excluding the Palace. That was double counting. One of my ex professors, he's actually also co chair of my dissertation, Ken French. Gene's off often.

[Josh Brown]

Oh, we love Ken French.

[Cliff Asness]

Ken's awesome. But he had a paper with some co authors in the late 80s with the title Our Japanese Stock Price is Too High. The beautiful thing, which is a statement both about markets and about the lag in publishing academic papers that can sometimes take a few years to come out, is it was published under the title Were Japanese Stock Prices Too High. So I think that. I think the dot com bubble in the 99, 2000 and I think certainly by late 19 through late. Through early 2021, I think SPAC bubble. Spacs, Yeah, I think they got crazy. I may not even use the word.

[Josh Brown]

There, but do you distinguish between price bubbles and activity bubbles? The spac bubble was an activity bubble. There were too many of them chasing too few good businesses. It was just too much activity.

[Cliff Asness]

To be fair, I really focus on price.

[Josh Brown]

Right.

[Cliff Asness]

Is this price remotely justifiable or is it out of a bound where I am willing to lay?

[Josh Brown]

So by that definition, they weren't bubbles, the spacs, they were just poorly priced.

[Michael Batnick]

They were dumb.

[Josh Brown]

They were just bad investments. Not bubbles.

[Cliff Asness]

Yeah. Which we will occasionally buy when we think they get cheap enough. We have no problem with that. But clearly when everybody. When celebs started doing spacs, even. I don't trade these rules of thumb as a quant, but I still. They're fun. Right? When you start hearing that the, you know. Yeah.

[Josh Brown]

Anything with celebrities is either a scam or a bad investment. Because the only reason celebrities get brought in and flattered to be included in these things is because you're trying to suck in a lot of retail. You're not trying to do that if you have something that's really of value.

[Cliff Asness]

They're looking a little better now. But my favorite were the 2021 Super bowl celebrities touting crypto.

[Michael Batnick]

Yeah, all of them.

[Cliff Asness]

It was hilarious.

[Josh Brown]

Here's my definition for not definition. My answer for whether or not markets are efficient. I'm not a mathematician. I don't know if you could tell, I'm more of a poet. But the way I explain it to people is markets are never efficient. They're always on their way toward getting efficient. They never quite get there and it's a bumpy road.

[Cliff Asness]

No, I think that's exactly accurate. And in fact, some do clip that for TikTok, please. Some do apply math to that. Classic economic models that don't consider real world institutions and microstructure assume there's an auction that goes on in space and prices just come out to something in real life. That's just not how it works. If you accept that even what Gene Fama says, the markets are not perfectly efficient. They should always be careening around with a general gravity in the direction of whatever you think is assuming you know what's a fair price. The gravity should be pulling you towards that.

[Michael Batnick]

And they do.

[Cliff Asness]

And they do eventually. But the gravity can be stronger or weaker at different times.

[Michael Batnick]

So you, you're. You started as a value investor or this is one of the big. One of the big things that you. That you've pioneered or at least partly pioneered. So you look at like the real life value spread. So you don't look at the Fama French. You do like the real. There's multiple factors. You do the long and the short. And you thought at the time in 2000 when it was at its peak that you would probably never see anything like it again. And then you did.

[Josh Brown]

And then you go to 1.2.

[Michael Batnick]

Daniel and then we did. So things got crazy in 2020 and they've since backed off a little bit. But value stocks have sucked shit for a long time. To be polite. What is going on with value? How do we fix it?

[Cliff Asness]

Well, if you take sucked shit and divide it by volume, you have an interesting new measure of performance. There's so much to say here. Stop me if I keep going. First I will brag a little bit. Value stocks drubbing that essentially has gone on since the GFC is quantitative value managers that do things like are relatively not equal weight but a lot closer to equal weight than cap weighted. A lot of the famous value indices are just short Nvidia at this point. We've had plenty of years when there are big differences. We lose occasionally too to conventional value. It's not like we've invented something that always wins. Obviously we do it our way because we think it's better. But we also don't take a very big industry bet. We wrote a paper and I start a lot of sentences obnoxiously with we wrote a paper. This was a 1995 paper. So it's approaching 30 years showing that a lot of quantitative measures and value in particular work better. If you don't take a big industry or sector bet doing apples to apples within a industry or sector, obviously tech versus textiles. I don't know if there are any pure textile plays anymore, but I think you'll never find a day where tech is selling cheaper on basic multiples and textiles and perma bets make no sense to me. Nothing is permanently mispriced in one way. So for much of 2009 through 2017, not just us but a lot of quants had a very good time. Our versions of value didn't have a banner period but were not terrible. And everything else, quality stocks, momentum, low beta stocks all worked. It was actually a semi golden age. So I love that period because I could point to conventional measures of value doing poorly and us doing well and always be careful, never celebrate.

[Josh Brown]

Sorry. Conventional measures of value is Russell 1000.

[Cliff Asness]

Book to price a book which is largely based on price to book as.

[Josh Brown]

Opposed to what you are selecting for. Which is what?

[Cliff Asness]

Multiple measures of value where we're hedging out a fair amount of industry and sector exposure.

[Michael Batnick]

So you don't want to just look at the balance sheet, for example.

[Cliff Asness]

Yeah, like price to book. I'm not a hater on price to book. It's an easy one to hate. It's one everyone gangs up on.

[Michael Batnick]

A lot of you quants bicker about it. It's not that different.

[Cliff Asness]

Well, this is one thing.

[Josh Brown]

Investors don't care about book anymore.

[Michael Batnick]

I'm just saying the strategies get to roughly they go the same direction they.

[Cliff Asness]

Do during the I hope I get this right. During the 2009 through 2017 conventional way price to book unindustri adjusted cap weighted. It's the classic way value indices are done. Price to book was worse over that period, interestingly enough, 18 through 20. When was the real disaster for value strategies? Price to book was about as bad as every other Price divided by you frigging name it. Price divided by your gibberish measure. Whatever. If you cared about price, you lost approximately the same. And a lot of the criticism of value would end up being really about price to book. I know Josh was about to say this. I could feel it. Price to book doesn't handle intangible assets well and I wrote a lot about.

[Josh Brown]

It at that time. Contemporaneously. The things investors care about, they don't show up there.

[Cliff Asness]

And I think that is true. And we've been adjusting for a decent amount of time. Book measures. You know, the classic one is R and D spending.

[Josh Brown]

Yeah.

[Cliff Asness]

You spend money on property, plant and equipment. It's capitalized and it's in book. You spend money on R and D, it's expensed and it's not in book. Yeah brand. Brand networking effects where you know I'd love to get rid of tam, I'd love to get rid of Apple, but my four kids will defect to another family if I did that. That's all real. That doesn't mean by the way that the measure doesn't work anymore. That means it's somewhat noisy and out of favor and it could just mean it is less precise of a measure.

[Josh Brown]

What if it was disrupted by cloud computing and the iOS operating system?

[Michael Batnick]

Huge dumbass. Punch him in the face.

[Cliff Asness]

No, no, no, he's not wrong those describes but the assumption that when a measure is less accurate, not inaccurate. There are plenty of firms where price to book still works. It automatically loses a ton of money. No, the actual right way to think about it for me and I'll geek out for a second is if you used to think this has a 0.5 Sharpe ratio and someone screwed around with the measure. You don't automatically lose. Who the hell said that was going to happen? That's the same as it's just prior to transactions costs. It is just as hard to automatically lose as it is to automatically win. That's like saying I knew to short price to book because of this. You have to have a thesis if you said those kind of companies are going to do great. Yeah. So I do think price to book is a little antiquated. I think it does miss some of that. I think it's not that hard to adjust for and make it back into a reasonable measure. But most modern quants, including us, will have it in a composite of many things but will not give it any specific.

[Josh Brown]

I think the kids coming out of Chicago and other schools learning quantitative finance are going to over index to what's gone on in the last eight years. And they are rather than being price to book oriented facto investors, they're going to be earnings growth factor investors.

[Cliff Asness]

Yeah, to some extent. Everyone's always. Whenever I speak to young people, I'm always hard pressed for good advice. I don't have any. You know, I tell them not to follow their bliss because their bliss is probably stupid. That doesn't get me particularly popular with them. Well, I'm generally talking to business school students so they've already decided not to follow their bliss. But one of the things I always tell him is don't chase the hot career because he'll be five to 10 years off the cycle. Don't eschew the hot career. If that's what you really love, then you're combining your bliss with something that's good. But we're all prisoners of our careers and these careers are pretty short of these people. We just found out what happens when interest rates go up for the first time in someone's career. I think some people had a little trouble with that one. And people a good Chicago quant though. Quants have huge disadvantages. There are things we can't know that a traditional manager can know. I don't pretend it's a panacea. But one advantage is you do get to look at 75 years, not just the last eight years if you're willing to look at the data. And one reoccurring huge problem in all of investing. And you don't have to be a quant for this. This happens to you guys too. Is what I call statistical time. Time where you can draw valid conclusions from data is just far longer than real life time that you can stick with something or your clients or your.

[Josh Brown]

Clients will keep listening to you.

[Cliff Asness]

You know, two, three years of underperformance is about it before it starts to get excruciating in the real world. The very stock market can have a bad 10 years. Hasn't happened in a while. But 2000 to 2010 was a bad 10 years for the stock market. Luckily the stock market has a lot of true believers. But if that were an active strategy. By the way, if you had an active strategy as good as the stock market but not correlated to the stock market, that means you've invented a second thing as good as stocks for the long run. That's fully diversifying. That's a really good thing. It is excruciatingly hard to stick with.

[Michael Batnick]

Have you heard of private credit? We'll get to that later.

[Cliff Asness]

No, that doesn't go down.

[Josh Brown]

You have three.

[Cliff Asness]

That's not as good.

[Michael Batnick]

Hold on.

[Cliff Asness]

That's 100 times times better than the stock market.

[Michael Batnick]

So. So what is driving the value spreads? Because you look at. You say it's not intangibles. It's not just a mega cap. You sector adjust, you industry adjust. It's. It's. It's not all these different things. So what is it? Can I throw an idea?

[Cliff Asness]

Yeah, please.

[Michael Batnick]

Is it that tech is dropping?

[Cliff Asness]

This is a really great idea. I might have to leave and start trading.

[Michael Batnick]

Might have to cancel the.

[Cliff Asness]

Give me a phone. Kevin.

[Michael Batnick]

What technology has enabled. I just mean tech stocks. It has enabled companies to earn higher margins for longer periods of time that we thought were possible. Is. Could it be that simple or can that be a part of it?

[Josh Brown]

It staved off the mean reversion of profit margins that normally occurs.

[Cliff Asness]

No, I absolutely get that we. You can never test everything. When someone says something's broken, you're trying to the classic disprove a negative because there are infinite number of hypotheses for why something is broken. And it's different this time. We spent the better part of two years, as you could imagine, going through them all. I swear to God, I truly believe if we had found. Oh, we're wrong, we missed it. Damn. Never going to be happy. You missed it.

[Michael Batnick]

Publish it.

[Cliff Asness]

But we would say we're changing the portfolio. We're not the people I hope I've never been tested this way, but I truly believe we're not the people who would dig our heels in because we can't bear to change our public story. So what are some of the things we investigated to try to look at this? First of all, yes, it's not just about tech, but we did throw out narrow and broad definitions of technology. Broad ones include a lot of media and whatnot. Just from the sample and said let's look at only more old line companies. The value had gotten about just as killed and the value spreads were about just as wide. That's a kind of indication there's something going on. I did a study which I've only done one version of. I want to get back to this, but in writing my last piece on a less efficient market hypothesis, I thought of something I hadn't looked at which is kind of obvious. I hate when I think of something kind of obvious because then I feel stupid that I didn't do it 10 years ago. But this is every single month. You could do this for 50 years. Line up all the stocks. Choose your favorite measures of valuation. See how well they predict future earnings, growth, sales. Growth. Earnings is really what you care about. Sales is better behaved because it's not negative ever. So it's a little more mathematically. So you do it a bunch of ways and what you find is that more expensive stocks do in fact tend to outgrow cheaper stocks. The market, as I say, goes too far on average, which is why value works. But it is on average, not backwards. The expensive stocks are better companies in that sense. They're just not.

[Josh Brown]

That's why they get expensive.

[Cliff Asness]

They're just people go too far and get overexcited about it or risk. I'm never going to. Oh, he's got to throw famine there. There's a possibility. That tendency though has shown no sign to get stronger over the 50 plus years, including the recent, most recent three year reading. The predictive power that more expensive predicts better growth. It moves around every single month is a different sample, but it is very steady. I did that. I shouldn't say worried because I shouldn't feel bad if we find we're wrong. But you prefer to be right. So I do this. It's always exciting and scary when you do a new test. And if I had found that that thing was tending to be stronger and stronger of a predictor, I might have to say basic simple valuation strategies are backwards, are backwards, or at least not as good as they used to be. The world has caught on. Now it turns out maybe the value spreads are wider, but they're more rational value spreads because they are better predictors of future growth. Just didn't see it a lot. Everything we did testing this stuff, by the way, has the same boring answer and we just didn't see it. So you can't find conclusive evidence, can't find any evidence.

[Josh Brown]

So the problem for most investors, they're not doing what you're doing in terms of research. They're doing anecdotal testing. So they're looking at Costco at 50 times earnings and they're looking at Apple at 30 times earnings and they're saying Costco is the best retailer, Apple's the best phone. Of course those stocks should first Costco should work.

[Cliff Asness]

Awesome. Any place I can get 100 cans of baked beans. That's how normal investors is. Astoundingly cool. Yeah. I wrote a piece looking at value spreads and interest rates showing that the spreads between cheap and expensive. One of the big justifications that has faded a lot because it turned out not to work was that very low interest rates that we had at the time justified these value spreads. That's based on a very intuitive story that I don't disagree with directionally. Growth stocks by almost the definition of the word expect more of their cash flows in the future versus value stocks. If you said that was a bond, it's a longer duration, longer maturity bond. So when particularly long term real interest rates fall. So it's very plausible that stuff with more cash flows in the future. It turns out for a quant who's doing a super diversified portfolio of low multiples against high around the world hedged for industry, it looks a lot like a 19 year bond against an 18 year bond. It's a very small difference. The expensive stuff, as I told you, outgrows, but it outgrows for about three years and then Grows about the same going forward. That does not change your cash flow. Bond math. Macaulay modified durations very much. By the way, people hate explanations when you go as directionally. Right, but it's not nearly enough. They like black and white.

[Josh Brown]

Just give me the answer. Cliff, I want to ask you about your hypotheses for why things are less efficient.

[Michael Batnick]

Wait, I'm sorry. I'm sorry. I'm sorry to be rude, but I just have to. Before we get off the value.

[Cliff Asness]

Do you guys even need me?

[Michael Batnick]

No, before we get. This is for you. Before we get the value stuff. Okay, what if. And please don't jump across the table and punch me in the nose. What if you and all the other quants ruined value? And what I mean by that is there used to be somebody explained it this way, that, like, there was like a value embarrassment premium because these companies were so bad when it was just real stock pickers before there was quant that. Nobody wanted to own these names and therefore they traded a discount because nobody wanted to own them. You guys came around and you said, holy shit, there's a premium in here.

[Cliff Asness]

And therefore we gave it the patina of respectability advantage.

[Michael Batnick]

It vanished.

[Josh Brown]

Oh, you made it not uncool. You made it not.

[Michael Batnick]

Nobody was embarrassed to own a QR Funds.

[Josh Brown]

First, this would apologize.

[Cliff Asness]

This would be the world's first time I made something cool. Second, you greatly overestimate my athletic ability if you think I could leap over this table and hit you. I could walk around this table and then hit you very lightly. It's plausible. Like all these things, it's plausible, but you have to say, what would that look like? For me to believe that explanation, it would have to show up in tighter value spreads where people are not as embarrassed or, like I said, value spreads that are better predictive of future earnings growth. If you're not seeing in any of the actual measures. Where's it coming from in that story? One of the reasons we've monitored these value spreads since we created them in 99. It's not, again, me being wrong, that there won't be another bubble as big as the tech bubble, which I was wrong about. It's what if it goes away? That was actually probably 75% of my motivation. Obviously, you build a new analytic, it doesn't cost much. You're going to keep monitoring it. But 75% of the reason I found this interesting over time is what if one day we see these value spreads go not to higher levels than usual, but to unprecedentedly low. God, does not promise us a value premium. There has been one. If they came to unprecedentedly low, maybe that isn't enough to compensate the value investor for the lower growth. If we had seen that, I really might be with you and say yeah, it could be the quants all buying value.

[Josh Brown]

Well, the aum of the quants growing sufficiently so that there are people who are unembarrassed to own these stocks in size. And that's why all of a sudden they don't work as well as they.

[Cliff Asness]

Used to a lot. Again, this is a pure price multiple value strategy. I get terrified people will think that's all we do. It's not. But yeah, that is predicated partly to the extent it's an inefficient market, partly on the embarrassment effect on the cheap side and the overenthusiasm effect on the expensive side. The quants, even when they were bigger than they are today. I would get asked a question a lot prior to the 18 through 20 painful period. Most common question I would get was how come this hasn't been arbitraged away? You guys and many other very good quants do this. And I'd go first of all, if you look at market cap sizes, we're still not that big compared to most of the other parts of the world. Second, I would literally point out that I was around in 99, 2000 and periodically there are wipeouts. I didn't. It would have been really nice if I knew one was coming up in an hour and a half. That's different. I'm not a big market timer, but if God told me it was coming, I would take action. But it's really hard to arbitrage away something that occasionally tries to kill people. That actually is a feature, not a bug of a strategy because it means it can maybe stick around forever, but it is not a feature while it's going on. If I can add one last thing to the technology thing, this goes back a bit, but I was thinking about this. I have this chart and I just used famine French's version here. Sometimes you use the lingua franca of the industry even if you think you have a better measure and it comes out the same. So I use that. But I have the steady positive returns over the very long term of their famous HML factor. That's their cheap minus expensive. Why did they call it cme? I don't know. Maybe there was a lawsuit. Oh, a story within my story. I'm going to use up all your time. For years, even as their student, I wondered why they use book to price, where everybody on earth uses price to book. Finally, I'm teaching a class. I've done this almost every year for Ken French. Wherever he's been, he's been at multiple schools. I'll do a guest lecture. Kind of a real world. This is how to the extent the quant world is the real world, it's more real world than academia tells war stories. But at some point I had Ken on the spot because in front of his class. And I'm just like, Ken, why did you and Gene choose book to price, not price to book? And I always assume there was some real subtle mathematical like price to book could blow up if you had near zero book. And we wanted to keep the math right. He's like, well, you know when you do a chart where on the X axis you put like book to price and the Y axis you put average return. We wanted the chart to slope up.

[Josh Brown]

Oh my God. It was a marketing decision.

[Cliff Asness]

No. And I said, ken, are you aware that somebody out there has gone long? What they mean is short and short what they mean to be long because you made that choice. And he's like, I can live with that. Ken's a wonderful guy, but that is how he felt. This chart of the long term performance and all I have next to it, the title of the chart is something like can values survive changes in technology? And the chart goes back to 1926. So you can figure out what I'm doing. Steamships turning to railroads, radio. World War II and atomic energy. Rural electrification.

[Josh Brown]

Personal computers.

[Cliff Asness]

Personal computers. In some extent, if you do believe the world overreacts and goes too far, it might cause painful episodes for value, but you can easily argue it adds to its long term return. People need something. If people are going to over extrapolate and get overexcited, they need something to get overexcited about. And I'm not saying this is the whole thing and it's rather subjective. When are you in a technological change period? But my point is that strategy, again, only a small part of what we do overall has been working for 100 years, on average. And you cannot look at the last hundred years and say it's been a placid technological period for it to work. People on average have to react to technological change similarly to the past. They have to, on average, perhaps overdo it a bit for quant. It doesn't have to be a gross overdoing. In fact, we don't like it when it grossly overdoes it because that means we have to wait two or three years and apologize for a while.

[Josh Brown]

But that overreaction is what sets up the opportunity for the quant.

[Cliff Asness]

One of my running jokes is every quant, every active manager, not just the quant, doesn't want a perfectly efficient market. We got nothing to do.

[Josh Brown]

Yeah. Then what do you do?

[Cliff Asness]

That's our job is to. If you want to say we help in the world to make the market more efficient and help our clients make money, but we get really pissed off when it gets less efficient after we put the position on.

[Josh Brown]

So that's a great segue for where I wanted to go next. I think this is what people most want to hear from you.

[Cliff Asness]

You say you have really want to hear my personal style and grooming habits?

[Josh Brown]

Of course. You say you have three hypotheses for why markets have gotten less efficient for pricing the cross section of stocks in the last 30 years. These are your three hypotheses and you can react to all of them or whichever one you think is the most interesting. Hypothesis one, indexing has ruined the market. Hypothesis two, very low interest rates for a very long period. Hypothesis three, we have the effect of technology backward. Which of those do you think is worth getting into and why?

[Cliff Asness]

Let me do two of them. Low interest rates are boring. I'll do a 2 second version. As I said before, I don't think low interest rates justify the spreads we saw between. But 10 plus years of very low and occasionally negative real and occasionally nominal rates in a very formal technical mathematical model can drive investors batshit. We saw it and people do some. In principle, you shouldn't buy the overvalued and sell the undervalued because you have super low interest rates. But I just think it's correlated with some wacky behavior.

[Josh Brown]

At the end of the 15th year of Ultra low interest rates, we started inventing things to trade. People were buying virtual land and they were valuing it based on the fact that it was contiguous to Snoop Dogg's virtual land.

[Cliff Asness]

I don't even know what that means.

[Josh Brown]

Okay. Nobody does. And it was an investing strategy for like 10 minutes.

[Cliff Asness]

Yeah. I think your earlier question that can a relatively efficient market permit a lot of idiocy? If we want to point out individual cases of idiocy, we'll be here all day. All day. So let me focus on the first and the third and the third. Technological change being backwards is my favorite. Let me say that. But the first is a very controversial one you guys have talked about. This is indexing. When I say indexing, I mean Jack Bogle style cap weighted indexing. I think sometimes it gets very confused. People will take any rules based strategy and call it an index. It might be an index of something, but it's not generally mean.

[Josh Brown]

It's been passive investing. Not the same thing.

[Cliff Asness]

Yeah. So when I say indexing here, just think passive investing, cap weighted passive. Okay. You know, and the reason that's the true passive, it's the average of what we all own. Any active management is inherently arrogant act because it's saying I differ from the average person. And I think I'm going to be right. There's one amount of indexing and passive indexing has certainly got much bigger in all of our careers. And I had the good fortune of actually being fairly close friends with Jack Bogle, which is a little bit an odd couple. I'm getting older, but I was in my 30s at the time and he was in his 70s. Passive indexer, long, short active quant. I think the only reason he maybe could look past that was his son was a long, short active quantum. That's right. Maybe some of that affection bled over to me. I got him to go on CNBC or Bloomberg. I forget with me once he said something that was my favorite thing I think anyone's ever said about me. Someone said, you know, you seem quite supportive of Cliff. Cliff runs some hedge funds. Don't you hate hedge funds? And he said, yes, I hate Cliff's the least. He was an awesome guy.

[Josh Brown]

Jack was great.

[Cliff Asness]

But. So there's this question, and I'm getting back to Jack because that came up with him, of how much of the market can passively index in the Jack Bogle sense. And the one number everyone agrees on or at least should agree on is it can't be 100%. It's even hard to get your head around what that means. Nobody is trying to decide if Nvidia is worth more or less than the corner drugstore. We're all piggybacking. Indexing is a free rider. It would like people to have relatively efficient prices. So it's buying the home market at a relatively reasonable number. But where it kicks in. I asked Jack this and he readily agreed. 100% passive cannot occur. He was intellectually honest, Jack. He thought the marginal investors should move to passive. Absolutely. But I said, so Jack, how much of the market can be passive? And he goes, 75%. And since he's Jack Bogle, I go, oh, where'd you get that number, Jack? What's the model? He goes, oh, I made it up. Which again, when you're at that point, he was probably 80 in the.

[Josh Brown]

He really was.

[Cliff Asness]

You can get away with that. The rest of us should not make a bold statement and then immediately add that we made it up. But even making it up conveys some accuracy that we really don't know this precise number. Some people, someone, I think, the world of Owen Lamont at Acadian. I hope I'm one of the people who's willing to tout competitors. At times I feel proud of that. Acadian's a great firm, but he writes a tremendous blog. He doesn't write too often, but. But he's a super smart guy and he is amused. I don't think he literally says that. He's definitely sure of this. That you could have 99% of the market passive. It depends who's left, how much capital they're employed.

[Josh Brown]

It's America, though. It'll never happen.

[Cliff Asness]

No, it won't.

[Josh Brown]

Theoretical, it won't.

[Cliff Asness]

But once you accept that things break down and get silly. At 100, most mathematical things in the world don't work. Like the Owen Lamont thing. They don't. Suddenly all the crazy doesn't happen between 99.99 and 100%. Are there a lot of issues? I talk a lot in the paper of who's moving the passive. Is it the informed traders or the noise traders? That's another issue.

[Michael Batnick]

Who's closet indexers?

[Cliff Asness]

Well, closet indexers make it very hard to measure that number. I'm even talking about what percentage of.

[Josh Brown]

Because they're active but acting closer.

[Michael Batnick]

They're moving from closet indexes to true indexes.

[Cliff Asness]

What's the difference if you're taking 50bps to tracking error? You're mostly passive, Cliff. Do you guys remember Princess Bride?

[Michael Batnick]

Of course.

[Cliff Asness]

Mostly dead.

[Michael Batnick]

Mostly dead.

[Cliff Asness]

You're mostly passive, Cliff.

[Josh Brown]

If I have an ESS and I raised $20 billion in my SMA and I'm managing money for RAAS all over the country and I.

[Cliff Asness]

This isn't hypothetical. This is what you do.

[Josh Brown]

No, no hypothetical. Because I blew up a few people that don't know what they're talking about 10 years ago with this. If I say I buy passive indexes, but I trade them every month, am I active or passive?

[Cliff Asness]

You're active on one dimension and passive on another.

[Josh Brown]

I mean, it's a joke, though.

[Cliff Asness]

Saying you're passive and then timing the market, I think is intellectually inconsistent. Right.

[Josh Brown]

But I only do it with the essence.

[Cliff Asness]

If you. If you.

[Josh Brown]

Overall.

[Cliff Asness]

You know what I mean? Okay. I Got another story.

[Josh Brown]

I only buy the spy, but I trade it every 10 years. I don't know if you guys passive.

[Cliff Asness]

These parenthetical stories are ruining everything. We love them, but. So I'm on an investment committee of a school I once attended. That narrows it down to two. During the gfc, we ended up after a tremendous argument. It was actually a fairly polite tremendous argument. There was nobody shouting at each other, but a long debate, let's call it. We ended up selling some of our stocks very close to the bottom of the gfc. This was very frustrating. Myself, there's a guy named Marty Leibowitz and a guy named David Booth who we were arguing. We were not trying to time the market. We weren't saying, we know it's down 60%, that's it, we should buy. We were saying a year ago we were calling ourselves the Infinite Horizon investor. And now we're selling because it's down and way cheaper than a year ago. That feels wrong. And we lost that argument. I remember having an out of body experience. David Booth donated to business school at Chicago, named after him. Wonderful guy. And I'm like, I'm losing an argument about investing at the University of Chicago with David Booth on my side. How much I must suck at arguing to do this, though I think we limited the damage. I think the debate kept it to a rather small. That's what happens, by the way. You guys have must have seen this a million times where someone wants to do something dumb. You can't talk them out of it, but you could talk them into doing a token amount that makes everyone feel okay and you move on. But the head of the board at the time, and I will not even come close to a name here. But I said, do we have to sell? Because Chicago is going to have to shut down if we lose more money. Because then you got to stop your loss. If the University of Chicago has to shut its doors, if the market goes down another 20%, then a, we screwed up by taking way too much risk to begin with, but that's done. We have to do. And we're like, no, no, no. We don't even pay for much of the university out of this. I'm like, then we're timing the market if we sell. And the head of the board said, no, no, no, Cliff, don't worry, we're not timing the market. But I do believe we'll get back in in the spring.

[Josh Brown]

Oh, my God, I love it.

[Cliff Asness]

And I was like, right, well, it actually. Okay, I lose.

[Josh Brown]

It actually bottomed in the spring. So in fairness.

[Michael Batnick]

So wait, so is indexing March of 09, but is indexing making markets less efficient? I saw you on with Michael Green. How'd that go?

[Cliff Asness]

I was not on. I had a friendly conversation with Michael Green, which is news.

[Michael Batnick]

It's good to hashtag.

[Cliff Asness]

I will say, I think this is true of both Michael and I. We both can be quite acerbic Twitter personalities. I think I'm very nice people coming.

[Josh Brown]

Across as well on social media as you do in person.

[Cliff Asness]

I am.

[Josh Brown]

You know that.

[Cliff Asness]

I think you could. I'll defend myself a bit if someone who's just a newbie asks me a question, even if it's really kind of what I think. Out to lunch. I'll spend a lot of time. I'll work at that. I'll be nice if I perceive, and I will admit I have thin skin. Someone disrespecting me, I will disrespect them back. And I think Mike's the same. I don't think Mike and I have a meeting of the minds on indexing. When I talk to him in person, I'm like, dude, you're mad that I make this one of my three reasons, not the number one reason I've moved in your direction. It's one of the three reasons. I just say it's hard for me to be.

[Josh Brown]

Is he anti indexing?

[Cliff Asness]

Oh, Mike Green is like one of the major intellectual forces who thinks indexing is the devil.

[Josh Brown]

But he wants to ban it or he just doesn't like it.

[Cliff Asness]

I asked him this when I talked with him. What's your prescription? It's enough. You can say something's a negative force, but then you have to say, what do you do about it? And he doesn't want a blanket ban. He does want something, and I'm going to do a terrible job. And he should correct this if I get it wrong. Something to do with really large investors not being allowed to index. They're forced. You're like forcing people to think about what they buy. And I get the direction you're going to, but it's a really odd world where you just legislate. You people cannot buy one of everything.

[Josh Brown]

Well, I don't think that'll happen in the next four years.

[Cliff Asness]

I don't think it's going to happen next year.

[Michael Batnick]

So he's obviously a lot more intelligent than I am. So I'm glad that you're here.

[Cliff Asness]

I gotta tell you, Michael, that really is quite obvious.

[Michael Batnick]

So I. But I don't agree with him.

[Cliff Asness]

But you are intelligent. Mike Green is a brilliant guy who I happen to disagree with.

[Michael Batnick]

He's incredibly smart. I don't agree with him that indexing is ruining the market, but I do agree with him and I think you would agree with this. It can't be not having any impact. There is so much.

[Josh Brown]

I think that's right.

[Michael Batnick]

There's so much money coming in. It has to do something.

[Cliff Asness]

Basically what I'm saying in my piece is it's really hard. People want precision to be precise about how much. But I am wide open and consider it one of my three to the idea that the tether to reality of prices is weaker when fewer people are thinking about the prices. Whether we're past a point where that's a significant. It's very possible that in the prior world we had too many people thinking about prices that were just. How much of the world has to be active managers to get a fair market? We don't know the answer to that, but.

[Michael Batnick]

So is this why value stocks can stay cheap forever? And Einhorn's been on this too, via Mike Green that I used to find value in these names and the market used to agree with me eventually and.

[Josh Brown]

Now nobody's really disprovable. All you have to do is say 10 years ago, what was the market cap of intel versus Nvidia? One was 200 billion, the other was 50.

[Michael Batnick]

GE2. But does that disprove it?

[Josh Brown]

GE is the largest company in the country. Goes to almost a penny stock. If women. If passive flows were the only thing propping up stocks, then none of those things should have been able to take place.

[Cliff Asness]

One thing everybody forgets, and I do too on occasion. On occasion is most things have multidimensional explanations where a lot of different things. We want one. No, it's really hard. Everyone wants one. Everyone wants. Indexing is the devil or it's absolutely nothing to do with it. The case that indexing or passive might, and I still say might have loosened the bounds where things can get a little crazy does not mean they've removed those bounds. Where David maybe gets frustrated and David yells at me when I paraphrase his stuff wrongly. So this is with some trepidation. Let me be clear. David, if you're listening, these guys brought you up, not me. Well, I guess I kind of agree with David. What I write about in my piece is if I'm right, that these three things we haven't even gotten to the third reason have made markets somewhat less efficient or occasionally prone to bouts of gross inefficiency. If that's the case, then it should be a larger reward to so called value managers. And by the way, this doesn't have to be the narrow quant definition of value. It can be much broader. I notice every time that kind of measure does terribly, the Graham and Dodd old school people don't seem to have a good time either. The notion is that in a less efficient market, I think it's almost a tautology that the rational strategy, if you can stick with it, big if should make more money longer term than it used to. That's what it means to be. If it was perfectly efficient, we got nothing to do.

[Michael Batnick]

Do you believe that it will?

[Cliff Asness]

Yes, I do believe it will if you can stick with it. I also believe that if the tethered reality is weaker, then the periods when rational is thrown in the trash heap will be more severe and last longer. That is also close to a tautology. It's almost what I mean.

[Michael Batnick]

Well, we're there right now. GMO had a piece showing that devalue stocks in the world are at the 0th percentile. They've never been cheaper.

[Cliff Asness]

Somehow I will tell you, I'm always directionally similar to GMO and their numbers always come out bigger than mine. We see things at like literally I looked at it this morning, like 81st percentile globally cheap. We're all looking at different things directionally, right? Deep value is not what we're looking at. We're looking at a shallower version looking at many, many stocks. I'm not gainsaying what they're saying, I'm just saying we don't have that extreme of you, but we are directionally alike. And I do think if David Einhorn is correct, it's very similar to what I'm saying. I am just less of an ultimate pessimist than David. I'm a believer that saying you make more money but it's harder is how the world's supposed to work. The world where you make more money and it's easier. That's a fantasy world.

[Michael Batnick]

So we'll get to your thread and we won't keep you all afternoon. But I just. On the index front, I thought you would get a kick out of this. So BuCo Capital quote tweeted, he said, not gonna lie. Pretty crazy for a member of Palantir's board of directors to tweet this. And the tweet was this is the.

[Cliff Asness]

Why we went to NASDAQ or something?

[Michael Batnick]

Yeah, the tweet was we are moving Palantir Tech to NASDAQ because it will force billions in etf buy and deliver Tendies. Quote tendies to our retail investors. Player haters, be aware that we've been hated for decades. Everything we do is to reward and support our retail. Diamond Hands following. And then Buko Capital followed that up with an adult. Listen to this. He said, you can't get in trouble for tweeting it if you just delete your account. Right?

[Cliff Asness]

Right.

[Michael Batnick]

So the person who tweeted that then delete, literally deleted their account.

[Cliff Asness]

Well, because some lawyer at their firm said, are you kidding me?

[Josh Brown]

Are people really trying to. I've gotten that call from lawyers and diamond hands.

[Michael Batnick]

But the point, but the point is.

[Cliff Asness]

Index diamond hands and hold on for dear life.

[Josh Brown]

Isn't that like five years ago?

[Cliff Asness]

Well, one thing that drives me crazy, I actually have a little part of my piece talked about. This is the Diamond Hands, but I focus on hodl. It's actually a pretty good motto. If you have a very good strategy, sometimes you're going to go through hell. Hold on for dear life. But they seem to think you could buy the worst company on earth and win just by owning it forever.

[Josh Brown]

In this context, though, it's kind of nuts that you can move to NASDAQ or think you can move to nasdaq, get into the queues because you're big enough to belong in there and that. That is going to be more supportive of your stop.

[Michael Batnick]

Is it market manipulation if you tweet it in public?

[Cliff Asness]

I don't. I'm about as far from a lawyer as you can get. I just listen to lawyers because they keep me, you know, from getting in trouble. I don't think Kevin has a law degree, but he's gone through this stuff enough that he probably has an honorary one from. From somewhere. You know, right now he's trying to resist calling up our head of compliance and going, Cliff is saying, is this.

[Josh Brown]

So far you haven't seen. So far you haven't said anything that you wouldn't be comfortable to talk about.

[Cliff Asness]

So Kevin's okay, you haven't met my head of compliance. I'm not dismissive that there might be if there's more people indexing to NASDAQ than wherever they were before, that there could be a short term price pressure effect. Part of that can even last. I think we're learning that some price pressure things don't all go away. Some of it reverses. So I'm not totally saying that's ridiculous. Markets, again, aren't perfect. And if more people are going to buy it in the short Run, it's going to move the price. The notion that this will change the long term outcome to a diamond hand and the long term outcome, if you do hold it forever as Diamond Hands implies, is you will get the actual cash flows. It produces. A short term pop in the stock from moving indices is actually wildly inconsistent with the notion of diamond hands.

[Josh Brown]

What if I tell you because diamond.

[Cliff Asness]

Hands shouldn't care about the current price, they should care about what you're doing for the company.

[Josh Brown]

What if I tell you that we're.

[Cliff Asness]

I got no problem with Palantir, by the way. A lot of super smart people.

[Josh Brown]

What if I tell you that we're now in an era where actually no. The stock price helps to determine what the fundamentals are and companies that have higher stock prices and bigger valuations are in a position to do better fundamentally as companies because better engineers want to work for those companies. And therefore that's one of the reasons why this link exists between momentum and earnings growth and better earnings growth in the future.

[Cliff Asness]

I don't want to upset you, Josh, but that's not a news story. Sure.

[Josh Brown]

No, I understand.

[Cliff Asness]

Money is power. It's like having a big stack in poker. Supposed to be an advantage. I've never actually won a poker. But you don't buy it, it seems. I mostly don't buy it. For one thing, I think the clearest place is acquisitions. You have a lot of fuel for acquisitions.

[Michael Batnick]

What about stock based comp, the explosion of that, which I know you talk a lot about.

[Cliff Asness]

There's Michael Jensen who did the original stuff on agency theory and whatnot. He once gave a talk, this was right after the dot com bubble where I'm not going to go this far. But he was asserting that a stock price that was too high relative to the fundamentals is more harmful to a company than one that's too low. You end up doing a lot of stupid things because your cost of capital is free. So there are two sides to this story. But I will repeat that if it's not showing up in the low multiple stocks being worse, more extremely unprofitable than they used to be, if it's not showing up in valuation measures predicting growth going forward better than they used to, then no one can rule out it showing up going forward. That's impossible. But we've not seen a scintilla of evidence that this is actually changing.

[Josh Brown]

So I don't have the data to say that I have evidence. I have conversations with people who say why the would I take my resume and go to Snap when that stock, all it does is go down when Meta will pay me the same amount. But my stock based comp is probably going to be better. Therefore the better engineers end up working for Zuckerberg and not Spiegel. There's no way that that asserts itself in the fundamentals of that.

[Cliff Asness]

No, there could be some of that. I do laugh at a little bit of the concept that they can look at what the stock prices have done an extremely accurate nature discern. My job would be far easier if that were an easy task and may have a short term ability to attract people. But a lot of these other firms, they still have a fair amount of resources. Let me mention one other thing we did during our painful periods in these million tests of are we wrong? We threw out the mega caps on this analysis. We redid the history of value investing in the quant way. But we threw out the mega caps with an eye towards throwing out the then fangs. Today they'd be the Mag 7. And you can't just throw out the fang to the max seven today and compare it to the past when you didn't do such a similar exercise. It's apples to oranges. You have to have a similar. If you throw out the 10 biggest stocks, the 20 biggest stocks and you redo values performance and the value spread, imagining those mega caps just didn't exist. We found, and I told you they all end this way, the exact same results within rounding era. And this by the way, it sounds really counterintuitive. But then you got to remember we're still quants. We have 800 longs and 800 shorts. You kind of knew the answer before we did the test. You still got to do the test. But if throwing out 20 companies that none of them were held by particularly large weight in what we do and we rebalance kind of rigorously back to modest weights. If that changed everything. It's weird. These two bubbles, and I will use the word bubbles were pervasive. They were in most of the industries. They were in big and small cap strata. So any story for this that really does explain it away has to explain why it's everywhere. And I think Animal Spirits is my favorite one for that because unquantifiable. Wherever people are optimistic, they are more optimistic than usual.

[Josh Brown]

Right. So and. And that's totally unquantifiable. So nobody could really disprove it.

[Cliff Asness]

I hate things that are unquantifiable. But yes.

[Josh Brown]

Yeah. What do you want to go? Do you want to go back to micro strategy or. We said everything we wanted to.

[Michael Batnick]

Let's skip it. Let's. Let's do some pet peeves and we'll let Cliff get out of here. Actually, wait, no. We have to do volatility laundering.

[Cliff Asness]

All right. And we skip reason three, my favorite one. We have so much we want to hear. As long as you guys can put.

[Michael Batnick]

Yeah, I don't want to push you out, but I just want to be respectful.

[Cliff Asness]

Well, my third reason and was technology is backwards. And here is the. I say this in the piece. The most old man whining part of the piece. The whole piece can be construed as old man whining.

[Josh Brown]

Old man yells at cloud.

[Cliff Asness]

This is old man yells at literally the cloud in this case. Yeah, yeah. Old man yells at the cloud. That these kids and their funky Internet have ruined everything. It's like the end of a Scooby Doo meddling kids.

[Josh Brown]

Yeah, I would have gotten away with it if worn a few meddling kids.

[Cliff Asness]

Yeah, exactly. And here's, you know, I don't have time to do a deep version and I'll do, I think, a pretty useful version. Regardless of your political persuasion. I think many people, not everyone, because we have some crazy people in this country, but many people would probably agree with the Internet, social media, immediate access to all information. But most of it is crap. World we live in has made our politics worse. That we are driven to extremes by algorithms, that we live in bubbles of people who. Who agree with us. That we feel overconfident because we think we have all the world's information at our hands. And information overload can also lead to overconfidence. Similarly, technology that's made trading cheaper, which it has gotten cheaper. Free. It's not free. You can drive me crazy. People say it's free. Think free to the naked eyes. I'm a huge fan of Ken Griffin's, but he doesn't run Citadel as a charitable institution.

[Josh Brown]

He's not an altruistic.

[Cliff Asness]

You know, when people say, oh, there's no free, I'm like, people are buying your order flow. Do you think they are charitable people doing this? But even free trading doesn't necessarily make a market more efficient. If you sat me down in Las Vegas and said, the vig that the house takes out is now a third of what it used to be, I might play a lot more and the house might make more money from me because I think, hey, the edge is much smaller. So people thinking it's free can cause a lot of silliness.

[Josh Brown]

Yes.

[Cliff Asness]

So markets are a voting mechanism, just like Politics are you vote with your money and it's a weighted average of everyone's money where the price comes out. And if these things can screw up our politics, how can they not have some effect? Again, it's hard to go so far and the fact that both of them occurred one during the onset. I call this proto social media, the dot com bubble. And you'll remember this Josh was full of so called message boards. A lot of the crazier stuff took place pre Twitter. Pre Twitter. Pretty.

[Josh Brown]

Remember Iomega?

[Cliff Asness]

Yeah, yeah, yeah. I remember all of it. And the current one was obviously in a world enmeshed in social media again sounding like an old man. 247 trading on your smartphone again to pick on Nvidia. If you're up at 2am on a Saturday and what you really need is five more shares of Nvidia, you may rethink your investment plan. You might want to go to you guys and put in something more rational. So short version is I think this could be a reasonably part of crazy episodes. I think markets being efficient depends at least a fair amount on the famous idea of the wisdom of crowds. But the wisdom of crowds depends on a relatively independent crowd. When the crowd all gets to talk to each other, you can get an unwise, scary mob.

[Josh Brown]

It's not really a crowd anymore, it's more of a mob.

[Cliff Asness]

And I don't think there's anything better than social media and other parts of the electronic environment for potentially occasionally turning us into an unruly mob that can create these episodes. So that's reason number three. You want to do volatility laundry. Yeah.

[Michael Batnick]

So we have to let me put thoughts into your mouth and you could swat them away if I'm wrong. I the way that I read you is that you don't necessarily have a problem with the product per se, with the investment per se. It's the way that it is marketed and let's say lied to people. So we have a chart. Daniel 1, 3, 2.

[Cliff Asness]

I try very hard not to pick on specific firms.

[Michael Batnick]

So three, two. So no, there's not. No, this is just showing the reported volatility. And this is actually quants did the work here. This is an article in Bloomberg about quants entering private markets to show the actual returns to people that are investing in them. So anyway, the reported volume versus the actual volume, the gap is enormous. It's like Michael Strahan's teeth, but worse. And so I think it's just that when you lie to people, I like.

[Cliff Asness]

How you just throw in A random insult to Michael straight away.

[Michael Batnick]

I love Michael Strahan. When you lie to people about the investing opportunity, that's where you get pissed off.

[Cliff Asness]

Okay, let's start out with something I think we can all agree on. Lying is bad. Yes. You summed me up right. I'm not against the investment. I've invested in private things myself. This is an extremely cliche statement, but some of my best friends are private equity managers. Yeah, I live in Greenwich, Connecticut. It's impossible to have your kid play ice hockey and not be buddies.

[Josh Brown]

You're surrounded.

[Cliff Asness]

I'm surrounded. If you think of. I'm not saying Sharpe ratio is a perfect thing, but it's a measure of expected return over risk. I am not fighting the fight over the numerator, the expected return these people will get. I have some opinion that it may have changed, given how much people love private equity. And I do think it's probably somewhat lower than the past. But most of what I'm talking about is what you're talking about. The denominator, how risky these things are. I've seen more extreme numbers. That's from a great paper by Mark Anson where he smooths out and we wrote a paper on hedge funds that are considered much more liquid that even hedge funds own a bunch of illiquid assets such that you need to use about three lag months worth of data. Looking at the monthly returns on many hedge funds compared to the S and P, you miss some of the beta because not everything trades. Private equity, is that on steroids? Private equity, you need more than a few months. But even Mark stuff I think is the best stuff out there. But I think it's probably more extreme than that. You still see if somebody says the following. We think our private equity managers have unique alpha at restructuring companies. If that's the case, and I'm not the guy to judge that that is uncorrelated alpha. I can't do it. You can't get that from a quant. If there really is alpha and then they're hills and it overcomes some of the very large fees. More power to them. If you are willing to say, yeah, we run a mildly levered long portfolios, the true unobservable risk is probably a beta of about 1 point and a volatility because it's a concentrated equity portfolio of about 32. But we love it and we think it's going to do great. We think it's undervalued. You get zero problem from me. I might even invest. If your pitch is really really good. You still see and I've yelled at my own clients. It's never a very positive net present value project to yell at your clients, but I've seen quite a few so called efficient frontiers where it's like private equity numbers like up there, 7%.

[Michael Batnick]

Give me a break.

[Cliff Asness]

Private credit, 40bps of all. Come on. My favorite, and I won't name them by name but a prominent private credit firm and they're not the same but I just talk about them together. Very similar phenomenon that had all the standard tear sheet stuff and at the bottom had Sharpe ratio 10.0. I particularly like that it was 0.0, which is not their fault. It might have just come out to that, but it kind of implies that we know this, we know this number mathematical and I don't know exactly what it is, but the late great Jim Simons of Renaissance in Medallion, the fund he wouldn't let any of us invest in, what was that?

[Michael Batnick]

Sharpe three.

[Cliff Asness]

I don't know, but two to three might be my guess.

[Michael Batnick]

Ten's pretty good.

[Cliff Asness]

You know how much money you make.

[Josh Brown]

Over time, Cliff, the laundering part is because the asset isn't liquid and doesn't have a ticker symbol or a price each day. Yes, therefore you can say this is less volatile. The perceived risk is lower, but of course it's not. The valuation is definitely changing, but nobody can see it. In the same way that the value of your home doesn't have a price.

[Cliff Asness]

Monitor on the roof and psychological things matter. If someone's willing to say I know this is total bullshit, but it makes it easier on investors and then they act like more rational, I would do that.

[Michael Batnick]

If you could say to me, hey, I'll give you a vehicle. You're going to get the s and P minus 1%, but you don't see the marks. I'll take that.

[Cliff Asness]

But if we accept all that, you'll be shocked. But I have a retort. First it's why don't I get to do that? You guys in the private world, 100% can mark your portfolio every day. If we see a 10% drop in the S&P 500 today, the people who run those portfolios are brilliant. They know how to value companies. That's how they decide to buy or sell companies. If they could tell you in an orderly sale, and I won't push a disorderly sale on privates, in an orderly sale, what would I get today versus yesterday? And it'll be down.

[Josh Brown]

We have public real estate. So if you own private real estate don't tell me you can't mark that every year.

[Cliff Asness]

You absolutely could. Conversely, I during some of our worst periods, during the peak of the tech bubble, the Nader for our firm could tell you when prices return back to normal, we're going to make back X. So we've actually not lost you money, we just put it in a bank we call short drcoop.com? yeah, it's exactly what they're doing.

[Josh Brown]

And you could never say that.

[Michael Batnick]

It's not fair.

[Cliff Asness]

I can never say it, but it's exactly the same thing. So there's some quirk of our legal and accounting system and just tradition that lets them do it one way. So I admit a fair amount of my ranting is professional jealousy. It's why am I perceived as risky and you're not? And I'm perfectly fine with a world where we're both perceived as not risky. We both get to use the marks we want just the non level playing field. The last thing and the only real statement and by the way, how much private equity has actually made for their investors is a hotly debated topic. The IRRs, the firms put out, other people calculate other measures. I know you guys have looked at some of these. There's one guy time value of money versus I never pronounced it right. Philippus, something like that, who's like he's a much more of a anti private equity person than I am because he says they haven't even made money. My general reading, and my colleague anti illmanin is much more versed in this than I am is they probably have done well over the last 25 years, probably not as well as the IRRs look like. And even adjusting for risk, whether they will going forward is a wide open question. And here's my final point and maybe the most relevant one. If I'm right, and I do like to start sentences with the humble if that people now value the illiquidity because it makes it easier to stick with. When David Swensen at Yale was pioneering doing privates for institutions, maybe in the late 80s, I don't know. I'm not going to get that exactly right. I was around barely. I think the general acceptance, including if David were with us, he would say yeah, we were getting an illiquidity premium. Nobody wanted to own this crap.

[Josh Brown]

That is not the case today.

[Michael Batnick]

It's the opposite.

[Cliff Asness]

If what used to be a bug that you had to accept to get higher returns is now a feature that lets you stick with it. That's all well and Good. And it might work. But you pay for a feature.

[Michael Batnick]

Absolutely.

[Cliff Asness]

You pay for a feature through any kind of rational market. And as much as I dis perfectly efficient markets, I don't think they're so inefficient. You could drive a truck through. If more people want something because it has a feature that's now desirable, it will be priced to higher levels. Again, if you have friends in private equity and you get a few drinks into them at night, they'll tell you they're buying things at closer, much closer multiples to public than they used to.

[Michael Batnick]

See it in the data.

[Josh Brown]

Non rhetorical question. If you have $4 trillion in private equity and $6 trillion in private credit and they're all chasing the same assets. Assets. Is there any possible chance they're allocating to things at similar valuations as KKR and Bain were in 1987? 0 chance.

[Cliff Asness]

Well, I prefer to frame it this way. If you have 6 trillion in private equity assets leaving on a train from LA at 4pm and 4. No. The short answer is and this will get me in trouble? No, of course not. No. I can't tell you that the sign has flipped that it's so expensive now or so popular now that you're going to make less than your actual beta, your true life risk numbers should entail.

[Michael Batnick]

That's what the leverage is for.

[Cliff Asness]

I'm counting the leverage. Yeah. This is. If you really want to be cynical, you can call private equity same thing. I used to say this about long term equity hedge funds that had really very high beta that weren't really hedging that they've looked at the fact that active management, active stock picking on average doesn't work certainly after fees and costs and said we figured out the problem, people weren't just weren't charging enough.

[Josh Brown]

Yeah.

[Cliff Asness]

And I kind of doubt that that fixes the problem. And again, if you find a private equity manager who's great at what they do, that should be the reason for.

[Josh Brown]

Private equity that's a sponsor of today's show. Hey, do you have fun on the pod?

[Cliff Asness]

It's over. I was just getting into it.

[Josh Brown]

There's one more segment where we're going to ask you about favorite things that the audience can take away your favorite books.

[Cliff Asness]

Oh, I hate this. Well, I panic if I don't prepare in advance. I'm always. This won't shock you but I'm always reading books. There's great grade. I read books. It's not a big flux when someone just springs on me.

[Josh Brown]

What are you Reading now, your mind goes blank.

[Cliff Asness]

There have been times my mind has been like, it's something. I think it's by a Brit. It's really good. There's a girl in it. There's a dude.

[Josh Brown]

Cliff, what were your favorite comic books to collect when you were a young man?

[Cliff Asness]

Well, I was a Marvel.

[Josh Brown]

I can go deep with you on this.

[Cliff Asness]

I was a Marvel more than a DC person. I liked dc. I read them, but I was Marvel. It's classic stuff. People know this now, but I think they were just much more real people with real problems and that agree. That appealed to me. Avengers, Captain America, Fantastic Four. I'm still a little older than you, and hopefully we will remain so. So we might have somewhat. You were probably an X Men guy because they were much hotter.

[Josh Brown]

I was Marvel over dc. I think the DC characters, they had to come from outer space. There had to be something cosmic. Green Lantern and Superman, Silver Surfer. These were. No, that's Marvel. Michael, back out of this one.

[Cliff Asness]

Stay at it. Stay in your fricking lane.

[Josh Brown]

The Marvel characters were regular people that something up happened to, like Spider Man. I know the X Men are a different category, but I think that that's why they resonated more in the 60s, 70s, and 80s.

[Cliff Asness]

Absolutely. And just on that note, they lived in New York City. They didn't live in Metropolis or Gotham. Queens.

[Josh Brown]

Yeah, Brooklyn.

[Cliff Asness]

They're a wonderful. I can geek out on this. There are great maps of, like, where all the Marvel superheroes lived in.

[Josh Brown]

Did you keep your collection?

[Cliff Asness]

I have some of my collection. My parents moved into Manhattan right after I went to college.

[Josh Brown]

Yeah.

[Cliff Asness]

And they put it in storage. And then they bought a house with a wet basement and didn't work very out. So I won't throw them out for nostalgia, but they're worthless because they're just in. I have basically rebought a comic collection, and that's about my only indulgence. I'm not one of these managers. I can't compete with Stephen Cohen for impressionist paintings.

[Josh Brown]

But luckily, Mark Lasry was a big comic book collector. He sold them all.

[Cliff Asness]

He did. I've seen his comic. He's shown me his comic collection.

[Josh Brown]

Was it out of control?

[Cliff Asness]

It was amazing. Particularly he was more of a D.C. guy. And he had some just astoundingly high quality, like, golden age, you know, first Superman kind of things. I love Mark. Mark's the host.

[Josh Brown]

Yeah.

[Cliff Asness]

So I always love the stuff. I still read them a bit.

[Josh Brown]

Do you like the movies that they made based on them?

[Cliff Asness]

Some of the movies I loved the whole arc leading up to Endgame.

[Josh Brown]

Yeah, me too.

[Michael Batnick]

Civil War was great, right?

[Cliff Asness]

Civil War was great. They had a bunch of clunkers in there since then. I'm not the only one saying this.

[Josh Brown]

How do you feel about Robert Downey Jr returning but as Dr. Doom? I hate it so much.

[Cliff Asness]

I hate it just because I. You always have to suspend your disbelief in this.

[Josh Brown]

I can't do it that way.

[Cliff Asness]

It's just harder once you've so identified with a character.

[Josh Brown]

I agree.

[Cliff Asness]

I Love Robert Downey Jr. But nobody else on Earth.

[Josh Brown]

I'm not gonna be able to suspend my disbelief having seen him as Tony Stark.

[Cliff Asness]

I could do it. I'm mildly disfigured.

[Josh Brown]

I don't know if I could do it.

[Cliff Asness]

I didn't see it. And you're behind a mask.

[Michael Batnick]

The first two were so bad. The first iterations of the Fantastic Four and they needed like an icon. And Warner Bros. Is in the doghouse.

[Cliff Asness]

So I have no story for why they can't do the Fantastic Four well. And they can do the other ones.

[Josh Brown]

Do you think James Gunn is going to resurrect the DC universe and do it right?

[Cliff Asness]

I hope so.

[Josh Brown]

I do.

[Cliff Asness]

I liked the Snyder cut. Was the full Justice League Snyder cut. That was the only time I've ever seen a so called new cut change the movie that much for me while making it much longer. I have actually watched that movie twice. Which is I've developed devoting a fair amount of your life to it. They put out a black and white edition and for some reason I watched that too. For some reason I said I need to watch the same friggin movie.

[Josh Brown]

And I watched it in the vertical letterbox thing too. I watched all of it.

[Cliff Asness]

It didn't have to be three and a half hours. But I thought it was really good. So I'm hopeful I'll watch again. But Marvel and the. I'm not the only one saying this. The idea that Disney ruins everything they did is, you know, Star Wars, Marvel. It just feels like they need new creative energy there. But Bob Iger doesn't take my calls. He might. I've never tried, actually. I'd like to.

[Josh Brown]

You'll know they're serious about fixing the problem if they shelve this Snow White thing, which I think 5050 they're going to shelve.

[Michael Batnick]

But I'm very bearish on the new Captain America. It looks horrendous one with Harrison Ford.

[Josh Brown]

Why? What don't you like about it?

[Michael Batnick]

The trailer looks trash. I don't like the character that much. No offense.

[Cliff Asness]

I've not seen the trailer yet. You're ahead of me.

[Michael Batnick]

It doesn't look good.

[Josh Brown]

I guess we'll all find out. I guess we'll all find out together. My favorite this week, country music at all. What do you mean?

[Cliff Asness]

My extended family loves country music. I am taking eight of my family members to a Zac Bryan on the 18th. Yeah, he's somewhere in New York. I keep calling him Luke Bryan. They keep yelling at me.

[Josh Brown]

There's several versions of the same name that all sound the same.

[Cliff Asness]

My version of country music tends to involve Willie Nelson or the man in Black.

[Josh Brown]

Well, Willie Nelson has a new record out. Believe it or not. He's 90. I think he's Buffett's age. He's 93 or 94.

[Cliff Asness]

Buffett has a new record out.

[Josh Brown]

It's called Last Leaf on the Tree. New Willie Nelson.

[Cliff Asness]

Good title.

[Josh Brown]

Chris Stapleton and tore the house down last night at the Country Music Awards. You could probably watch all the clips on YouTube. Worth watching. I think country music has become the new pop culture in America.

[Cliff Asness]

It's kind of American music. Yeah, I agree.

[Josh Brown]

It's subsumed hip hop in terms of streams and sales. I feel like it's come back to the center, though.

[Cliff Asness]

I have not added a lot of artists to my listening repertoire since 1983.

[Josh Brown]

Understood. Same with Michael. He wasn't even born then.

[Cliff Asness]

That's.

[Josh Brown]

That's where he got. That's where he got stopped. What do you got for favorites for us?

[Michael Batnick]

Bunch of the guys. We saw Heretic last night. The A24 Hugh Grant movie. I liked it. What did you think?

[Josh Brown]

I loved it.

[Michael Batnick]

Good. Very good movie.

[Cliff Asness]

I have not even heard of it.

[Michael Batnick]

Very good movie.

[Josh Brown]

What is it about?

[Michael Batnick]

So Hugh Grant lives in a house, and two missionaries go knock on his door and they're selling whatever, Mormonism, whatever it is, and he kidnaps him, essentially.

[Josh Brown]

Oh, really?

[Cliff Asness]

Okay.

[Michael Batnick]

Yeah, it was good.

[Cliff Asness]

That took an odd twist. I thought you were going to tell me the missionaries. No, no, no.

[Michael Batnick]

It was.

[Josh Brown]

He's the bad guy.

[Michael Batnick]

He's a bad guy.

[Josh Brown]

Oh, he was.

[Cliff Asness]

He's kind of grown into a bunch of roles. The young Hugh Grant was a little fluffy, and he had his untoward episodes outside of his work. I don't. I don't live in that world. I don't want to know.

[Josh Brown]

He played a villain in Bridget Jones effectively. And then since then, he gets a lot of juicy villain roles, which I kind of. I kind of like him that way. All right, guys, that's it for the show this week. I want to give a huge thank you to one of our favorite people on the street, A luminary, if you will. This means old Mr. Cliff askedness. Cliff, is there anywhere people can follow you that you're better than on Twitter or is that.

[Cliff Asness]

That's where you at your place. If you go to AQR's website, there's a section called Cliff's Perspective.

[Josh Brown]

Okay. Where.

[Cliff Asness]

That's.

[Josh Brown]

That's your blog?

[Cliff Asness]

That's my blog. It's very sporadically done. Sometimes I'll do three things in three weeks. Sometimes it'll be six months to, like, come up with something. Some of the things are short. Some are mini research papers, but that's the other one. And in my Twitter bio, it has a link to it.

[Josh Brown]

Okay, so we're going to follow at Cliff Askness on Twitter.

[Cliff Asness]

Clifford.

[Josh Brown]

Are you at Clifford at publicly?

[Cliff Asness]

I need to use Clifford because my mom used to get mad at me.

[Josh Brown]

Okay. What is your Blue sky handle?

[Cliff Asness]

I don't have a Blue Sky.

[Josh Brown]

You know you're coming though, right?

[Cliff Asness]

I don't have a Blue sky handle. I don't have a true social handle.

[Josh Brown]

You're coming to Blue sky. We're at 21 million now.

[Cliff Asness]

I'll come where the people are.

[Josh Brown]

All right, fair enough. Cliff, as ladies and gentlemen, thank you so much for joining us. We had a blast, guys. Thanks for all the likes and subscribes. We appreciate it. We'll see you soon.