Cliff Asness on Behavioral Investing: “Markets Are Voting Mechanisms”

In the Capitalism and Freedom Podcast, Cliff Asness traces a lifetime of market thinking shaped by both data and humility. “My entire career was in some sense a lucky break,” he said, recalling how he arrived at the University of Chicago in the late 1980s “when what we’ll today call factor investing… was at the infancy.”

Working with Eugene Fama and Ken French, Asness saw “the major field of academic finance for the next 20 or 30 years” take shape in real time.

He remembered the day he nervously told Fama he wanted to study momentum. “I want to study price momentum for choosing individual stocks,” he told him, “and cowardly mumbling the second part that it works very well.”

Fama paused and simply said, “If it’s in the data, write the paper.” Asness called it “about as close to a religious statement as you can get at a Fama.”

That respect for data never left him, even as he left academia for Goldman Sachs. “Any story that you think ends well… has a lot of luck along the way,” he said.

He built the quantitative group that would become the foundation for AQR, where “we realized pretty quickly that we can give advice to the active groups at Goldman, but we could also directly run money using these.”

When he founded AQR, he joked that the decision was driven by “80% naked greed” and “20% wanting to be the guy who could say and write what he wanted.” At AQR, he fused research and application: “The ability to fuse both worlds—the academic and the real—was a major attraction of it.”

On markets, Asness remains grounded in evidence. “For any factor that you believe works, there are always two possible explanations,” he said. “An efficient market story… or a market inefficiency explanation.”

Value and momentum, to him, endure because “it’s hard to keep both in your head at once… all else equal, I’m wired to be a contrarian.” Yet he admitted that “being a value investor without momentum would scare me.”

He prizes factors that persist through pain. “The harder something is to do, the more plausible it is that not enough people do it to make it go away.” That, he added, is why “value goes through long periods of being out of favor… but that may be why it doesn’t go to zero.”

Asness’s philosophy is both empirical and human. “Markets are voting mechanisms,” he said. “It’s hard to believe the environment has made our politics much worse but a voting mechanism called the market has been immune to it.” Few statements better capture his lifelong blend of data discipline and behavioral realism.

You can watch the entire interview here: