Cliff Asness: uncertainty

Transcript context

…Just to calibrate here, we have two more questions and 10 minutes. So, everyone, please time your answers and questions to make it all fit perfectly to the split second. I’ll do this one quickly then. [whispers] I have no idea. These techniques, not only do they work on average over the long term, but you need a broad cross‑section all the time. They’re really, really bad at things like, “What do you think of this sector?” I don’t know the answer, first of all. This will be the third. I told you active management is too expensive, hedge funds are not a good idea. Now I’m going to tell you I don’t know if we’re overweight or underweight biotech. Everyone write that down. I actually like telling people this. When I go on something, I don’t do it too often, like TV, we coach them. Don’t ask me about individual stocks. We’re long and short thousands of things based on these quantitative measures, and we’re doing that intentionally. You could be cheap, good momentum, profitable, low beta, and the CEO could have a scandal tomorrow. These are statistical averages. You want to spread your bet. You want to make a lot of them. A quantitative systematic manager like me shouldn’t know a lot. I could go memorize all 5,000 positions. Biotech, I have no idea, but I think it’s instructive why I have no idea. If I have an idea, worse, if I have a very strong opinion, I’m just doing my stuff wrong. There are people who may or may not be good at that, but you do not come to a systematic quant manager — if your systematic manager says, “here’s what you do: put it all on biotech” — run. I’m wondering who is your favorite superhero? And has you studying economics changed how you felt about certain superheroes? [laughter]…

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