Value investors, those who seek out stocks that trade at cheaper prices than what financial analysts would expect given a company's revenue or scale, have had a rough couple of years.
But that hasn't deterred Cliff Asness, the billionaire cofounder of AQR. On a new podcast from Newfound Research, Asness tells host Corey Hoffstein that value's "hell" has only made him more confident in the factor — and his firm is even committing a "sin" by trying to time factors by tilting more toward value, and away from momentum, or stocks that have recently gone up.
It's all a part of sticking with your process — something that has obviously served the fiery quant manager well in his career — even if you lose "gobs of money over a two-year stretch."
"An open mind is great thing, but not so open, that your brain falls out," he said.
"You can't have your mind open to so many new ideas that you trash what has worked for 200 years, and worked for you for 20 years."
During a more introspective moment for Asness on the hour-long podcast, he said that if were to give his younger self advice when he started AQR more than 20 years ago, it would be to "calm down" — which he admitted would "apply to my non-investing life as well."
"I would like to tell myself that it's all going to be ok," he said of traveling back in time to advise his younger self.
"If you're doing reasonable things with investing" you will be right, Asness said.
The only way it backfires is "if you get too cute" and tweak your process.
"You're a discretionary manager if you come in and say 'I'm going to tweak this, I'm going to tweak that.'"
It's been tough for Asness to stick to his guns on value. This year, out of the 19 equity mutual funds the firm offers, only five are in the black, despite equity markets recovering from their March lows, according to AQR's website. Momentum trackers, in particular, have done well, and the top equity fund for AQR this year has been its large-cap momentum offering, returning 7.6% for the year.
Still, Asness believes value stocks are a better deal now than during the tech bubble, when momentum stocks similarly seemed unbeatable — until they weren't. Investors rode tech stocks with spotty earnings and track records to all-time market highs — the Nasdaq quintupled from 1995 to 2000 — until the bubble burst, and many start-ups defaulted. Even more stable tech companies, like Cisco, for example, were hit hard.
The "hell" that value has gone through, he said, only gives him more confidence in it.
"I wouldn't have thought we'd see that again in my career," he said of the relative cheapness of value stocks compared to the rest of the market. AQR, which started trading right before the tech bubble burst, lost half of its assets in the resulting drop, but Asness said he stuck with the firm's value-investing ethos.
"It's a lesson on how hard it is to stick with it, something that you absolutely believe is real and true."
