Episode summary
He Wrote the Papers Finance Didn't Want to Hear | Cliff Asness Breaks Down His Greatest Hits
Excess Returns
· · 1 hr 19 min · Guests: Cliff Asness
Summary
Cliff Asness revisits several of his best-known papers and argues that many investing debates still suffer from bad logic, selective memory, and too much confidence. He revisits Bubble Logic, saying the core insight was not that markets are always irrational, but that people build circular arguments to justify extreme valuations, just as they did in the dot-com era. He says today’s market still rhymes with that period, especially in valuation terms, though he stops short of making a heroic call on AI stocks or the whole market.
He also defends volatility as a useful risk measure and argues that “permanent loss of capital” is not a serious substitute for it unless someone can truly guarantee the loss will reverse. On private equity, Cliff says volatility is often hidden rather than removed, and he argues the expected-return advantage of privates may be shrinking if investors now value illiquidity more than they used to. He also revisits market-timing clichés, saying the “miss the best 10 days” argument is a bad reason not to time markets, even if timing itself is usually a bad idea.
The conversation closes on international diversification and the “pulling the goalie” paper. Cliff says global diversification is still the sensible default because U.S. outperformance has been inflated by valuation expansion, while the hockey paper was a fun example of how optimal decisions can look wrong in the moment but make sense probabilistically.
Key takeaways
- Cliff Asness says today’s market looks directionally similar to the dot-com era, but he does not treat AI as a clean repeat of the bubble.
- Cliff argues that volatility remains a useful risk measure because “permanent loss of capital” is only risk-free if recovery is certain.
- Cliff says private equity may no longer deserve the same return premium if investors increasingly value illiquidity as a feature rather than a bug.
- Cliff argues the “miss the best 10 days” chart is a bad anti-timing argument because it proves a silly extreme, not a real investing rule.
- Cliff says international diversification should remain the default because much of U.S. outperformance came from multiple expansion, not just faster growth.
Notable quotes
“You have to be a crazy person to say you are certain of something”
“there is no cash on the sidelines”
“the whole market looks looks almost as expensive”
“I just think the idea of a permanent loss of capital, yeah, if you're certain it's going to come back, it's not risky”
“What I'm going to say is that this is a terrible reason not to time the market”
How the episode opens
You have to be a crazy person to say you are certain of something. I just think the idea of a permanent loss of capital, yeah, if you're certain it's going to come back, it's not risky. Risk control to me is how bad is it if you are wrong or how bad is it if the market doesn't recognize you're right for a long time.
There there is no cash on the sidelines. Um, when someone says there's a lot of cash on the sidelines, I always ask, "All right, well, when that cash gets spent on stocks, they have to buy them from someone, right? A lot of these have like the S&P 500 sitting out at 17% annual.
V privates 5%. Um, and that would just send steam coming out and and when you have no hair on your head, the steam is really obvious. Um, we all know the prices are moving.
You're just not observing them. You're watching Excess Returns, the channel that makes complex investing ideas simple enough to actually use where better questions lead to better decisions. I'm Matt Ziggler.
Jack Forehands in the co-host seat with me. And I was thinking about this time in 1997 when I go see the Rolling Stones Bridges to Babylon tour giant stadium and it's just like all you can do is go out and play the hits. There's just so many songs and they had the B stage and you know he's dancing across.
You're thinking like he's he's old but he's he's not he's not old yet. They still got it. They're doing covers.
They're inviting guests out and you're like this is such a cool thing. It's a cherished memory. Again, it's almost 30 years old in my own brain at this point.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai market comparisons
- bubble logic
- volatility as risk measure
- private equity volatility laundering
- international diversification
Companies and tickers mentioned
- CSCO
- AQR Capital Management
- Cisco
- Yahoo
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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