In his recent interview on Bloomberg, Cliff Asness of AQR Capital Management reflected on the firm’s performance and the evolving role of technology in investing. He noted, “We actually made money in both markets, but we did make more money… It was overall a good year.”
This success was partly attributed to momentum strategies, which in a quant context are nuanced. “It’s not just like let’s buy the mag seven or AI, it’s like a thousand stocks that are doing a little better, fundamentals and price versus the others.”
A significant part of the conversation focused on the integration of artificial intelligence. Asness explained the balance his firm seeks between automation and human understanding. “We’ve always prided ourselves on kind of an even split between economic intuition, understanding what we’re doing, and then hard data saying that this really works.”
He acknowledged the challenge AI presents, recalling, “This bugged me and I probably slowed us down on A.I. for about a year or two.” However, a colleague’s perspective shifted his view: “If you always got simple intuition out of what I was doing, what the heck is A.I. doing? Is it doing anything extra?”
Asness provided a specific example of using AI to parse corporate statements, a task where it excels beyond older methods. “An example might be the word increasing is a plus one. I hope you can see the immediate problem. If the actual sentence was massive, embezzlement is increasing.” He concluded, “What we do in A.I. there we think of just. It’s doing that considerably better. It’s not magic.”
When questioned about market valuations and potential bubbles, Asness applied his quantitative lens. “The way quants look at it and we look at a spread between cheap and expensive stocks… At the end of 2020, at the end of Covid, we saw that spread the highest ever, higher than the dot com bubble.” He expressed caution but stopped short of a dire prediction, noting, “Valuation doesn’t mean a crash is coming. It might just mean a disappointing decade.”
Finally, Asness offered a measured view on the democratization of investing tools and data. “Big firms who can spend a lot of money are going to have an initial advantage at this. This stuff is expensive.”
Yet, he left room for innovation from unexpected places, stating, “I don’t dismiss that some 23 year old genius who’s graded A.I. can create a competitive model in their basement.”
You can watch the entire interview here:
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