- Warren Buffett has more in common with quantitative traders than it appears, Cliff Asness says.
- Both value investors and quants consider price as a factor in their analyses, the AQR boss added.
Warren Buffett is widely viewed as an old-school investor, but he has more in common with the modern breed of quantitative analysts than it might appear, Cliff Asness says.
"No one would call Warren Buffett a quant," the billionaire investor and AQR Capital Management chief said about the 92-year-old Berkshire Hathaway CEO during the latest episode of "Bloomberg Wealth with David Rubenstein."
"Yet he is very correlated with what quants would call the value factor, the low risk factor, and the profitability factor," Asness continued. "He buys companies that make a lot of money, aren't very risky, and then he looks for a decent price. It's not the first thing he looks for."
Indeed, Buffett has summed up his investing philosophy as buying "wonderful businesses at a fair price." He assesses everything from profitability and brand power to geopolitical risks and quality of management.
Asness also broke down the difference between what quants call "value" and the practice of "value investing." Quants use the term to describe how cheap a company's stock is relative to fundamentals such as sales, profits, or cash flow. Meanwhile, Buffett and other value investors look beyond those ratios to determine if a company is a bargain or not, he said.
"That is not the holistic measure of value a guy like Warren Buffett, or any Graham-and-Dodd-style value investor, would look at," Asness said.
He noted that value investors consider not only price but also companies' growth prospects, competitive moats, stability, and external forces that could work in their favor.
Similarly, quants consider their definition of value as one factor in their analysis of a company, he said.