Cliff Asness: The ‘Two Newspaper’ Investing Strategy

During his recent interview with Barry Ritholz, Cliff Asness discussed his ‘two newspaper’ investing strategy. Here’s an excerpt from the interview:

Asness: About half our assets are really traditional, we’re money managers beat.. you know plenty of things don’t let a short, or lever, or any of those hedge fund kind of things. But the principle is exactly the same.

The overweight in a value strategy would be low multiples, the underweight would be high multiples. If you’re running a pure momentum strategy, the overweight, and this is also momentum circa 1990, would be who’s doing better over the last year? It’s that simple.

I used to dismissively call it the two newspaper strategy. You needed a newspaper, a recent one and one from a year ago. It’s better to have a computer because it’s a little faster than you, but you look up and you buy what’s going up. It turns out this part is surprising, both make money over any decent time horizon.

Probably not surprising is they are in geekspeak negatively correlated. If you are a pure value person and I am a pure momentum person, occasionally we agree. We may get into this later, but right now we’re in more agreement than normal, because value stocks kind of have the momentum.

But more often than not, the cheap stocks are cheap because one of the reasons they’re cheap is they’ve been losing.

So they’re negatively correlated strategies. And this doesn’t create a 10 Sharpe ratio, but a holy grail of quant finance is to try to find two things that on average make money that hedge each other.

And value and momentum do, whether it’s relative outperformance against a benchmark, or absolute performance in a hedge fund.

You can watch the entire discussion here: