A Harvard math Professor

Soviet Spy

A love for Computers

White House

Can you relate one person who is associated with all these.

What If I tell you to TOP these this person also has a Hedge Fund that made a hundred billion dollars in total during his 30-year career.

Averaging to whopping 66.1% Gross Profit and nearly 40% Annual return in NET.

You probably think such a character will be too absurd to exist in any Hollywood movie.

But I can tell you that this person is real.

His name is JIM SIMONS.

He is the greatest trader in the entire History of Modern Finance.

Known as the “World Smartest Billionaire” or “Quant King”, Jim Simons is clearly a class apart on Wall Street. Simons, a well-regarded mathematician for his Chern-Simons theory also broke Russian codes during the Cold War.

Simons was one of the pioneers to trade based on quant, data analysis, and pattern recognition. After setting up the hedge fund Renaissance Technologies, Simons made it his mission to avoid Wall Street brains at all cost hiring only scientists and mathematicians.

From 1994 to 2014 Renaissance Technologies Medallion fund gave a whopping 71.8% return. You must be wondering why you haven’t heard of the Medallion fund.  This is probably because Simons closed the fund to all outsiders except employees of the company in 2005. 

Simons is today worth $24.6 billion making him one of the most successful and greatest traders of all time.

 

Early Life:

Born in 1938 to a middle class American Jewish Family in Brookline Massachusetts, Jim Simons loved Math from the moment he understood what it was.   

Like rare people with an unusual talent for numbers, he began show his interests to learn and solve complex problems at age 3.

One day his parents found him dividing numbers by two all the way from 1024 downwards. Without knowing it the three-year-old had started solving a classic mathematical problem.

One of the Problems the Greek philosopher Zeno had addressed in his famous Paradox.  if you always have to travel half the remaining distance before reaching your destination. No matter how small you cannot reach the Final destination. For a 3-year-old kid this was an astonishing achievement.

After finishing High school, he was encouraged to go into medicine by the family Doctor. They thought it was a good job for a bright young Jewish boy.   Of course, Jim had other ideas. He chose to go to MIT and study math after struggling initially and failing a few tests, he finally blossomed as he loved to solve Complex problems and formulas.

For him mathematics was universal mystery to be solved.  One night he saw his professors in a deep discussion about a problem at midnight.  He decided this is the kind of life he wanted.  It was a world full of cigarettes, coffee and Mathematics.

After all the glittering academic achievements as a professor, Simons was tired of teaching.  His life began to follow a particular pattern and he was terminally bored.  He desperately needed another challenge in his life.

 

Cracking Soviet Spy Codes.

 

In 1964 the opportunity had arrived. Simons immediately jumped on it. He was hired by a National Intelligence group called IDA, helping to fight the Cold War.

IDA stands for Institute Defence Analyses.

An elite research organization funded by the government that hired mathematician to can help crack Soviet spy codes.

At the time the IDA was struggling, and they had not cracked Soviet codes for over a decade. Because of the lack of success, they had decided to employ people like Simons with no code cracking experience.  However, have genius brain power with a lot of fresh ideas.

It was there that Simons learnt how to create mathematical models and interpret patterns and seemingly meaningless DATA.  It was here that Simons created an ultra-fast code breaking Algorithm.

Shortly after Simons innovation intelligence experts in the CIA discovered that a Coded message with an incorrect setting had been sent by the Soviets.  Simon and his colleagues lept on this glitch and used Simons Code breaking model to successfully exploit the enemy’s internal messaging system.

This led to Simons becoming a Rockstar at the IDA and in the code-breaking community.

However, this success was not enough for JIM SIMONS. He wanted more mathematical challenges.  And more cryptic codes to unlock.

 

Enter Financial Markets.

While trying to crack codes at the IDA Simon's used to spare time to research and ponder the world of Global Finance.

Eager to earn more money began thinking about ways to crack the Stock Market and try to test of the best methods using his talents.

Rather than opting for the same old tested methods which consisted of Cooperate News and Company Earnings, Simons began a new approach to the stock market from a whole new prospective.

He looked at the stock market the same way he looked at Mathematics.

He developed the model that looked at the stocks rather that looking at the outside context.

He suggested that the market had Eight underlying states.   It was a system that ignored why the market entered certain states but simply allowed the traders to make bets accordingly.  This approach was revolutionary.  Simon was like a Trailblazer back in his time eventually until today.

 

Simons was one of the first pioneers who tried to apply the ‘Predictive Theory” to the investment world.  Nowadays its widely used in Artificial Intelligence and Machine Learning.               

 

First Hedge Fund

In 1968 Jim Simons was 30 years when he was asked to leave the IDA. He started teaching again however this time at Stony Brook University in New York and Wall Street wasn’t far away.

After 10 years of working in the Stony university he left and started his first hedge fund, Monemetric’s.  He wanted to find the hidden patterns in the Market using Mathematics’.

His first move was to invite an old friend from the IDA.  Leonard Baum and his Baum Welch Algorithm was the cornerstone of Jim Simmons early success in the hedge fund world.

The basic idea of Baum Welch Algorithm was to– Analyse a chain of past Data, and estimate the probabilities of each possible outcomes, and calculated predictions.

It would go one to be enormously important for the future.  It’s used especially in todays speech recognition technology and Google Search engine.

They figured that a predictive model like this would be very useful for monitoring the moves in the financial markets.

This was 1979, before the days of digitized trading so to measure data they had to stick lots of paper graphs and charts over the walls and their tiny office in Long Island.

They started using the algorithm in the currency markets and started making a lot of money.

One day when they were on a beach, when their algorithm signalled that the British pound would go up.  They ran into their hotel room in shorts and bought Pounds even though they had no idea of the British fundamentals or policies. As magical as it was the British Pound roared skywards.  All they did was follow Algorithm signals and magically and within a couple of years the Hedge fund grew by tens of millions of dollars.

 

Second Hedge Fund and Big Losses

After seeing this success, he started gathering a team around him and Baum. He set up and new Hedge fund with some new Algorithm’s named Limroy.  

They worked on the algorithms and started getting into all sectors of the market.

They were trading in Commodity that time when Gold Prices skyrocketed $865 an ounce , however this time the algorithm didn’t quickly sell enough and gold crashed to 500$ an ounce.   They began to lose more and more.  There were several losses like this, wherein the fund was losing Millions every day. Soon they were in a brink of collapse.  

 

Renaissance was born

Fortunately, Simon's was able to find new investors among his smart friends to back his fund. Although he had money to buy him some time, Simons needed to develop a far more accurate Algorithm to read market movements.

It was the early 1980s and computers were still in the development stage.  While other fund managers and investors were using old fashioned methods for their prediction of the financial markets. Simons decided to give computers a shot and he believed computers could handle data much better than a human brain.

He understood that computers have higher accuracy and zero emotions.

He renamed Monemetrics to Renaissance technologies. This new Hedge fund has since changed modern finance forever.  He invested heavily on more data and feeding the computers directly reports of currency prices going back to before WWII for consistent patterns that might apply to the present.

 

However present markets was increasingly volatile. Though there were great resemblances it was very difficult to reason patterns that would be relevant to the present from this historical data.

Therefore, the goal was to monitor the present as swiftly as possible.

They bought lots of expensive computers that calculated data at high speeds, this provided live market prices that none of the other Hedge funds had at that time.

 

By the time they had approved their algorithm, more refined computers became available improving their capacity to monitor new data.

After this point, Simons and Ax enjoyed working together more and more. So the two started a new hedge fund under Renaissance technologies it was called Medallion.

By leveraging Simons and Ax ideas the Medallion became Renaissance most profitable portfolio.

Soon Robert Mercer a Computer scientist joined as he was the last missing piece to Renaissance massive growth. He was the key engineer for computer giant IBM.

His talent for technology helped identifying flaws and glitches in the algorithms system.  Averaging at 60% there was no single losing year in the 90s for the Fund.

They were on the free way to create history.  However due to Mercer’s political affiliations their partnership fell apart until recently. He was the key in helping Donald Trump win the elections.

Jim Simons on the other hand was a Democrat, so they hence parted ways.

Mercer assisted Donald Trump with Billions in Elections into victory who beat Hilary Clinton, who was backed by Simons.  Mercer was hence forced to step down from his position.

 

Legacy

Today Jim Simons is certainly something like a modern-day equivalent of a powerful Finance Dynasty. His achievements when everything adds up are truly astonishing. 

First of all, he is the most successful Trader in the history of wealthiest Traders in the financial world. No one even comes close to his profits from those investing Legends like George Soros Steve Cohan and Warren Buffett.

Jim Simons’s hedge fund made a whopping 105 billion since 1988 to 2018 with some mind-blowing 66% before fees and 39% after fees.  His profits at algorithmic approach creates a Revolution impacting not only the financial industry but also other Industries for example there is no professional sports in the world nowadays that doesn't rely on data and quantitative analysis.  Let it be at the industrial or political level.

He later on he established the Simons Foundation for education and he also funded Stony Brook University. 

From the boy that liked to solve math equations, Jim Simons is definitely one of the most powerful and charismatic people in the world.