Cliff Asness: “Doing Nothing Is Surprisingly Often The Right Strategy”

In a recent episode of WSJ’s Take on the Week, Cliff Asness, co-founder and chief investment officer of AQR Capital Management, offered a frank assessment of modern investment trends, particularly the rise of complex, options-based strategies.

He expressed deep skepticism toward products like buffer and hedged equity funds, which promise protection from market downturns. “I consider my job to make it less fun for you because I think some of these things have gone too far,” he stated, pointing to the proliferation of single-day options as an extreme example. “Nobody’s ever needed that in history.”

Asness argues that such products often ignore a fundamental truth: “You get paid an equity risk premium to be in stocks because they have some downside.”

He warns investors against being seduced by strategies that claim to offer upside without risk, noting, “You have to always be a little immediately cynical when someone says you could have most of that without the scary part, because the scary part is probably why you get paid.”

He advocates for a far simpler alternative for those seeking to reduce risk: “Combine it with some cash.” Data appears to back this up, as the majority of these complex funds failed to deliver either better returns or less severe draw downs than a portfolio of cash and stocks.

This philosophy extends to market timing, which Asness views with “great cynicism.” He believes that for most investors, the best course of action is often the simplest.

“I would say even for professional investors, doing nothing is surprisingly often the right strategy.” This doesn’t mean inaction is easy; during tough periods, it can feel like “white knuckled terror for about a year,” but it prevents making “reactive and stupid” portfolio changes.

Ultimately, Asness encourages investors to accept market volatility as the necessary cost of admission for long-term returns.

He is critical of Wall Street’s incentive to sell ever-more-complex products, comparing it to a car lot selling “new and used stocks.”

His advice is to ignore the noise and avoid the temptation to get clever. For those feeling nervous, his guidance is straightforward: “sell some stocks real simple… don’t get… this is too cute by half.”

You can watch the entire interview here: