Cliff Asness on How Markets Got Dumber in the Last 10 Years

SPEAKER_2 (0:02)

Bloomberg Audio Studios, podcasts, radio, news.

Tracy Alloway (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:22)

And I'm Joe Weisenthal.

Tracy Alloway (0:23)

Joe, it's a big month for us.

Joe Weisenthal (0:25)

Big month for us, we've been doing this for 10 years.

Tracy Alloway (0:27)

I know, I can't believe it. Do you remember the first episode?

Joe Weisenthal (0:31)

Yeah, of course, with Tom Kean.

Tracy Alloway (0:33)

Yeah, and then our second episode, I think was about bananas, for some reason.

Joe Weisenthal (0:37)

Yeah, I think it was, you're right. It took us a long time to figure out what we were doing. It took us a long time to figure out what we were doing. And I don't think at that point, I would have expected that we'd be doing it 10 years later. I don't know what I was expecting. We were just turning on a microphone in a radio studio and talking for a while.

Tracy Alloway (0:53)

Oh, we started doing it because we wanted to have a podcast and talk to interesting people. I think we were hashtag blessed that no one was listening for a very, very long time, which gave us a long runway to figure things out. So we got lucky. That said, you know, 10 years, it is in fact a long time to be doing this. And a lot has changed in that period.

Joe Weisenthal (1:14)

A lot has changed in that period, sometimes mind blowing. And we've talked about this before, for sure. But the things that we were covering is Capital and News at the time are now Capital H history. And it's like these things that are we sort of take for granted. Everyone was there. It's like, no, children, let us tell you what it was like in the old days when people were worried the world was going to come to an end because, you know, Greece is sovereign debt and all this stuff that we just sort of part of the landscape is people don't remember it.

Tracy Alloway (1:43)

No, one of those things has to be the idea of value or fundamental investing, right? Like, let us tell you about the days when price actually mattered and had a limit to what investors would pile into.

Joe Weisenthal (1:54)

Yeah, that's exactly right. Let us talk about the days when people used to talk about PE ratios and this stock, oh, it's at a 25 PE, we better sell it and buy the stock at a 15 PE or whatever. Yes, that feels quaint. Maybe it'll be back there one day. But for now, given how many things in the market seem to be, the Gram and Dodd kind of stuff feels a little old.

Tracy Alloway (2:15)

A little old-fashioned, right?

Yeah, okay. So one of the big themes that has emerged in the 10 years that we've been doing this podcast is everyone seems to have grown more stupid, I would say. Hopefully, that's not related. It is correlated. That's not like a correlation thing. It might be. It could be. All right. But we have all this gamification of investing, people betting on lines going up or down, people betting on random meme coins, things like that. And I think we talk about it a lot on the podcast, but this is actually a fundamental shift in the market. If you think about the market as something that's supposed to be about capital allocation, alignment of incentives, people are investing in something because they think it's going to be profitable in the future at the right price. And now people are just piling into stuff because other people are doing it. And again, line go up.

Joe Weisenthal (3:02)

Deep down, I still believe that the value of a stock should reflect the net present value of all future cash flows.

Tracy Alloway (3:08)

You're an EMH guy.

Joe Weisenthal (3:09)

But it's been a little bit hard with some of these things. And the other thing, too, that is sort of change is that like half of our episodes these days are kind of AI related in some way. And so I think there's a lot of interesting stuff going on, particularly at the intersection of tech and applying tech to both investing in tech, but then the application of tech to investing and so forth. So yes, much has changed.

Tracy Alloway (3:33)

A lot has changed. And we have the perfect guest to talk about how everyone has grown more stupid over time. We're going to be speaking with someone we've wanted on the show for a really, really long time. I am very excited about this. It's Cliff Asness, the co-founder and CIO of AQR. Thank you so much for coming on Odd Lots.