Cliff Asness, Founder, Managing Principal and Chief Investment Officer of AQR Capital Management, shares his insights on the markets during a challenging environment of record-high inflation, rising interest rates and recession fears.
On living through non-normal events: “Crazy big stuff happens. It's okay to use things like the normal distribution, as long as you never forget that it is an approximation to reality and sometimes a very bad approximation. You have to think about the worst cases. You could certainly argue that COVID was an example. The meme stock craze was an example of a non-normal event. I can't decide about now. I think everybody has the arrogance to think they're living through unique times, including me. It's always like, ‘No one's ever experienced this before.’ … I think what we've been experiencing for the last 6-12 months is a return towards normalcy. Positive interest rates. Spreads between cheap and expensive, still very high but not being astronomically high. And that involves a lot of pain for some people, but that's not abnormal. What's abnormal is probably the ten years after the GFC [Global Financial Crisis] with very, very cheap money and virtually any strategy long doing well, without a lot of very bad hiccups … The things we look back and call ‘painful’ over that 10-year period, you laugh at now.”
On pursuing a career in financial services: “Be really careful you're not shifting your career to chase the hot thing. I particularly tell this to students in business school … If you love something, just do it and you might be early. But if a big part of why you're doing it is it's the thing everyone wants to be doing now, I think you're going to be three to five years late … I don't believe in doing something you don't like. So find something that you find interesting that the world needs, and you'll do well.”
This episode was recorded on July 19, 2022