Cliff Asness: advisers should retire `very dumb' timing argument
Billionaire money manager Cliff Asness isn't buying it, bluntly saying such thinking is 'very dumb'.
Yes, missing the best days hurts, says Asness. But missing the worst days helps just as much. The effect is symmetrical. Yet, for some reason, only one side gets a chart.
In a 1999 paper, Asness also ran the numbers on missing the best and worst months: from 1970 to 1996, miss the 12 best months and your annual return drops from 12.3 per cent to 7.2 per cent. Omit the 12 worst months instead? Your return jumps to 18.1 per cent. The pattern holds in later decades, on monthly and daily data.
READ MORE
Does this mean you should time the market? No. Asness is still firmly in the 'don't try this at home' camp, saying most people – including himself – 'suck' at it. Timing is hard, expensive and usually ends badly. His point is just that the standard scare-story – miss a few good days, lose everything – is unserious.
If you're going to dissuade people from market timing, he suggests, try honesty. The truth is bad enough, rather than resorting to this 'terrible, silly, embarrassing argument'.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Irish Times
10 hours ago
- Irish Times
Will Donald Trump fire Jerome Powell? ‘I don't rule out anything. But it's unlikely. Unless …'
When this particular week in Washington politics is parsed by the historians, they may conclude that whatever the merits and faults of Federal Reserve chairman Jerome Powell , he at least did not lack moral backbone. On Wednesday, US president Donald Trump resumed his on-off attacks on Powell, who has grossly displeased him by refusing to accede to his loudening request to lower the interest rates. It had been reported that during a Tuesday meeting with Republican lawmakers, Trump had brandished a letter proposing to fire Powell and canvassed for opinion. Early on Wednesday, stock prices swooned with the result. 'No, I talked to them about the concept of firing him,' Trump said on Wednesday, evading the presence of a letter as prop. 'I said: 'what do you think?' Almost every one of them said I should. But I'm more conservative than they are.' READ MORE With the immediate threat of a firing receding, the stock indexes began to hum again. Beside Trump, the crown prince of Bahrain, Salman bin Hamad Al Khalifa, sat placidly in his Oval Office chair and admired the abundance of decorative gold flourishes and curios as his host held court. But even as Trump said that firing his Federal Reserve chairman was not in his immediate plans, he left the door ajar by referencing the eye-watering costs of the renovation of the Marriner S. Eccles Federal Reserve building in Washington. 'I don't rule out anything,' Trump replied in relation to firing Powell. 'But I think it's highly unlikely – unless he has to leave for fraud! I mean it is possible there is fraud involved with the $2.5, $2.7 billion renovation. It's a renovation! How do you spend $2.7 billion? I think he is already under investigation. He has spent far more money than he was supposed to on rebuilding. I didn't see him as the kind of guy who wants to have rooftop parks on buildings. I think he's got some problems.' Powell has become a bee in Trump's bonnet and when the subject was raised by the White House press pool, the president couldn't resist another recitation of his complaint. 'He's always been too late. Hence his nickname 'Too Late'. He should have cut interest rates a long time ago. Europe has cut 'em 10 times in the short period of time that we have cut them none. The only time he cut them was just before the election to try and help Kamala, Biden – whoever the hell it was. Obviously that didn't work. I think he does a terrible job. He's costing us a lot of money. And we fight through it. 'The country is becoming so successful that it doesn't really affect us. But it does when people want to get a mortgage and buy a house. He's a terrible Fed chair. I'm surprised he was appointed. I'm surprised frankly that Biden put him in, and extended him. But they did. No. We are not planning on doing anything. 'He is doing a little renovation for $2.5 billion of the Fed building. A renovation and close to a $900 million cost over-run. And it's a shame. But the biggest cost over-run is for interest rates. Because we should be paying three points lower and we would save a trillion dollars in interest. We had the worst inflation in history under Biden and now we have almost none.' If Trump glided over the 'surprised frankly' observation, it was with good reason. Powell is, historically, a Republican and was appointed as chair of the Federal Reserve, when he succeeded Janet Yellen, by president Trump himself during his first term. That announcement was significant in that it marked the first time in decades that a president had not reappointed a sitting chair to a second term. Speaking then, he predicted that Powell offered 'strong, sound and steady leadership'. Times have changed. In late June, Powell appeared before the Senate banking committee for a sitting that soon settled into a hostile grilling from Republican senators. Among the issues under discussion was that ongoing renovation of the Federal building which, senator Tim Scott outlined, includes lavish plans for rooftop garden terraces, water features and new elevators to drop members off at the VIP dining suite. 'We can all agree that updating ageing infrastructure is a legitimate need,' Scott said in his opening remarks. 'But when senior citizens can barely afford Formica countertops, it sends the wrong message to spend public money on luxury upgrades that feel more like they belong in the Palace of Versailles than a public institution. At the same time, the Fed's role as an independent, apolitical institution is being questioned. The central bank joined a global organisation to 'green' the financial system under the leadership of president Biden, only to exit it as soon as president Trump took office. That's not neutrality. That's drifting.' Powell was trenchant in his reply. 'Some of that is just flatly misleading. It is the same elevator – it has been there since the building was built. That is a mischaracterisation. And some of those [changes] are no longer in the plans.' The Federal Reserve website points out that the project involves 'a complete overhaul and modernisation that preserves two historic buildings' that have not been updated since the 1930s. Essential work includes the removal of asbestos and lead contamination. But given that 'waste, fraud and abuse' has become the mantra of this administration, the spiralling costs leave Powell vulnerable. It was reported that he ordered an internal review of the costs after his Capitol Hill interrogation. The easiest way for Powell make this go away would be to follow the lead of the representatives and senators on Capitol Hill who groused about the recent budget Bill and then voted to pass it into law anyway. But Powell has been quietly adamant that the time is not yet right to lower rates. His chairmanship has been liable to the criticism that the Fed was too complacent or sluggish in its response to the post-Covid inflationary cycle. The June Consumer Price Index rose to 2.7 per cent: not an alarming escalation, but the highest since February and a stubborn counterpoint to Trump's declaration that the inflationary spiral caused by the Biden administration policies has ended. The August 1st tariff deadline is nearing and with it the prospect of national and international economic upheaval. By the end of June, the dollar had experienced the worst start to any year since the economically tumultuous year of 1973. None of these factors has convinced Powell, whose term is due to end next May, that the time is quite right to move from the current rate band of 4.25-4.50 per cent. The criticisms, including those from potential successors – Trump economic adviser Kevin Hassett, former Fed board of governors member Kevin Warsh and treasury secretary Scott Bessent – have added fuel to the flames Trump is applying to the feet of his chairman. Against that, the editorial board of the Wall Street Journal on Wednesday penned an opinion warning against the dangers of 'canning' Powell, whatever his errors. Veteran Louisiana senator John Kennedy also offered a blunt warning on Wednesday. 'If you fire the chairman of the Federal Reserve, you will see the stock market crash. And you will see the bond market crash.' The one service that Powell is providing for Trump is that the controversy at least distracts some of the attention from the internal Maga crisis of faith over the administration's failure to release, as promised, the federal files on the investigation into Jeffrey Epstein. Through the noise, Powell has stood firm in a way that illustrates that Trump, to his increasing displeasure, was actually on the money in describing him as 'strong, sound and steady' eight years ago.
Irish Times
12 hours ago
- Irish Times
Trump pulls back on firing Powell, again
If it didn't seem inevitable before Wednesday, it does now. US president Donald Trump has insulted and pushed Federal Reserve president Jerome Powell almost since the day he returned to office, demanding he lower interest rates. So far, Powell has resisted, amid concerns that Trump's tariffs will push up inflation and the fact that the economy has broadly been humming along, regardless of what moves the president has made elsewhere. Clearly Trump won't reappoint Powell when his term is due to end next year, but could he get rid of him before then? Strictly speaking, Trump doesn't have the power to fire Powell unless it's for cause. READ MORE Yet it seems almost certain that Trump will test that legal grounding. Multiple reports on Wednesday indicated he has prepared a letter sacking Powell and has canvassed Republican lawmakers on whether he should do so. Indeed, he is likely to fire him soon, Bloomberg News reported. Within two hours of the reports becoming public, Trump had rowed back, saying he didn't plan to fire him. If he did sack him, what would happen next? The dollar would drop, as would US shares and bond yields. The 'sell America' trade, which has seen investors dump US assets periodically since Trump's original tariff announcement in April, would most definitely be back on. Then again, traders seemed to readjust to the so-called Taco trade once Trump did his now almost routine U-turn and said he was 'not planning on doing anything' about Powell later in the day. The dollar rallied as did shares and bond yields. Trump appeared to have chickened out once again, and investors had taken that as their cue to start buying again. It does make us wonder though. Politicians and business tell us time and time again that investors want certainty. Trump's moves are almost the diametric opposite of that, yet markets shake such gyrations off. As Bill Gross, one of the most influential bond investors of his generation, posted on X in April: 'would you want to own highly volatile US stocks whose price depends on whether POTUS had a good night's sleep and woke up the next morning to reverse yesterday's policies?'
Irish Times
12 hours ago
- Irish Times
How Elon Musk's rogue Grok chatbot became a cautionary AI tale
Last week, Elon Musk announced that his artificial intelligence company xAI had upgraded the Grok chatbot available on X . 'You should notice a difference,' he said. Within days, users indeed noted a change: a new appreciation for Adolf Hitler . By Tuesday, the chatbot was spewing out anti-Semitic tropes and declaring that it identified as a 'MechaHitler' – a reference to a fictional, robotic Führer from a 1990s video game. This came only two months after Grok repeatedly referenced 'white genocide' in South Africa in response to unrelated questions, which xAI later said was because of an 'unauthorised modification' to prompts – which guide how the AI should respond. The world's richest man and his xAI team have themselves been tinkering with Grok in a bid to ensure it embodies his so-called free speech ideals, in some cases prompted by right-wing influencers criticising its output for being too 'woke'. READ MORE [ 'Really scary territory': AI's increasing role in undermining democracy Opens in new window ] Now, 'it turns out they turned the dial further than they intended', says James Grimmelmann, a law professor at Cornell University. After some of X's 600 million users began flagging instances of anti-Semitism, racism and vulgarity, Musk said on Wednesday that xAI was addressing the issues. Grok, he claimed, had been 'too compliant to user prompts', and this would be corrected. But in singularly Muskian style, the chatbot has fuelled a controversy of global proportions. Some European lawmakers, as well as the Polish government, pressed the European Commission to open an investigation into Grok under the EU's flagship online safety rules. In Turkey, Grok has been banned for insulting Turkish President Recep Tayyip Erdogan and his late mother. To add to the turbulence, X chief executive Linda Yaccarino stepped down from her role . To some, the outbursts marked the expected teething problems for AI companies as they try to improve the accuracy of their models while navigating how to establish guardrails that satisfy their users' ideological bent. But critics argue the episode marks a new frontier for moderation beyond user-generated content, as social media platforms from X to Meta, TikTok and Snapchat incorporate AI into their services. By grafting Grok on to X, the social media platform that Musk bought for $44 billion in 2022, he has ensured its answers are visible to millions of users. It is also the latest cautionary tale for companies and their customers in the risks of making a headlong dash to develop AI technology without adequate stress testing. In this case, Grok's rogue outbursts threaten to expose X and its powerful owner not just to further backlash from advertisers but also regulatory action in Europe. 'From a legal perspective, they're playing with fire,' says Grimmelmann. AI models such as Grok are trained using vast data sets consisting of billions of data points that are hoovered from across the internet. These data sets also include plenty of toxic and harmful content, such as hate speech and even child sexual abuse material. Weeding out this content completely would be very difficult and laborious because of the massive scale of the data sets. Elon Musk saw the resignation of X CEO Linda Yaccarino last week. Photograph: Kirsty Wigglesworth/PA Grok also has access to all of X's data, which other chatbots do not have, meaning it is more likely to regurgitate content from the platform. One way some AI chatbot providers filter out unwanted or harmful content is to add a layer of controls that monitor responses before they are delivered to the user, blocking the model from generating content using certain words or word combinations, for example. 'Since being made aware of the content, xAI has taken action to ban hate speech before Grok posts on X,' the company said in a statement on the platform. At the same time, AI companies have been struggling with their generative chatbots tending towards sycophancy, where the answers are overly agreeable and lean towards what users want to hear. Musk alluded to this when he said this week that Grok had been 'too eager to please and be manipulated'. When AI models are trained, they are often given human feedback through a thumbs-up, thumbs-down process. This can lead the models to over-anticipate what will result in a thumbs-up, and thus put out content to please the user, prioritising this over other principles such as accuracy or safeguards. In April, OpenAI rolled out an update to ChatGPT that was overly flattering or agreeable, which they had to roll back. 'Getting the balance right is incredibly difficult,' says one former OpenAI employee, adding that completely eradicating hate speech can require 'sacrificing part of the experience for the user'. For Musk, the aim has been to prioritise what he calls absolute free speech, amid growing rhetoric from his libertarian allies in Silicon Valley that social media and now AI as well are too 'woke' and biased against the right. At the same time, critics argue that Musk has participated in the very censorship that he has promised to eradicate. In February, an X user revealed – by asking Grok to share its internal prompts – that the chatbot had been instructed to 'ignore all sources that mention Elon Musk/Donald Trump spread [sic] misinformation'. The move prompted concerns that Grok was being deliberately manipulated to protect its owner and the US president – feeding fears that Musk, a political agitator who already uses X as a mouthpiece to push a right-wing agenda, could use the chatbot to further influence the public. xAI acquired X for $45 billion in March, bringing the two even closer together. However, xAI co-founder Igor Babuschkin responded that the 'employee that made the change was an ex-OpenAI employee that hasn't fully absorbed xAI's culture yet'. He added that the employee had seen negative posts on X and 'thought it would help'. It is unclear what exactly prompted the latest anti-Semitic outbursts from Grok, whose model, like other rival AI, largely remains a black box that even its own developers can find unpredictable. But a prompt that ordered the chatbot to 'not shy away from making claims which are politically incorrect' was added to the code repository shortly before the anti-Semitic comments started, and has since been removed. 'xAI is in a reactionary cycle where staff are trying to force Grok toward a particular view without sufficient safety testing and are probably under pressure from Elon to do so without enough time,' one former xAI employee said. Either way, says Grimmelmann, 'Grok was badly tuned'. Platforms can avoid these errors by conducting so-called regression testing to catch unexpected consequences from code changes, carrying out simulations and better auditing usage of their models, he says. 'Chatbots can produce a large amount of content very quickly, so things can spiral out of control in a way that content moderation controversies don't,' he says. 'It really is about having systems in place so that you can react quickly and at scale when something surprising happens.' The outrage has not thrown Musk off his stride; on Thursday, in his role as Tesla chief, he announced that Grok would be available within its vehicles imminently. To some, the incidents are in line with Musk's historic tendency to push the envelope in the service of innovation. 'Elon has a reputation of putting stuff out there, getting fast blowback and then making a change,' says Katie Harbath, chief executive of Anchor Change, a tech consultancy. But such a strategy brings real commercial risks. Multiple marketers told the Financial Times that this week's incidents will hardly help in X's attempt to woo back advertisers that have pulled spending from the platform in recent years over concerns about Musk's hands-off approach to moderating user-generated content. 'Since the takeover [of X] ... brands are increasingly sitting next to things they don't want to be,' says one advertiser. But 'Grok has opened a new can of worms'. The person adds this is the 'worst' moderation incident since major brands pulled their spending from Google's YouTube in 2017 after ads appeared next to terror content. In response to a request for comment, X pointed to allegations that the company has made, backed by the Republican-led House Judiciary Committee, that some advertisers have been orchestrating an illegal boycott of the platform. From a regulatory perspective, social media companies have long had to battle with toxicity proliferating on their platforms, but have largely been protected from liability for user-generated content in the US by Section 230 of the Communications Decency Act. According to legal scholars, Section 230 immunity would be likely not to extend to content generated by a company's own chatbot. While Grok's recent outbursts did not appear to be illegal in the US, which only outlaws extreme speech such as certain terror content, 'if it really did say something illegal and they could be sued – they are in much worse shape having a chatbot say it than a user saying it', says Stanford scholar Daphne Keller. The EU, which has far more stringent regulation on online harms than the US, presents a more urgent challenge. The Polish government is pressing the bloc to look into Grok under the Digital Services Act, the EU's platform regulation, according to a letter by the Polish government seen by the FT. Under the DSA, companies that fail to curb illegal content and disinformation face penalties of up to 6 per cent of their annual global turnover. So far, the EU is not launching any new investigation, but 'we are taking these potential issues extremely seriously', European Commission spokesperson Thomas Regnier said on Thursday. X is already under scrutiny by the EU under the DSA for alleged moderation issues. Musk, who launched the latest version of Grok on Wednesday despite the furore, appeared philosophical about its capabilities. 'I've been at times kind of worried about ... will this be better or good for humanity?' he said at the launch. 'But I've somewhat reconciled myself to the fact that even if it wasn't going to be good, I'd at least like to be alive to see it happen.' – Copyright The Financial Times Limited 2025
