“There is no magic answer,” says AQR’s Cliff Asness when asked when the value strategy will make a comeback, according to a recent article in Financial Review.

“A huge part of our job is building a great investment process that will make money over the long term, but a fair amount of our job is sticking to it like grim death during the tougher times,” Asness said in an interview with The Australian Financial Review.

According to Asness, value is a persistent factor because of the forces of behavioral finance. He argues that the strategy works (or doesn’t) for two reasons:

• Fundamentals: Cheap stocks are either “appropriately cheap” or are overpriced, but the latter occurs less often, making value an effective strategy over the long run.
• Price movements: “If the world just sells a whole bunch of value and buys a lot of expensive [stocks], even if the fundamentals didn’t change at all, a value manager is going to lose over that time.” He cites the example of “FAANG” stocks, which “delivered on the lofty promises implied by their valuations.”

Other insights offered by Asness:

We’re a long way from the euphoria that occurred during the tech bubble of 1999-2000, says Asness, adding that the period taught us how difficult it is to identify turning points in the markets.

There will come a time when there is too much passive capital, a view Asness says he shared with the late Jack Bogle. While the movement from active to passive isn’t over yet, Asness says it won’t ever become 100% of either.

When it comes to investing, filtering out the noise of the herd is critical. “People need to make smart bets and then set themselves up to stock with those bets. It’s simply way harder than it looks.”