Cliff Asness on Bubbles, Private Equity and His Research Greatest Hits

Cliff Asness returns to Excess Returns for a greatest hits tour through some of his most important and entertaining investing ideas.

We discuss bubble logic, today’s AI market comparisons, why volatility still matters as a risk measure, private equity “volatility laundering,” international diversification, market timing myths, pulling the goalie, and how machine learning is changing quantitative investing.

Cliff Asness on X
https://x.com/CliffordAsness

AQR Capital Management
https://www.aqr.com/

Papers Discussed

Bubble Logic: Or, How to Learn to Stop Worrying and Love the Bull
https://www.aqr.com/Insights/Research/Working-Paper/Bubble-Logic-Or-How-to-Learn-to-Stop-Worrying-and-Love-the-Bull

Rubble Logic: What Did We Learn From the Great Stock Market Bubble?
https://www.aqr.com/Insights/Research/Journal-Article/Rubble-Logic

My Top 10 Peeves
https://www.aqr.com/-/media/AQR/Documents/Insights/Journal-Article/My-Top-10-Peeves.pdf

Volatility Laundering
https://www.aqr.com/Insights/Perspectives/Volatility-Laundering

I Did Not Predict What Is Going on in Privates
https://www.aqr.com/Insights/Perspectives/I-Did-Not-Predict-What-is-Going-on-in-Privates

(So) What If You Miss the Market's N Best Days?
https://www.aqr.com/Insights/Perspectives/So-What-If-You-Miss-the-Markets-N-Best-Days

International Diversification Works (Eventually)
https://www.aqr.com/Insights/Research/Journal-Article/International-Diversification-Works-Eventually

International Diversification - Still Not Crazy after All These Years
https://www.aqr.com/Insights/Research/Journal-Article/International-Diversification-Still-Not-Crazy-after-All-These-Years

Perhaps the Most Important Essay I Will Ever Co Author
https://www.aqr.com/Insights/Perspectives/Perhaps-the-Most-Important-Essay-I-Will-Ever-Co-Author

Main topics covered:

• How the dot-com bubble created its own internal logic

• Why Dow 36,000 and Cisco message boards captured bubble thinking

• What investors learned, and failed to learn, from the tech bubble

• How today’s AI market compares with the dot-com era

• Why long periods of underperformance make even good strategies hard to stick with

• Why Cliff still defends volatility as a useful risk measure

• Why “cash on the sidelines” is a misleading market narrative

• How private equity smoothing can make risk look lower than it really is

• Why the private markets debate is not a short-term prediction

• Why the “missing the best 10 days” argument against market timing is incomplete

• Why international diversification can still matter after decades of US outperformance

• What pulling the goalie can teach investors about risk, incentives and career risk

• How machine learning changes quant investing without eliminating economic intuition

Timestamps:

00:00 Why certainty is dangerous in investing
04:58 Why Bubble Logic never became a book
10:18 Cisco, Yahoo message boards and bubble psychology
14:16 Rubble Logic and the lessons investors failed to learn
18:04 What today’s AI market has in common with the dot-com bubble
22:23 Why the long run can lie to investors
26:02 Volatility, permanent loss of capital and real risk control
30:19 Why there is no cash on the sidelines
34:00 Private equity, smoothing and volatility laundering
39:47 Why Cliff did not call the private markets downturn
43:19 The flaw in the missing the best 10 days argument
49:00 Why international diversification still works eventually
53:35 Why crashes are global but lost decades are local
57:30 Pulling the goalie and asymmetric risk
01:01:00 Why coaches and investors avoid optimal decisions
01:07:36 Machine learning, overfitting and economic intuition
01:10:50 Leverage, short selling and derivatives in quant portfolios
01:16:26 Where to follow Cliff Asness