Revisiting my meeting with Cliff Asness — understanding the value in value investing

2 years ago I met Cliff Asness (co-founder of AQR Capital Management) at a charity event I volunteered at called Capitalize for Kids. Being a student with internships in the investment management industry at the time, the meeting felt akin to Charlie meeting Willy Wonka. Truthfully (and slightly embarrassing to admit), it happened while Cliff was on his way to leave the event, and I ran to catch him as he was heading to the elevator. Probably already a pain, I knew I had 1 question — any more and I would become a serious pain. The question that I did want to ask him however, was something introspective of his career which I could apply to my own. I asked,

“if you were my age again, what would you have done similarly or differently?”

his response (sparing some of the jokes he threw in) was,

“if you’re doing what everyone else is doing, then you’re not really a value investor”

I took this as a note from Cliff to be staunch in dressing myself with an air of idiosyncrasy and/or contrarianism in my approach to developing my career and ideas in general. My understanding was that it was these qualities that brought success in identifying investable opportunities. Perhaps it was a testament to how wet the backs of my ears were when I interpreted Cliff’s response the way that I did, because as time passed, I began to have issues with the notion of approaching value from either of these angles.

True idiosyncrasy falls short due to potential lack of adoption of a singular view in a market place. How can there be price appreciation of an asset from the lens of your thesis if no one else shares its view? True contrarianism may be too idealistic of a George Costanza-esque approach that is unrealistic for real world application. Aside from anomalistic events, full embodiment of either practice fails to capture how one can succeed in identifying underpriced assets, and profiting from this information arbitrage.

Taking a step back to further understand why I thought the way I did, I found that these two qualities stem off of an underlying principle — conviction to a thesis irrespective of market sentiment. This principle serves as a good reminder, or could act as a message to those who haven’t been exposed to similar thoughts regarding thesis conviction. Thus, the revision of my interpretation of Cliff’s response to developing a career, or thesis in general, is this:

Determine an area that you believe has strong fundamentals, and have conviction to your thesis of where you believe things are headed (but also make sure to always reevaluate/revise your thesis based on the underlying fundamentals). Depending on market conditions, your thesis and approach may be considered idiosyncratic and/or contrarian, but if your thesis holds, as a corollary, it will see adoption.