Investment managers do interesting things when the markets aren’t being kind to their strategies, which happens periodically to even the most successful investors. In this essay, Cliff Asness of AQR takes a look at what would have happened to a portfolio composed of the opposite of Asness’s portfolio. It’s interesting and entertaining. Asness is a successful long-term investor, and his frustration at his 2018 results comes through.
Of course, the dream is to have our portfolio most of the time but with the ability to perfectly time a move to the “Costanza” portfolio for the few and far between years like this. We’ve written before about how we’re mostly (not entirely) skeptical about market-, and its close cousin factor-, timing. We believe the mostly untimed portfolio (what we do) can still be a great long-term addition to investor portfolios, and we’ll continue our long-running efforts to come up with active timing strategies we believe in more than “a little.” But again, like for timing the market, we are somewhat pessimistic about great breakthroughs. Taking a process that can yield significant risk-adjusted diversifying returns and adding really great timing to avoid the bad times, which are part of those returns, would obviously improve things further, perhaps substantially. It’s a nice dream, but still a dream, and a dream we think hurts more investors than it helps (whose version of timing is too often getting out at the bottom and in at the top!).