Old Man Yells at the Cloud

This Week on The Compound

This Week on The Compound

This week on TCAF, Josh and Michael were joined by Cliff Asness, Managing and Founding Principal of AQR Asset Management. They discussed the less-efficient market hypothesis, whether quants ruined value investing, volatility laundering, and the ongoing comic debate: DC vs. Marvel. (Listen)

INSIDE THE COMPOUND

This week on TCAF, Josh mentioned Cliff Asness’ paper The Less-Efficient Market Hypothesis. The paper is a great overview of the past few decades in markets, including the rise of social media and why market efficiency doesn’t necessarily move in a straight line. In short, it takes capital to reverse mispricing, and that is a risky endeavor. Asness writes:

Finally, recall again that markets are never perfectly efficient, as taking the other side of other investors’ errors, even if you correctly identify them, is still not risk- less. The more rational investors taking the other side, the more efficient. The more minnows doing crazy things, and the crazier they are, the less so. I think the rise of indexing and the super-low interest rates of the last 10–15 years may have had exactly this effect (more crazy, and crazier, minnows, fewer rational G&D disciples), but I conjecture that’s a relatively small part of the story. I’m far more certain that social media, the overconfidence that comes when people think all the world’s data are at their fingertips, and gamified, fake-free, instant, 24/7 trading have done so in a significant way.

Cliff Asness

CHART OF THE WEEK

Speaking of inefficient markets, Michael Batnick on The Irrelevant Investor examined the Bitcoin strategy Michael Saylor of Microstrategy is following and how it could potentially go off the rails.

BOOK STUFF

Prior TCAF guest Morgan Housel’s most recent book, Same As Ever: A Guide to What Never Changes, turned up twice on this Bloomberg list of the best books of 2024. Also, this week’s Ask the Compound guest, Barry Ritholtz announced that his new book How Not to Invest: The Ideas, Numbers, and Behaviors That Destroy Wealth - and How to Avoid Them, is available for pre-order. Barry writes:

The reality is after more than a century of books instructing people how to invest, most of us remain mediocre at the task at best. My insight was avoiding all of the usual errors was a better approach than laying out all of the “How to’s.”

Barry Ritholtz

MERCH

The holiday gift-buying season is right around the corner. What better way to warm the heart of your favorite finance nerd than one of these Hawaiian shirts? They are a collaboration between The Compound and Tropical Bros. The best part is that 10% of all sales will be donated to No Kid Hungry. Use the code Friday30 for an additional Black Friday discount.

COMING SOON

There will be no new episode of TCAF this week due to the Thanksgiving holiday. You can always check out our archive of past shows for something to watch or listen to.

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