The Story of Jim Simons: The Mathematician Who Cracked Wall Street
In the previous video, we looked at the Greatest Hedge Fund of All Time Renaissance Technologies and it's flagship fund Medallion, which since 1988 has delivered average returns after fees of 39.1%:
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This incredible performance has made it's founder Jim Simons a billionaire many times over, with an official net worth of $21.6BN.
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Simons demonstrated mathematical prowess at a young age.
From there, Simons studied Math as an undergrad at MIT at the age of 17, graduating in just three years.
However, even he found the graduate courses (which undergrads could attend if they wanted) very difficult at the age of 17...well, initially anyway.
He completed his PhD at the University of California, Berkeley at the grand old age of 23.
He then taught Math at MIT and Harvard.
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In 1964, he began working for the Institute for Defence Analysis (IDA) at Princeton.
The IDA was a super secret branch of the NSA aimed at breaking Cold War codes, and the work Simons did remains confidential.
Simons enjoyed this arrangement as the IDA payed well, and it allowed him to spend half of his time cracking codes and half of his time on his own Mathematical Research.
The experience also gave Simons his first real taste of computers and the utilisation of algorithms.
However, four years later in 1968, he got fired from the IDA after stating his views against the Vietnam War in an interview - claiming that he would only working on his own work until the Vietnam War ended.
He protested his firing to no avail
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He then became Chairman of the Math department at Sony Brook University.
Stony Brook was flush with cash at the time as Governor Nelson Rockefeller (grandson of John D. Rockefeller), recommended a major new public university be built on Long Island to "stand with the finest in the country"
Simons helped to transform Stony Brook into a world-class math department.
In terms of his own Mathematical work, Simons mainly focused on the geometry and topology of manifolds.
He co-developed Chern-Simons theory, which has been found applications in string theory.
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His first experience in business came during his days at MIT.
During his graduate studies at Berkeley, Simons got married and received $5000.
He headed to the Merrill Lynch office in San Francisco and invested in two stocks.
However, he wanted something more exciting - so opted for high leverage soybean futures.
In the mid-70s, using some of the profits from the Columbian business, Simons started to get involved with foreign currencies.
Simons hired world class cryptanalyst Lenny Baum to begin the journey of making the strategy more systematic.
They had some early success, with the pound for example.
However, they were trading fundamentally at the time, and Simons knew that there was an element of luck to what they were doing, and wanted to remove this element of chance and make things more systematic.
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Simons is also notorious at RenTec for having stringent NDAs (non-disclosure agreements). These are lifetime NDAs.
As well as this, if an employee has been there for a few years, then they have the option of signing a non-compete to grant them access to a larger share of the Medallion bonus pool (or rather bonus ocean).
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Simons has repeatedly emphasised that his success in management has been the relentless focus on hiring the smartest people and providing them with an infrastructure to flourish.
They have fantastic incentives, a collaborative environment, and world-class infrastructure that they can fit into easily.
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Simon's favourite algorithm?
That's confidential.
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However, there has been some form of controversy - specifically regarding the IRS.
In 2014, a bipartisan Senate panel estimated that Medallion investors had underpaid their taxes by $6.8BN over over more than a decade by masking short-term gains as long-term returns.
SOURCES:
Dr. James Simons, S. Donald Sussman Fellowship Award Fireside Chat Series. Chat 1. February 27, 2019:
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Dr. James Simons, S. Donald Sussman Fellowship Award Fireside Chat Series. Chat 2. March 6, 2019:
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James Simons (full length interview) - Numberphile:
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Jim Simons speech on Leonard E. Baum:
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PATREON TO TIP OR ACCESS EXCLUSIVE CONTENT:
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