During his recent interview with David Rubenstein, Cliff Asness discusses why doesn’t anyone call Warren Buffett a quant. Here’s an excerpt from the interview:
Asness: Yeah, it’s related, but it is not the same. And this has caused no end of confusion. What quants call value? And I say quants. I mean practitioners like me, and academics. Is basically price to fundamentals.
If something looks cheap scaled by some fundamental, we all might argue about what the best one is. Price to earnings, sales, cash flow, free cash flow, some proprietary measure of fundamental strength.
And the cheap tend to outperform the expensive long term.
That is the famous academic value effect. That is not the holistic measure of value a guy like Warren Buffett or any Graham and Dodd style value investor would look at.
In fact they get quite annoyed sometimes.
They go, that’s not value, that’s just price, you’re just saying its cheap. Value is, is it cheap versus the growth opportunities, versus the moats around it, versus the safety of the stock, versus good things happening.
If it ever gets this far, the quants should explain. We believe in all those same things, just semantically we call those separate factors. And we add it up.
But that little miscommunication has caused a lot of differences. If you look at Warren Buffet’s track record. As amazing as it is.
No one would call Warren Buffett a quant. Yet he is very correlated with what quants would call the value factor, the low risk factor, and the profitability factor. He buys companies that make a lot of money. Aren’t very risky. And then he looks for a decent price. It’s not the first thing he looks for.
You can watch the entire discussion here:
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