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

16 snips

May 9, 2025

Cliff Asness, founder and CIO of AQR Capital Management, shares his expertise in quantitative investing. He discusses why many investors overestimate volatility and misjudge leverage, leading to premature quitting. Asness elaborates on the complexities of hedge fund benchmarks and how high volatility strategies can mitigate risks. He compares investment decisions to hockey's goalie-pulling strategy and emphasizes the necessity for conviction and discipline during market challenges. Additionally, he reflects on the evolution of systematic investing and the role of machine learning in finance.

Ask episode

AI Snips

Chapters

Transcript

Episode notes

ANECDOTE

Cliff's Personal Commitment

Cliff Asness personally suffered losses during tough periods but remained committed to his strategy.
His belief and experience helped him stick through multiple market cycles.

ADVICE

Pull the Goalie Metaphor

Sometimes you must take rational risks even if they often fail, like pulling the goalie early in hockey.
This metaphor teaches investors to embrace calculated risks during losing streaks to increase chances of success.

ADVICE

Managing Client Psychology

Educate clients upfront about possible multi-year drawdowns in strategies to prepare for tough periods.
Maintain an open mind but avoid abandoning a proven strategy too quickly during bad stretches.

Get the Snipd Podcast app to discover more snips from this episode

Get the app

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