Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
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Interesting Q&A with Andrew Lo & Cliff Asness
This week on WealthTrack: two investment stars emerge from the secret sanctum of hedge funds to talk about their craft. MIT professor and hedge fund founder Andrew Lo and celebrated contrarian hedge fund manager Cliff Asness are next on Consuelo Mack WealthTrack.
CONSUELO MACK: Now you're also a big believer in very broad diversification. So what does it include at AQR Capital, that other people who have quote-unquote diversified portfolios don't include?
CLIFF ASNESS: For one, I'm not going to comment at all on the illiquid assets, the private equities and the real estate. We don't do that. I don't think it would be amenable to a model-based approach. But among the liquid assets, there's a very large diversity of what you can do. There are stocks around the world, bonds around the world, corporate bonds around the world, commodities around the world, TIPS in many, many countries, more than the U.S., all kinds of different credit and mortgage assets. Some of the dirty words of finance in the last couple of years are in fact good long term investments.
So number one, we believe in buying as broadly as we can. Even if things are correlated, even if they move together, they don't move perfectly together. Second of all, we believe in global diversification. You probably have heard -- people actually knock global diversification all the time, and the common knock is, it doesn't help you because when we get a crash, everything crashes together.
CLIFF ASNESS: The rules are quite simple Diversify. Rebalance. Keep costs low. There aren't many others. But no one writes that book because it's three pages.
SURGEON GENERAL'S WARNING: Any overconfidence in your ability, willingness and need to take risk may be hazardous to your health.
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thanks for posting --good interview from two of the smartest guys in the world of finance
And FYI here is quotation from Asness
CLIFF ASNESS: Commodities might be volatile but they actually often reduce the risk of a portfolio because they often have this almost no relation to the direction of stock markets. We tend to believe, and we think we have the data to back it up, but our belief is the assets that work to reduce your risk, not the headline number, are under-appreciated by investors. Under-appreciated means under-priced. Under-priced, just to complete the mathematical equation, underpriced means over-expected returns. You make too much money from them.
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One question how do you pronounce that last name? The way I am saying it in my mind is making me laugh like an 8 year old girl. :lol:
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Asness is a hedgie, a short term trader, doesn't understand 363 bankruptcy law and in general, as appropriately handled as Madoff.