From Great to Good

As I’ve said before, I think Cliff Asness is one of the most interesting characters in the investment management business because he has a great combination of intelligence and humor about the financial markets. So I was glad to hear he was going to be interviewed by Barry Ritholtz for the latest Bloomberg Masters of Business podcast series.

The interview covered a lot of ground from his educational background to starting out at Goldman Sachs to founding his own hedge fund to his thoughts on how the markets function in general. But I was struck by a few of the comments Asness made towards the end of the interview about the investment process.

Here’s what he had to say about how short-term results can impact a long-term process:

If you see no reason why what you’ve done in the past, something you think has worked for one-hundred years in fifty different places, should not continue to work, you should not let short-term results dissuade you. […] How many non-quants have had a strong investment thesis that will turn out to be right but occasionally cave on it when it gets too painful?

He continued:

There’s the perfect strategy that you can’t stick with whether it’s for real reasons when your creditors say, “You’re done,” or emotional reasons. We all have a breaking point where we just can’t take it.

And finally my favorite line:

The great strategy you can’t stick with is obviously vastly inferior to the very good strategy you can stick with.

I think this is probably one of the most difficult concepts investors are forced to grapple with when coming up with a coherent strategy. People are taught their whole lives that if you just work harder you can achieve all of your goals. Unfortunately, trying harder in the financial markets doesn’t usually yield better results and most of the time it actually hurts performance. This is what happens when investors shoot for perfect instead of accepting good enough.

The problem I see for many investors is two-fold: (1) We all get the grass-is-always-greener syndrome when we see another strategy or market performing better than how we’re currently positioned. (2) When any strategy hits a dry spell, and it happens to even the best of them, doubt starts to creep in. When that happens it becomes very easy for investors to abandon a perfectly legitimate long-term strategy because, as Asness stated, it’s too painful in the short-term.

Stay the course is one of the most generic, over-used phrases in the financial advice business. But 99% of the time it’s the best thing you can do.

Listen to the  full podcast here:
Masters in Business: Cliff Asness

Further Reading:
The Bill Gross Investment Alarm Clock Theory
Why Value Investing Works



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  1. Scott Boone commented on Feb 27

    Ben: It took me a lot of years working in the investment business before I finally realized that I was not selling investment advice so much as investment discipline: the discipline to stay invested in good times and bad, to not chase performance and to not panic and sell out at the bottom of a market cycle. Unfortunately, too many investors don’t find this idea very appealing and cling to the false belief that they or their advisors have an edge in picking winners that will allow them to consistently beat the market.