| ||Cliff Asness|
Two sides of AQR Capital Management co-founder Cliff Asness are on display today: the serious financial analyst and the socio-political gadfly. In a just-released article entitled "My Top 10 Peeves," published in the Financial Analyst Journal, Asness vents against overuse of the term "arbitrage," financial bubble hysteria, and the phrase "cash is on the sidelines."
Asness announced the article this morning via an email that noted the piece is "Less geeky than my norm (when talking investing)." Regarding the timing of the piece, he told Absolute Return that the FAJ, a publication of the CFA Institute, approached him to write the editorial.
In a section titled "I would politely request people stop saying these things," Asness decries the "cash on the sidelines" argument.
Every time someone says, “There is a lot of cash on the sidelines,” a tiny part of my soul dies. There are no sidelines. Those saying this seem to envision a seller of stocks moving her money to cash and awaiting a chance to return. But they always ignore that this seller sold to somebody, who presumably moved a precisely equal amount of cash off the sidelines."
"If you want to save those who say this, I can think of two ways. First, they really just mean that sentiment is negative but people are waiting to buy. If sentiment turns, it won’t move any cash off the sidelines because, again, that just can’t happen, but it can mean prices will rise because more people will be trying to get off the nonexistent sidelines than on. Second, over the long term, there really are sidelines in the sense that new shares can be created or destroyed (net issuance), and that may well be a function of investor sentiment."
See also: Cliff Asness: enterprise value tax is "pernicious" and "economically destructive |