If you're asked to name a legendary investor, who would it b | Benefit Daily
If you're asked to name a legendary investor, who would it be? Warren Buffet? Peter Lynch? Well, they are but none of them topped the list of investors with the biggest average annual returns.
Who did? Jim Simons, a pioneer in the use of quantitative analysis. He has outperformed the biggest names in the investment world over the past three decades. Simons had to come through a number of difficulties before he created a perfect formula for profitable trading.
He began his career as a popular professor at MIT and Harvard University. During the Cold War, he broke Russian code working for an organization aiding the National Security Agency. At 37, while running Stony Brook University’s math department, he won geometry’s highest honor, cementing his reputation in mathematics.
When Mr. Simons left Stony Brook in 1978 to launch his trading firm, he was eager for a new challenge and bursting with self-confidence. At the time, some investors and academics saw the markets’ zigs and zags as essentially random, arguing that all possible information already was baked into prices, so only news, which is impossible to predict, can push prices higher or lower. Others believed price shifts reflected efforts by investors to react to and predict economic and corporate news, efforts that sometimes bore fruit.
In 1982, Simons founded a hedge fund — Renaissance Technologies. He was accustomed to scrutinizing large data sets and detecting order where others saw randomness. Despite the fact he failed to find the particular patterns, Simons was determined to build a high-tech trading system guided by preset algorithms, or step-by-step computer instructions.
To get more information to analyze, he started collecting data from the World Bank and various exchanges and even sent a staffer to Federal Reserve offices in lower Manhattan to record interest-rate histories and other information not yet available electronically. They gathered data going back to the 1700s—ancient stuff that almost no one cared about but Simons. He worked with other mathematicians such as Lenny Baum, James Ax and Elwyn Berlekamp and even reached some good results: Medallion scored a gain of 55.9% in 1990, a dramatic improvement on its 4% loss the previous year.
What happened next? The answer is in Gregory Zuckerman’s book “The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution”.
