Jim Simons passed away today. In memory, I was reviewing some of my notes on his journey and learnings (mainly drawn from the book “The man who solved the market”) and thought I’d share my raw notes & personal book review more broadly. Enjoy!
Simons had an insight that markets had structure - he then hired big brains to prove this out
Quant was very much looked down upon until it started working (and computers got more powerful)
“Emperors want empires” —> “Jim wants to do things that matter. If he was going to do a fund, he wanted to be the best”
Simons was a stubborn optimist —> held out and motivated (stock trading) over a long period of time
Became a world renown mathematician, code breaker, and create a world class math department all before 40
Liked to do unusual things that others didn’t think was possible
Was always interested in trading and making money on the side
Rentech’s main strategy was based on reversion to the mean
“We make money from the reactions people have to price moves”
Work with the smartest people you can
Be persistent, don’t give up
Be guided by beauty
Way a company runs, experiment, etc there’s a sense of beauty when something is working well, almost an aesthetic to it
“Do what you like in life, not what you feel you should do”
Understood at an early age that money is power. Didn’t want people to have power over him
Left at late 30s to start trading bc he thought it was possible to find structure in markets
Went through several partnerships
First few years was all intuition based trading
Next was more quant based
Straus was a data guy who discovered his passion was gathering data
Spent a lot of time and half funds AUM for venture capital
Some academics were “super smart” but not original thinkers
Simons sought out latter when making stony brook math department
Valued “killers” - those with a single minded focus
Switched to short term trades and investing
Had significantly more success
Got better at “sizing bets”
If you trade a lot, need to be right less and need smaller edge
Simons finally had success with futures trading group
Strategies stopped working past 600M fund
Exploiting faults of fellow speculators
Mercer and Brown joined from IBM
Used statistical arb to predict next word for speech translation and NLP
Applied and created large stock trading models
Mercer didn’t believe in efficient govt spending after a summer in a lab
Recruited people specifically who were smart, bored, and not already in Wall Street
Less of a chance they’d jump ship to another firm
Claimed that financial experts can’t explain how market went up
Grew the fund to 5 billion with Mercer and brown leading it mainly
Beat market all the time
Lots of internal strife
New researchers vs old ones
Two left to competing firm (first time happened)
Created new funds for longer term investment
Grew to 30B AUM but then back down to singles digit B
Key requirement - everyone needed to interact, debate, and share ideas
Had a single monolithic trading system
Made it easier to add algorithms to it
Culture of unusual openness
Peer pressure became a crucial motivational tool
Burned to impress each other (or at least not embarrass)
Self worth was determined by how much progress one made
Comp was a formula tied to how much the firm made overall
Highly aligned incentives
Simons pushed for results within weeks, an urgency that held appeal over academia
People were paid millions (sometimes tens of millions) and could invest in medallion (some also took loans to invest more)
Believed the model reflected reality - not that it was the truth
Helped avoid LTCM crash
Ask if trading signals are sensible
Started using basket of stock options from banks to lever up and trade
“Best at estimating cost of trade”
“Right 50.75% of time, but 100% right 50.75% of the time”
Started masking their trading signals to avoid competitors
Rentech doesn’t try to predict individual stocks - rather anticipate stock moves relative to other stocks
Fun good read on Jim Simons and rentech. The firm has been a fascination for me for years so it was nice to finally have more detail on how it started and became so famous. It’s so impressive how he reached the pinnacle in multiple areas (mathematics, code breaking, investing), and all oriented around a north star of solving really hard problems. Clearly he was very driven from the start and wanted to tackle larger things for both personal, but more importantly, for beauty & aesthetic reasons. It’s a lens on doing good work that I hadn’t heard before.
I was surprised by how much trouble Simons had — almost a decade — before he started seeing really good results. Despite being a math genius, he only started being successful after building a brilliant team to help make the necessary discoveries. He hired the right people, created the right environment, took care of logistics, and pushed on a key insight (model to trade). He couldn’t have done it by himself.
Another surprise was how contrarian quant investing was when he got started. There was clearly a “why now” with the timing of computing power and it being an inflection point to allow the data they collected previously to actually be turned into something useful.
4.5/5 — Great for investing nerds who want want to go a level deeper on one of the most storied and secretive firms, and the man behind it.