Cliff Asness on Why Value Still Matters (and Always Will)

During his recent interview with The Bull of Wall Street Podcast, Cliff Asness explained why he is still placing his chips on value—albeit a more evolved version of it. “The value factor as quants and academics call it… is very incomplete,” he admits. “It drives non-quants crazy that quants call something like, at its simplest, price to book… value.”

That humility doesn’t stop him from defending value’s core logic: “Human nature is more stable. We’re going to look at whatever’s going on in markets and on average we’re going to pay a little too much for what we’re excited about and a little too little for what we’re kind of depressed about.” In other words, the behavioral roots of value investing are alive and well—irrational exuberance still creates opportunity.

Asness is very open about outdated approaches: “If I can go back in time and have them rename that factor the low multiple factor, I think you could have stopped a lot of fights between quants and non-quants.”

His own firm, AQR, uses a “value composite” of 25 or more metrics. It’s not just about book value anymore. “We’ve been making some decent adjustments for intangibles for quite a while,” he says, pointing out that R&D and goodwill often distort old-school valuations.

Still, Asness concedes value can be streaky. “It did recently rise up and try to kill us from mid-’18 through mid-’20,” he deadpans. “One of the bad things is it’s been historically one of the streakier factors… but their paper says on average the streakier factors also make you more money.” Painful, but worth it.

And what about markets themselves? Are they getting harder to beat? Ironically, Asness argues they’re getting easier—just not easier to survive. “Markets are certainly not perfectly efficient,” he says. In fact, they may be getting less so. Why? “The social media 24/7 gamified trading world… where a wise crowd can become a dangerous mob very quickly.”

Throw in the “growing role of passive investing,” and you have a market where fewer people are thinking about valuation at all. “Nothing saves the average active manager sadly,” he admits, invoking Sharpe’s Law. “But if you are arrogant enough—and I certainly possess this arrogance—to believe you’re one of the good ones, a world that’s less efficient… probably should present more opportunities.”

You can watch the entire interview here: