The Man Who Solved The Market Book Review: How Jim Simons Launched The Quant Revolution By Gregory Zuckerman

  Three-time winner of the Gerald Loeb award, author Gregory Zuckerman has just released his latest book, The Man Who Solved The Market: How Jim Simons Launched The Quant Revolution. 

Before diving in, let's take a second to acknowledge that it's amazing such a book exists in the first place.  The subject of the book, Jim Simons and his firm Renaissance Technologies ('Rentec'), have always been shrouded in secrecy.  Most on Wall Street have at least heard of their mysterious Medallion Fund and heard rumors of the insane returns it generates.  But little was actually known about the firm and how it made money.

For those unfamiliar with Rentec, a quote from the book jacket sums up why you should care (emphasis ours): "No other investor - Warren Buffett, George Soros, Peter Lynch, Steve Cohen, or Ray Dalio - can touch the track record of Renaissance Technologies founder Jim Simons.  Since 1988, Renaissance's signature Medallion fund has generated average annual returns of 66 percent.  The firm has recorded trading gains of more than one hundred billion dollars.  Simons himself is worth twenty-three billion dollars." (The book also has a yearly performance breakdown in the Appendix.)

While value investors look up to Warren Buffett and Seth Klarman, and traders look up to Stan Druckenmiller and George Soros, in the quant world Medallion is quite literally the gold standard.  And while many hedge funds charge 2 and 20 (percentage management fee and performance fee), Medallion charges an audacious 5 and 44.

Over the years, we've talked to a few former employees of the firm and even then they would be very vague about their work, never giving specifics, and certainly wouldn't go on the record about anything.  'Googling' the founder and his firm yields only a handful of rare interviews with Simons (mostly about mathematics) and some performance numbers, but that's about as in-depth as it gets.

So the fact that Zuckerman was able to interview more than 40 current and former employees, Simons's friends and family, as well as Simons himself, says a lot.  It's safe to say that doesn't happen without Zuckerman's excellent work in the past as a journalist and author.  His previous book, The Greatest Trade Ever about John Paulson is one of our favorite financial reads and no doubt laid the groundwork for him to be able to write this new book on Simons.

The Man Who Solved The Market profiles Simons's journey from mathematician and Soviet code breaker to quant pioneer in a Long Island strip mall.  It highlights how he hired physicists, mathematicians, and computer scientists to blaze an entirely new path on Wall Street, one dominated by fundamental analysis and human traders at the time.

Some of the biggest takeaways from the book were the lessons on culture, management, and alignment of interests.  For a firm so reliant on computers, the human aspect was perhaps the most intriguing, from managing people to building models around human behavior in order to exploit it.

Interlaced throughout the story are also interesting anecdotes, like when Rentec once had a 'fat-finger' trade buying 5x more wheat contracts than they were supposed to and the next day the media blamed a 'poor harvest' for the price move.

One unanticipated turn the book takes is by examining some of the inner turmoil at the firm and in particular the effects of all the wealth Rentec partners and employees wound up with, like how Rentec senior executive Robert Mercer is basically responsible for Donald Trump's presidency.

Normally, we end each book review outlining who should read the book or might benefit from it.  But honestly, we think everyone would enjoy it.  Even if you're not a quant or have zero interest in quants, there's still lessons to be gleaned and it's a very entertaining read.  After all, we're big believers in learning from all types of investors or traders, regardless of which strategy you follow. 

Obviously, the book isn't going to just give away Rentec's secrets and outline the blueprint to market success.  More than anything, The Man Who Solved The Market gives you a peek behind the curtain of a notoriously secretive firm and tells a previously untold story.  We highly recommend Zuckerman's profile of the 'modern-day Midas' and it's the perfect gift this holiday season for anyone interested in markets.

Jim Simons Rare Interview: TED Talk With the Mathematician Who Cracked Wall Street

Jim Simons, founder of quantitative investment firm Renaissance Technologies (commonly referred to as Rentec) this year made a rare appearance at one of the TED talks.  The conversation was entitled "A rare interview with the mathematician who cracked Wall Street."

As we've highlighted in the past, Rentec's internal Medallion Fund has generated outstanding performance numbers.  While many hedge funds charge 2% management and 20% performance fees, Medallion was said to charge 5% and 44% at one time.  While this fund is only available internally, Rentec also runs two other funds available to outside investors, known as RIFF and RIEF.

His talk touches on topics of mathematics, code breaking, and patterns in the world of finance.

He attributes his success to assembling a great team.  Rentec famously employs scientists, mathematicians, astronomers, and physicists.  Their approach focuses on assembling a lot of data and looking at patterns.

Simons said that, "We take in terabytes of data a day and store it away and massage it and get it ready for analysis and you're looking for anomalies."

He also noted that hedge funds as a whole have not fared that well over the last 3-4 years.

Embedded below is the video of Jim Simons' TED talk:



For more from this legend, we've also previously posted Jim Simons on mathematics, common sense, good luck & his career.

Quants: The Alchemists of Wall Street

If you haven't seen it yet, embedded below is the video entitled Quants: The Alchemists of Wall Street. It's really an interesting almost hour long segment regarding the most mysterious players in financial markets. Email readers will need to come to the site to watch the video:



And if you fascination with quantitative managers doesn't end there, we highly recommend checking out Scott Patterson's The Quants which focuses on the likes of Jim Simons (RenTec), Ken Griffin (Citadel), Cliff Asness (AQR) and more.

RenTec's Jim Simons Retiring At End Of Year

If you haven't already heard, Jim Simons, founder and CEO of legendary quant hedge fund Renaissance Technologies, will be stepping down at the end of the year to retire. Dealbreaker reported earlier that current co-presidents Robert Mercer and Peter Brown will assume the role of co-CEO's at the start of the new year. They also report that Simons will stay on as a non-executive chairman and will "keep sizable investments in RIEF and RIFF."

His actions will undoubtedly unleash a wave of speculation as to "why". But we ask, can't a guy just retire because he's ready to? Nonetheless, questions will be raised as to whether he has lost his passion for 'the game' or whether the poor performance of RIEF this past year has frustrated him (head here for explanation on their performance woes - the fund was down almost 9.5% through September). Back in August, we revealed that RenTec landed on a list of best & worst performers for 2009. And unfortunately for them, they weren't on the 'best' list. It will certainly be interesting to see if Simons' departure leads to redemption requests from investors. While the fund is obviously not just one man, the exit of the man in charge could potentially leave some investors wary.

Jim Simons is quite the accomplished fellow as his returns from his hedge fund's Medallion fund have been astonishing over the years. They have landed him on the list of the top 25 highest paid hedge fund managers of 2008. Additionally, he has graced Forbes' billionaire list. Simons is a secretive man and as such resources on him are a bit scarce. However, we did manage to stumble upon a lengthier interview he has done in the past.

We'll definitely keep tabs on any potential aftershock experienced at RenTec following his departure.

*Update: Here's the letter, courtesy of Dealbook.

The Letter From Mr. Simons:

Oct. 8, 2009

Dear Renaissance Investor,

As many of you know, for the past several years I have gradually stepped back from day-to-day operations of Renaissance. Six years ago, Bob Mercer and Peter Brown became co-executive vice presidents, with all research and production reporting to them, and two years ago, they became co-presidents, assuming a broader set of responsibilities. The time has now come for me to take one further step back.

As of Jan. 1, 2010, Bob and Peter will become co-C.E.O.’s of Renaissance, with all areas of the firm reporting to them. I will remain the company’s principal shareholder and chair of the board. As such I will regularly attend monthly meetings of the executive committee and meetings of the board whenever scheduled, participating in all major corporate decisions. Consistent with best practices, Paul Broder, our chief risk officer, and Mark Silber, our chief financial officer, will report to the board on a dotted-line basis.

I am confident that this transition is best for the firm. I have led the organization and its predecessor for 31 years, and it is definitely time to pass the torch. We are very fortunate to have such able people as Bob and Peter to take the reins. Behind them and Paul and Mark is an outstanding cadre of senior management in all areas of the company, and behind them is a wonderful group of knowledgeable and hard-working individuals. Renaissance is a marvelous firm, dedicated to its investors and its employees. I have every expectation that under the new leadership this tradition will brilliantly carry on.

Sincerely,

Jim Simons

AQR's Cliff Asness Explains Quant Strategies (Video)

Hat tip to our buddy @StockJockey for flagging this excellent video with Cliff Asness of hedge fund firm AQR Capital Management where he talks quantitative strategies. AQR has recently been also getting into the mutual fund business as they look to diversify their offerings.

Email (& possibly RSS) readers will need to come to the blog to view the embedded video: