E162: Why Most Investors Quit Before Winning w/Cliff Asness

Cliff Asness is one of the most influential minds in quantitative investing and the Founder, Managing Principal and Chief Investment Officer at AQR Capital Management, which oversees over $100 billion in assets. In this wide-ranging conversation, we go deep into what makes a successful long-term strategy, how Cliff thinks about building portfolios, and why most investors misjudge both volatility and leverage. He also shares what it was like launching AQR after his early work on momentum strategies at Goldman Sachs, and what he’s learned about investor behavior across cycles. This is one of the most insightful and entertaining conversations we’ve had on the podcast—and Cliff brings both humor and hard-earned wisdom to the table. Highlights: Why most investors are under-levered—and how Cliff thinks about smart leverage The origins of AQR’s first strategies and his early momentum research The problem with how investors benchmark hedge funds Why high volatility strategies can actually reduce risk The truth about hedge fund alpha—and why most funds are just “half-hedged” The “pull the goalie” metaphor and taking rational risks under pressure What AQR does (and doesn’t) believe in when it comes to machine learning Cliff’s view on how to build portfolios that survive 3-year drawdowns Why he thinks the best portfolios often don’t look great in the short run -- Guest Bio: Cliff Asness is the founder, Managing Principal, and Chief Investment Officer at AQR Capital Management. He holds a PhD from the University of Chicago, where he studied under Eugene Fama and Kenneth French. Cliff is widely recognized for his groundbreaking work on momentum investing and factor-based strategies, and he’s one of the most cited voices in modern quantitative finance. He has published extensively in academic journals and is known for his bold, sometimes contrarian takes on investing and market behavior. Our Podcast now receives more than 300,000 downloads a month. Are you interested in sponsoring an episode? Please email David Weisburd at david@weisburdcapital.com . We’d like to thank @JuniperSquare for sponsoring this episode! #VentureCapital #VC #Startups #OpenLP #AssetManagement -- Sponsor: Juniper Square is dedicated to transforming the private markets investing experience. The company provides a full range of modern, connected fund technologies and services for over 2,100 private markets GPs across fundraising, reporting, fund administration, treasury, compliance, and business intelligence. Today, over $1 trillion of assets and 600,000+ LP accounts are managed through Juniper Square software and fund administration services. Learn more at www.junipersquare.com/vc . -- Stay Connected: Twitter: David Weisburd: @dweisburd LinkedIn: David Weisburd: https://www.linkedin.com/in/dweisburd/ Cliff Asness: https://www.linkedin.com/in/cliff-asness/ -- Links AQR: https://www.aqr.com/About-Us/OurFirm#firmfacts -- Questions or topics you want us to discuss on How I Invest? Email us at david@weisburdcapital.com . (0:00) Episode preview (0:49) Managing institutional portfolios and the "pulling the goalie" metaphor (3:02) Challenges and psychology in maintaining investment strategies (8:25) Portfolio strategy combination and client preeducation (11:36) Continuous strategy improvement and balancing conviction (18:20) Handling drawdowns and hypothesis testing (21:05) Stress management and communication in fund management (29:09) Hedge fund transparency and strategy development (31:01) Hedge fund performance analysis and misconceptions (39:43) Applying valuation and momentum across markets (43:21) Risks and evolution of arbitrage and quant strategies (47:27) Machine learning and NLP in investment strategies (50:19) Data mining, alternative data, and future-oriented strategies (56:13) Integrating different investment strategies into products (1:03:11) Leverage importance and risks in investing (1:10:30) Managing high volatility strategies in portfolios (1:17:17) Complexity as a virtue and market efficiency catalysts (1:24:42) Long-term strategy mindset and AQR's future (1:28:01) AQR's competitive advantage and recruitment (1:30:03) Closing remarks