I recently read Greg Zuckerman’s new book ‘The Man Who Solved The Market’ and he has done a great job giving readers a peak inside the secretive world of Jim Simons and Renaissance Technologies hedge fund operations.
Jim Simons Renaissance Technologies has been the greatest money making operation in the modern financial markets. No other investor or fund has had better returns over as long a time period, not Warren Buffett, Paul Tudor Jones, Peter Lynch, Ray Dalio, or George Soros. No one is in the same league of his fund’s lifetime returns on an annual and compounded basis.
Renaissance’s flagship Medallion fund has returned an average annual gain of 66% since 1988. His hedge fund has earned profits of over $100 billion. Jim Simons personal net worth is $23 billion dollars.
Jim Simons went from being a mathematics professor with a PhD. who operated a successful math department in a university to focusing on solving the patterns in the financial markets for profits.
Jim Simons belief system started with: “There are patterns in the market, I know we can find them.” With this foundation he hired some of the best mathematicians, statisticians, computer programmers, and scientists to find them. He was successful, he found them.
His fund started out with a successful futures trading system and branched off into other markets including bonds, currencies, and the stock market.
Renaissance was one of the first quantitative hedge funds that compiled a huge data base of end of day and intra-day price action history of financial markets and ran powerful computer backtests on the historical data to find market patterns of correlations and repeating price moves in short time frames based on relationships between catalysts and investors behavior.
His fund reduced the financial markets to a math problem and ignored the fundamentals and focuses on the way prices move. Renaissance makes thousands of trades a day on short time frames from hours to days and makes money on a little over 50% of their trades but their winners are bigger than their losers and the edge creates windfall profits on an astounding risk adjusted basis.
His money making fund is very similar to a casino exercising his mathematical edge over and over with small bets in relation to his total capital. The fund does use leverage but it is for trading in smaller diversified trades in volume not making large bets on any one trade in size.
Jim Simons was a master administrator in hiring the right people for his fund and leading them in the right direction for developing robust trading systems using scientific methods. One of the biggest edges his quant fund had was being one of the first to the market using his method, he had one of the most thorough historical price action data bases, and he removed the human weaknesses of emotions and ego out of his trading method.
If you love math and you love trading you will enjoy this book as it takes a deep dive into both. It is an easy and enjoyable read and is written more like a novel than a trading book.
I have read several hundred trading and investing books and I would put this one on my list of the top five trading books every written. This is a unique look into how quantitative trading works.
