Here’s an excerpt from the AFR in which Cliff Asness is discussing why it’s hard to say when value investing wins again:
It’s the question every almost every fund manager wished they had the answer for. And not surprisingly, it’s one that Cliff Asness gets asked the most: When is the value factor going to work?
“There’s no magic answer. If any of us had a good handle on this it would be part of the process itself,” says Asness, the co-founder of the $US226 billion ($334 billion) quantative fund management giant AQR.
Asness is one of the high priests of the investment world. Part academic, part money manager, he’s made his name not by picking securities but by putting his faith in tried and tested market factors that have empirically demonstrated to make money over the long run.
One of them is “value” – that is, to buy stocks that are “cheap” relative to others, and sell stocks that are expensive.
The problem is with value investing is that it hasn’t worked for a really long time.
“A huge part of our job is building a great investment process that will make money over the long term, but a fair amount of our job is sticking to it like grim death during the tougher times,” Asness tells The Australian Financial Review in an interview in the boardroom of AQR’s Sydney office.
Naturally, given Asness’ in-depth academic knowledge of the market, he’s a go-to-guy for answers on why it’s hard to understand forces of the market.
And the decade long “value factor” funk isn’t just perplexing some investors, but it’s also posing an existential threat to them.
Can value be cheap?
Value investing isn’t just failing in a systematic sense – that is using rules and formulas such as buying stocks with low price to book ratios and selling ones with high ones. But active value investors that do their homework and choose what they believe are undervalued stocks have also found themselves failing to keep pace with the market.
“We have actually had a fairly good 10 years but a terrible one and a half years. Value has had a terrible 10 years.”
Everyone wants to know when it’s going to turn.
You can read the remainder of the article at the AFR here: Cliff Asness: Why It’s Hard to Say When Value Wins Again.
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