How I Invest with David Weisburd
E162: Why Most Investors Quit Before Winning w/Cliff Asness
09 May 2025
Cliff Asness is one of the most influential minds in quantitative investing and the Founder, Managing Principal and Chief Investment Officer at AQR Capital Management, which oversees over $100 billion in assets. In this wide-ranging conversation, we go deep into what makes a successful long-term strategy, how Cliff thinks about building portfolios, and why most investors misjudge both volatility and leverage. He also shares what it was like launching AQR after his early work on momentum strategies at Goldman Sachs, and what he’s learned about investor behavior across cycles. This is one of the most insightful and entertaining conversations we’ve had on the podcast—and Cliff brings both humor and hard-earned wisdom to the table.
Full Episode
During our toughest period, rounds to zero, my concern about my personal losses in that, because I am a believer. I've seen this movie several times. I've stuck with our strategy and seen it work. Devising great strategies that have very decent, attractive, positive, sharp ratios that are uncorrelated. is only step one.
Step two is sticking with and convincing others to stick with those strategies long-term. 98% of it is when you manage money for others, you feel a responsibility. Bringing people bad news is no fun for anyone. I don't care who you are. And you're often dealing with very smart people who wanna do the right thing, but they face what are called agency problems.
This is a big part of what makes running an institutional portfolio really difficult. Hedge funds, unlike any other asset class in the world, is literally a black box. And it's very mysterious to people. I was walking around your office here. There's 600 employees. Talk to me about how a strategy goes from a thesis to being tested, to being integrated into.
Today, I'm excited to welcome Cliff Asness, billionaire co-founder and CIO of AQR Capital, one of the largest quantitative hedge funds on the planet. Cliff is renowned for his pioneering research on factor investing, his outspoken takes on markets, and his willingness to question even the long-held industry beliefs.
In this episode, we dive into Cliff's approach to risk, why he believes the market is still inefficient, and how he balances cold rationality with the realities of client psychology. We'll also discuss building resilience through tough periods, the evolution of quant strategies, and what it really takes to stick with convection in the face of market pressure.
You've written about pulling the goalie as a finance metaphor for taking calculated risks. What did you mean by this metaphor?
In ice hockey, if you're losing with very little time left, it doesn't matter if you lose by two. It doesn't matter if you lose by three. Typically, at a normal point in the game, it's really important to have a goalie. If you took your goalie out... and put six skaters on instead of five, your chance of scoring goes up.
Myself and a colleague, Aaron Brown, wrote a paper trying to calculate what the optimal time to pull a goalie. We found they should be radically different than what the coaches do. They should be pulling the goalie five minutes before if they're down by one. If they're down by two, they should be pulling the goalie with 10 plus minutes left in the game, which I don't think I've ever done.
And then the way we tied it to finance, we ended up writing this paper in the Journal of Portfolio Management on hockey, which was a little bit odd. And the reason it ended up there was these links we can make to investing. Essentially, you got to step back and ask yourself, why don't people do what's optimal? Are they just stupid and not doing the math right? And we don't think that's it.
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