Excess Returns

Cliff Asness returns to Excess Returns for a greatest hits tour through some of his most important and entertaining investing ideas.
We discuss bubble logic, today’s AI market comparisons, why volatility still matters as a risk measure, private equity “volatility laundering,” international diversification, market timing myths, pulling the goalie, and how machine learning is changing quantitative investing.
Cliff Asness on X
https://x.com/CliffordAsness
AQR Capital Management
https://www.aqr.com/
Papers Discussed
Bubble Logic: Or, How to Learn to Stop Worrying and Love the Bull
https://www.aqr.com/Insights/Research/Working-Paper/Bubble-Logic-Or-How-to-Learn-to-Stop-Worrying-and-Love-the-Bull
Rubble Logic: What Did We Learn From the Great Stock Market Bubble?
https://www.aqr.com/Insights/Research/Journal-Article/Rubble-Logic
My Top 10 Peeves
https://www.aqr.com/-/media/AQR/Documents/Insights/Journal-Article/My-Top-10-Peeves.pdf
Volatility Laundering
https://www.aqr.com/Insights/Perspectives/Volatility-Laundering
I Did Not Predict What Is Going on in Privates
https://www.aqr.com/Insights/Perspectives/I-Did-Not-Predict-What-is-Going-on-in-Privates
(So) What If You Miss the Market's N Best Days?
https://www.aqr.com/Insights/Perspectives/So-What-If-You-Miss-the-Markets-N-Best-Days
International Diversification Works (Eventually)
https://www.aqr.com/Insights/Research/Journal-Article/International-Diversification-Works-Eventually
International Diversification - Still Not Crazy after All These Years
https://www.aqr.com/Insights/Research/Journal-Article/International-Diversification-Still-Not-Crazy-after-All-These-Years
Perhaps the Most Important Essay I Will Ever Co Author
https://www.aqr.com/Insights/Perspectives/Perhaps-the-Most-Important-Essay-I-Will-Ever-Co-Author
Main topics covered:
How the dot-com bubble created its own internal logic

Why Dow 36,000 and Cisco message boards captured bubble thinking

What investors learned, and failed to learn, from the tech bubble

How today’s AI market compares with the dot-com era

Why long periods of underperformance make even good strategies hard to stick with

Why Cliff still defends volatility as a useful risk measure

Why “cash on the sidelines” is a misleading market narrative

How private equity smoothing can make risk look lower than it really is

Why the private markets debate is not a short-term prediction

Why the “missing the best 10 days” argument against market timing is incomplete

Why international diversification can still matter after decades of US outperformance

What pulling the goalie can teach investors about risk, incentives and career risk

How machine learning changes quant investing without eliminating economic intuition

Timestamps:
00:00 Why certainty is dangerous in investing
04:58 Why Bubble Logic never became a book
10:18 Cisco, Yahoo message boards and bubble psychology
14:16 Rubble Logic and the lessons investors failed to learn
18:04 What today’s AI market has in common with the dot-com bubble
22:23 Why the long run can lie to investors
26:02 Volatility, permanent loss of capital and real risk control
30:19 Why there is no cash on the sidelines
34:00 Private equity, smoothing and volatility laundering
39:47 Why Cliff did not call the private markets downturn
43:19 The flaw in the missing the best 10 days argument
49:00 Why international diversification still works eventually
53:35 Why crashes are global but lost decades are local
57:30 Pulling the goalie and asymmetric risk
01:01:00 Why coaches and investors avoid optimal decisions
01:07:36 Machine learning, overfitting and economic intuition
01:10:50 Leverage, short selling and derivatives in quant portfolios
01:16:26 Where to follow Cliff Asness

Ben Carlson joins Excess Returns to discuss his new book Risk and Reward and the biggest lessons investors can learn from market history. We cover how to think about risk, inflation, market timing, bear markets, lost decades, diversification, compounding and why surviving volatility is the key to building long-term wealth.
Ben's Book
https://amzn.to/4dFHsQz
Ben Carlson on X
https://x.com/awealthofcs
Ben's Blog
https://awealthofcommonsense.com/
Main topics covered:
Why risk is hard to define and always involves trade-offs

How vivid risks like sharks and headlines distort investor decision-making

Why doing nothing can be one of the hardest parts of investing

How inflation should be viewed through personal finance, human capital and long-term investing

Why stocks can be an inflation hedge even if they struggle during inflation spikes

Why waiting for the market coast to clear often fails

What the world’s worst market timer teaches about saving and staying invested

How loss aversion shapes investor behavior

What the Great Depression, bear markets and 30-year returns teach about long-term investing

Why there is no perfect portfolio and the best strategy is one you can actually stick with

Timestamps:
00:00 Ben Carlson on why risk and reward are attached
06:35 Doing nothing, action bias and better investing behavior
11:51 Inflation psychology and lessons from the 1970s
16:55 Why stocks can hedge inflation over the long run
21:07 Why waiting for the coast to clear is a market timing trap
26:30 Time horizons, loss aversion and portfolio behavior
31:49 Government rescue, left-tail risk and unintended consequences
35:54 Recessionary vs non-recessionary bear markets
42:09 Why the stock market and economy can diverge
47:24 Why compounding is about holding, not trading
51:37 Starting valuations, lost decades and future returns
55:40 Risk, reward and the biggest lesson for investors

AI is moving from hype to real enterprise adoption, and Gene Munster and Doug Clinton join Excess Returns to explain what that means for investors, technology stocks, energy demand, jobs and the next phase of the AI trade. We discuss why AI may still be early in its bubble cycle, how frontier models like GPT, Claude, Gemini and Grok compare, why AI-powered investing is becoming more practical, and where the biggest second-order opportunities may emerge.
Gene Munster on X
https://x.com/munster_gene
Doug Clinton on X
https://x.com/dougclinton
Deepwater Asset Management
https://www.deepwatermgmt.com/
Intelligent Alpha
https://www.intelligentalpha.co/
Main topics covered:
• Why Doug Clinton still thinks AI could become a bigger bubble than dot-com
• How Claude Code, Codex and frontier AI models are changing enterprise productivity
• The job disruption risk for knowledge workers and why AI adoption may become a survival skill
• Why the AI model race may not be winner-take-all
• How Intelligent Alpha uses large language models to evaluate stocks and earnings expectations
• Why GPT, Claude and DeepSeek perform differently across investing tasks
• The AI infrastructure boom and why energy may be one of the most underappreciated bottlenecks
• Hyperscaler CapEx, data centers and the investment case for continued AI spending
• How major AI IPOs like SpaceX, Anthropic and OpenAI could affect public markets
• Why space, orbital data centers and zero-gravity manufacturing could become real investment themes
Timestamps:
00:00 AI, electricity and intelligence
04:33 Why new AI models changed the semiconductor trade
09:14 What AI means for knowledge worker jobs
14:03 Codex, Claude Code and Google’s AI challenge
18:50 OpenAI, Apple and the model capacity race
23:03 How many frontier AI models can survive?
27:18 Intelligent Alpha’s AI earnings benchmark
31:34 Why AI investors avoid emotional bias
35:33 Where to invest in the AI stack
39:00 Why AI energy demand is still underappreciated
43:43 How markets are judging hyperscaler AI spending
48:00 The investment opportunity in space
52:20 Final thoughts and closing

Jeremy Grantham joins Excess Returns to discuss The Making of a Permabear, mean reversion, market bubbles, AI, the Magnificent 7, and the long-term lessons investors can take from his career at GMO. We cover why he rejects the simple “permabear” label, how he thinks about valuation and bubbles, why AI may be both transformative and dangerous for investors, and why long-term thinking is so hard but so essential.
The Making of a Permabear: The Perils of Long-term Investing in a Short-term World
https://groveatlantic.com/book/the-making-of-a-permabear/
GMO
https://www.gmo.com/americas/
Grantham Foundation
https://granthamfoundation.org/
Topics covered:
Why Jeremy Grantham thinks the “permabear” label misses the point

The difference between being generally bearish and making a true “abandon ship” call

Mean reversion, valuation cycles, and why history still matters for investors

Why monopoly power helped reshape U.S. profit margins and market concentration

How AI could turn today’s monopoly winners into brutal competitors

Why new technology often becomes a cost of doing business rather than a permanent profit boost

How Grantham defines bubbles using two-sigma market events

Lessons from Japan, the dot-com bubble, the housing bubble, and the 2021 speculative peak

Why institutional investors struggle to stick with value strategies during bubbles

The role of purpose, climate risk, toxicity, and long-term thinking in Grantham’s later career

The one lesson Grantham would teach ordinary investors about pessimism, realism, and time horizons

Timestamps:
00:00 Jeremy Grantham on unpleasant news and long-term investing
04:18 Reinvesting when terrified in 2009
08:43 Why Grantham told investors to abandon ship in 2008
10:28 Mean reversion and why history matters
14:00 Monopoly power, the Mag 7, and rising market concentration
17:14 Why AI is important but impossible to forecast
20:21 AI as a cost of doing business
21:24 From monopoly profits to brutal AI competition
24:05 How investors should think about valuation mean reversion
27:00 Why high returns on capital should eventually attract competition
29:47 How Grantham defines a market bubble
33:00 Japan’s extreme bubble and GMO’s zero weight decision
34:19 The dot-com bubble and the pain of being early
38:00 Grantham’s bubble warning signal in 2021
41:35 Whether today’s market is showing classic bubble behavior
43:00 QuantumScape, meme stocks, and speculative excess
46:35 How ChatGPT interrupted the 2022 bear market
49:12 Investor behavior and the cost of underperforming in a bubble
55:00 Purpose, philanthropy, climate risk, and useful work
01:01:03 The one lesson Grantham would teach average investors

Marc Rubinstein joins Excess Returns to explain what private credit, bank earnings, insurance balance sheets, fintech growth, and arbitrage firms reveal about the modern financial system. The conversation covers why private credit risks may not be systemic in the traditional banking-crisis sense, but still matter for investors because of redemption gates, hidden leverage, opaque structures, incentive conflicts, and correlations that can spike when markets are under stress.
Marc Rubinstein on X
https://x.com/MarcRuby
Net Interest
https://www.netinterest.co/
In this episode, we discuss:
Why the Fed says private credit redemption risks are limited and manageable

What Blue Owl’s redemption gates reveal about private credit liquidity

How post-2008 bank regulation pushed risk into private credit, hedge funds, trading firms, and exchanges

Why banks and private credit firms are both competitors and collaborators

The “layer cake” of leverage connecting banks, private credit, and borrowers

How HSBC’s loss tied to Atlas and MFS highlights hidden credit risks

Why insurance companies have become increasingly tied to private credit

Why rapid growth can be dangerous in financial businesses

What bank earnings show about the gap between weak consumer confidence and resilient spending

Why post-mortem reports from SVB, Credit Suisse, and other failures reveal what investors could not see in real time

How Revolut became one of the most interesting fintech stories in global banking

Why Marc calls this a potential golden age of arbitrage

What Jane Street, public BDC discounts, private asset valuations, and geopolitical fragmentation tell us about market structure

Why investors may still be too anchored to the 2008 banking playbook

Where Marc sees risk and opportunity in financials, banks, Europe, and non-bank financial institutions

Timestamps:
00:00 Private credit, hidden risks, and correlation spikes
05:03 Why Blue Owl became a private credit warning sign
10:20 How private credit grew after the 2008 financial crisis
15:30 Banks and private credit as financial “frenemies”
19:44 HSBC, Atlas, MFS, and the layer cake of leverage
24:11 Apollo, Athene, insurance assets, and private credit incentives
29:20 Why higher rates have not broken more of the financial system
33:40 Bank earnings, consumer confidence, and resilient spending
37:20 Why “I don’t know” can be a powerful signal from bank CEOs
41:46 Revolut and the ambition to build a truly global bank
47:38 Why growth can be dangerous in finance
52:19 Private assets, public BDC discounts, and arbitrage opportunities
56:34 What investors misunderstand about banks today
59:31 How Marc would think about financials as a long-short investor