Cliff Asness: Similarities Between A Discretionary And Factor Based Investor

In his recently published book, Efficiently Inefficient,  Danish Financial economist Lasse Heje Pedersen explores key hedge fund trading strategies and demystifies active investing. Lasse combines research, real-world examples, and interviews with top hedge fund managers to explain how these strategies make money—and why they sometimes fail. He argues that markets are “efficiently inefficient,” meaning they offer enough inefficiencies for profits but not enough to attract excessive active investing.

The book covers investment tools, equity and macro strategies, arbitrage, and topics like portfolio choice and risk management, featuring insights from industry leaders like Cliff Asness, George Soros and Ken Griffin.

In the book interview, Cliff Asness compares quantitative and discretionary investing, emphasizing that both aim to identify undervalued stocks with catalysts for revaluation. He explains that while discretionary managers focus on fewer stocks and rely on deep company insights, quants diversify by applying models across thousands of stocks to manage risk.

Asness points out that quants benefit from systematic data analysis but still experience periods of underperformance. Both approaches carry risks, as unexpected events can disrupt even well-researched investments, but disciplined quant strategies can add value through consistent, broad market application.

The big difference between quants and non-quants comes down to diversification, which quants rely on, and concentration, which judgmental managers rely on. But what we tend to like or dislike in general is actually fairly similar.

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