During his recent interview with Capital Allocators, Cliff Asness discusses his struggle with emotional responses to market fluctuations despite his long-term investment philosophy. He highlights the natural cyclical growth and shrinkage of asset management firms and stresses the importance of steadfastness and openness in strategy reassessment during tough times, acknowledging the challenges and rewards of disciplined investing.
Here’s an excerpt from the interview:
Asness: I’ll start by an admission that will surprise no one who’s listening to me before.
I am a complete hypocrite on this. I don’t think I’m actually a hypocrite in my actions, but I will preach the long term and I believe it and I’m honest about it, and then I’ll be in a terrible mood, possibly chucking things around my office.
Let’s not get too deep into that. On a bad day, I think that just says that the emotions that drive some of these things are pretty hard to get rid of even if you’ve studied them your whole life.
If I’m really trying and be… have a rationalization day, I say this is actually good news that I’m in a terrible mood. It shows that I can study this for 30 years and still not get it.
There’s no magic bullet. We’ve shrunk when we’ve had bad periods, we grow when we have good periods. I’ve encouraged investors to do the opposite. I don’t think there’s any asset manager in the world, except the ones who will never give you back your money, who doesn’t shrink when they have a bad few years and doesn’t grow.
It probably shouldn’t at 3 to five years contrarian tends to hold so I do think a lot of allocations in our world are mildly backwards.
With all that said, your job as a manager in a tough period is twofold: one, honestly keep asking the question, are we right or is there new evidence that we’re wrong?
The last thing you ever want to do is go try to defend your process to clients, to the outside world, to the media, and give off any sense that you’re defending your business, not keeping an open mind.
If, big if, you’ve decided yeah, we’re right, this is we’re going to be proven right, this is going to come back, then your job is to plant your feet and say we will not be moved, and try to convince as many people as possible because it is in their interest to plant their feet with you.
And you’ll never succeed with everyone. You’re fighting human nature, but again I feel this is fair, those who can do it I think reap great rewards from being disciplined investors but it’s really hard to do which in some sense is a balanced fair world.
You can listen to the entire interview here:
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