Re-Derive

Clifford Asness teaches about markets, writing, and re-deriving first principles

Took a road trip to Greenwich last week, with my radio-shack-inspired camera bag packed with audio equipment, to record a podcast with Clifford Asness. I've been reading AQR research for all of my career and I've seen Cliff talk at several conferences, so this was a big honor and a big opportunity for me. Cliff was wonderful to talk to in person, and I think that the podcast came out great, but I'll let you be the judge. The podcast audio is embedded below.

Out of the whole conversation there's this one thing that I can't stop thinking about. I asked Cliff about the skill of writing and how he came to be a writer in addition to being a quant - seemingly opposite skills. Here was his response:

"I have a bad memory. I re-derive things a lot and teach them to myself, a lot. When you do that you get better at explaining things, you force your brain to go through that exercise… What I try to do is explain complicated things in a simple way with good analogies and with some humor."

I re-derive things. That is the magic, right there.

Let's back up for a minute. One of my sons started learning chess, and he beats me with ease over and over. I am so impressed with him. And it got me thinking, what is the skill of chess?

All of us humans have more or less the same hardware. We've all got functioning brains that operate well below capacity, all of us. We can all learn how the chess pieces move and basic pattern recognition. So what is the "skill"? Far as I can tell, the skill is simply the will to force your brain to calculate potential iterations in the future. My son has it, I don’t.

Thinking three or four moves ahead has the same appeal to me as running a marathon. Sure, if I trained every day for several years I am sure I COULD run a marathon, my body has the ability to be trained and conditioned for it, but I am way too lazy and unmotivated to even think about running a marathon. And when I'm playing chess, it's the same thing. I am not willing to sit in the uncomfortable space of trying to crunch moves that extra step ahead.

But I could. The hardware works. It's a question of will.

Math works the same. People who are "good at math" haven't been blessed with some ambiguous and magic skill at birth. They are just unlazy in their thinking. And they are willing to exist in that space before the epiphany, they are willing to uncomfortably think a mathematic formula through.

And when you look at it this way, the skill of being a quant and the skill of being a writer aren't really opposite after all. Writing, after all, is the discipline of slowing down and explaining what you have to say word by word.

Here you have someone at the top of his field, someone who has achieved massive success, still willing to go back to the starting point in his own mind. Derive, re-derive, and then teach it to himself.

That is discipline. That is work, just not the kind of work anyone can see. It is work that everyone else thinks is some magic and unattainable gift of genius. But it's just hard work, and I think that not only gets to the heart of how a quant can become a writer, but also how a person can become a quant. And how a person can become a success.

Anyway, on the podcast we talk:

• Factor investing

• Market valuations and if this time is different

• Liquidity premium & volatility laundering

• The skill of writing and the origin story behind the footnotes (iykyk)

• Fama French data restatement

Here you go (you can also subscribe to the podcast through your favorite app or on youtube):