The video presents the remarkable story of Jim Simons, a mathematician who became an unparalleled force in the trading world, surpassing legendary investors like Warren Buffett and George Soros. Through his company, renaissance technologies, Simons utilized algorithms and data science to generate consistent and extraordinary returns, particularly through the medallion fund. Despite hiring people unfamiliar with investing, Simons’s approach to utilizing vast datasets and scientific methods changed Wall Street forever.

Jim Simons's career trajectory highlights his non-traditional path, beginning as a brilliant mathematician, code-breaker, and academic, before daringly venturing into finance. Despite personal tragedies, his resolve and innovative mindset propelled his firm’s success. His belief in algorithm-driven trading systems allowed Renaissance to excel, achieving unprecedented success despite early challenges and the company's initial size constraints.

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Key Vocabularies and Common Phrases:

1. renaissance technologies [ˌrɛnəˈsɑːns ˌtɛkˌnɑːlədʒiz] - (n.) - A prominent hedge fund company founded by Jim Simons known for using advanced mathematical models to trade. - Synonyms: (none)

Simons’ company renaissance technologies has a signature hedge fund called Medallion that has generated average annual returns of 66% for 30 years.

2. medallion fund [mɪˈdæl.jən fʌnd] - (n.) - A highly successful and secretive hedge fund run by renaissance technologies, known for its extraordinary returns. - Synonyms: (none)

The medallion fund posted gains after fees of 58%

3. algorithms [ˈælgəˌrɪðəmz] - (n.) - A process or set of rules to be followed in calculations or other problem-solving operations, usually by a computer. - Synonyms: (procedures, formulas, recipes)

Harnessing the power of vast data sets, computer models, and algorithms to make decisions, inspiring a revolution that has swept Wall Street.

4. quantitative finance [ˈkwɑntɪˌteɪtɪv ˈfaɪnæns] - (n.) - The use of mathematical models and computational techniques to analyze financial markets and securities. - Synonyms: (financial engineering)

Translated to the realm of quantitative finance, the weather data becomes financial data such as stock prices and trading volumes.

5. code-breaker [koʊd ˈbreɪkər] - (n.) - A person who deciphers cryptic messages, often for military or intelligence purposes. - Synonyms: (cryptanalyst, cryptographer, decoder)

Neither was working as a Cold War code-breaker.

6. econometrics [ˌikəˈnɒmətrɪks] - (n.) - The application of statistical methods to economic data to give empirical content to economic relationships. - Synonyms: (economic statistics, statistical economics)

Back then, it was called Monemetrics, a play on money + econometrics, the use of statistics and math to study economic data.

7. non-disclosure agreements [ˌnɒn-dɪsˈkləʊʒə əˈgriːmənts] - (n.) - Legal contracts preventing parties from sharing certain information. - Synonyms: (confidentiality agreement, secrecy agreement)

Employees are bound by non-disclosure agreements, ensuring they remain silent about the coding and algorithms Renaissance uses.

8. interdisciplinary approach [ˌɪn.təˈdɪs.ɪˌplɪn.ər.i əˈproʊtʃ] - (n.) - A method of problem-solving that integrates knowledge and perspectives from different disciplines. - Synonyms: (multidisciplinary, cross-disciplinary)

Simons demonstrated the power of interdisciplinary approaches, merging mathematics with financial markets.

9. subprime mortgage crisis [sʌbˈpraɪm ˈmɔːgɪdʒ ˈkraɪsɪs] - (n.) - A financial crisis that occurred due to high-risk mortgage loans and the subsequent housing market crash. - Synonyms: (financial crisis, housing bubble burst)

RIEF weathered the storm of the 2007 subprime mortgage crisis triggered by high-risk loans.

10. profound insight [prəˈfaʊnd ˈɪnˌsaɪt] - (n.) - Deep and thorough understanding of a difficult problem or situation. - Synonyms: (deep understanding, perceptiveness, wisdom)

The grief of losing a child caused Simons to throw himself into his work. In order to master the art of trading stocks, he needed more help.

Jim Simons: The Mathematician Who Revolutionized Financial Markets

When it comes to investing, nobody holds a candle to Jim Simons: Not Warren Buffett, not Steven Cohen, not George Soros. Simons’ company renaissance technologies has a signature hedge fund called Medallion that has generated average annual returns of 66% for 30 years. To put this another way, renowned economist Bradford Cornell points out that if you had invested $100 in Medallion in 1988, 30 years later, that would have turned into $398.7 million! What’s even more remarkable is that Simons hired people who didn’t know a thing about investing! Is it true that you never hired people from the investment industry? Never (laughter). He hired mathematicians and scientists, just like himself.

While traditional investors rely on their intuition to make trades: chatting with executives, analyzing earnings reports, gleaning insights from articles, and considering geopolitical events, Simons walked a different path. As a trained mathematician, he believed markets moved in logical ways. So, he took a scientific approach to investing. Harnessing the power of vast data sets, computer models, and algorithms to make decisions, inspiring a revolution that has swept Wall Street. This is the story of how a mathematician became the greatest trader who ever lived.

Jim Simons is always restless. Building a storied career as a brilliant mathematician wasn’t enough. Neither was teaching at MIT and Harvard. Neither was working as a Cold War code-breaker. He left Harvard to join an elite research organization that helped America’s most secretive intelligence agency, the NSA, decode Soviet messages during the Cold War. But the work didn’t satisfy him. As his first wife Barbara recalled in Gregory Zuckerman’s book, "The Man Who Solved the Market," “Jim understood at an early age that money is power.”

Growing up as an only child in Brookline, Massachusetts, near Boston, his family doctor encouraged him to consider a career in medicine, remarking, "You're a bright Jewish boy, you should be a doctor.” But when Simons shared his passion for mathematics, the doctor replied, "Look, you can't make any money doing that stuff." Simons always wanted to be rich. When he was fired from his code-breaking job for protesting the Vietnam War, he wanted to join an investment bank. He had three young children to support, including a son who was born with a rare hereditary condition that affected the development of his skin, hair, sweat glands, and teeth. But, he opted to stay in academia for the time being.

He was offered a job heading the math department at Stony Brook University on Long Island at the age of 30. While it wasn’t as renowned then, here he was at the age of 30 with the opportunity to shape his own mathematics department. While at Stony Brook, he developed a mathematical theory that is foundational to the work of Microsoft and other companies to create special quantum computers designed to tackle challenges beyond the reach of current systems, including in AI. As his professional life took off, his personal life suffered. He and Barbara were young when they got married, he was 21, she was 18. They divorced, and she headed west to complete her PhD in computer science at UC Berkeley.

A few years later, a lingering urge nudged Simons to leave academia and venture into the world of finance by starting his own investment firm. His father thought he was making a huge mistake by leaving a tenured position. Mathematicians were shocked and felt he was wasting his talent. But Simons was always unconventional - evidenced by small gestures like not wearing socks because they took too much time to put on. At the age of 40, he left his position at Stony Brook to open up a small office in a strip mall across from a train station near the university. And so began renaissance technologies in 1978.

Back then, it was called Monemetrics, a play on money + econometrics, the use of statistics and math to study economic data. Just as he once unscrambled enemy code, he aimed to decode hidden patterns in the market. Simons remarked to Zuckerman in his book, “There’s a pattern here; there has to be a pattern.” He didn’t care why the patterns existed, just that they did. Renaissance began by trading currencies, commodities, and bonds but avoided stocks due to their complexity; there are so many of them and each stock is influenced by the unique circumstances of its company.

Simons envisioned a trading system fully guided by algorithms with no human input. Let's say you want to know what the weather will be like tomorrow. You feed a computer the information you have temperatures, and humidity levels. The computer model processes the information to predict tomorrow’s conditions. An algorithm then advises you on whether to carry an umbrella. Translated to the realm of quantitative finance, the weather data becomes financial data such as stock prices and trading volumes. The weather forecast becomes a market forecast. And the advice on what to wear translates to a trading decision.

On the other hand, a traditional investor might try to predict the weather or the markets based on subtle cues in their environment like how much pain they’re in because of their arthritis. As much as Simons dreamt of this kind of trading system - computers in the eighties weren’t sophisticated enough to handle a fully automated system. So, at the start, Renaissance relied on math models AND human intuition to trade…which proved problematic. His code-breaking colleague Leonard Baum who now worked at Renaissance liked to buy low but often clung to positions too long, like in 1984, when he heavily invested in U.S. bonds. But as the Reagan administration began issuing so many bonds, prices plummeted.

Simons recognized the limits of human judgment and brought in James Ax, a friend from his PhD days at UC Berkeley whom he recruited to Stony Brook to build more sophisticated math models for trading. The team collected data from as far back as the 1800s, feeding them into computers, to uncover overlooked patterns. Simons told a colleague: “If we have enough data, I know we can make predictions.” Simons and Ax launched a new hedge fund, Medallion, in honor of the prestigious math awards they’d received. It would eventually become the most successful hedge fund of all time. But at first, it struggled to make a profit.

It didn’t help that Ax isolated himself in his seaside estate in Malibu. His preference for the West Coast led him to spearhead his new company Axcom, a separate entity yet closely connected to Renaissance. The turning point came when Elwyn Berlekamp who had worked to crack codes with Simons bought up Ax’s part of the business. He rebuilt the system to focus on short-term trades which Ax had resisted due to concerns over commission fees. Berlekamp figured “If you trade a lot, you only need to be right 51 percent of the time.”

Many investors prefer long-term trades, a sentiment Zuckerman describes in his book this way: “...like fishermen ignoring the guppies in their nets, hoping for a bigger catch.” Unlike these investors, Medallion honed in on these 'guppies' — seeking to capitalize on subtle inefficiencies that others overlooked. Don’t give up easily. Stick with it. Stick with it. Not forever, but really give it a chance to get where you’re going. The final principle is: hope for good luck!

After a decade of adjusting their algorithms aided by improved computer processing power, Renaissance turned the corner in 1990. The medallion fund posted gains after fees of 58%. But Simons believed they could do even better; he wanted 80% returns. Berlekamp thought he was crazy and it all became too much for him - he returned to teaching at UC Berkeley. Simons bought Berlekamp’s share of the company. Axcom, which had been a separate entity, disbanded. Going forward, it was just renaissance technologies.

Simons beefed up the team some more. Henry Laufer, a mathematician from Stony Brook, divided the trading day into five-minute intervals instead of hourly, allowing Renaissance to quickly detect and act on even shorter-term price changes. Their models were so successful at making trades that they trusted their computers to make decisions that didn’t even make sense to them.

There was however one issue. Renaissance was still very small. It only managed $45 million after ten years in the business, a quarter of the assets of rival firm D.E. Shaw. David Shaw was also using computer models to trade. AND - he was trading stocks, unlike Renaissance. Simons knew that if he wanted to truly leave a legacy, he needed to start trading stocks. He consolidated all operations on Long Island and was about to embark on a new path when tragedy struck. Simons’ son Paul, who had battled a birth disorder, was cycling in Stony Brook when he was struck by a car and killed.

The elderly driver was so traumatized by what happened that she died of a heart attack a few days later. The grief of losing a child caused Simons to throw himself into his work. In order to master the art of trading stocks, he needed more help. Simons recruited Robert Mercer and Peter Brown, renowned for their groundbreaking work in transcribing speech into text at IBM. They saw language as a probabilistic game where some words likely follow others. For instance, after "chocolate," "milk" is more probable than "cheese." Similarly, Simons wanted to design a system that could predict financial market trends.

With their coding chops, Brown and Mercer crafted a single automated stock trading system introduced in 1995 complete with half a million lines of code compared to tens of thousands in the old system. After Mercer and Brown mastered stocks, the medallion fund took off. In 2000, it achieved an astonishing 98.5% return after fees, even amidst the dot-com bubble, showcasing Renaissance's prowess in capitalizing on inefficiencies. Simons rewarded his staff with exotic vacations and bonuses. These computer science nerds who were in it for the challenge, not the money, couldn’t help but reap the financial rewards.

Staff could personally invest in Medallion. Medallion is only available to employees. The fund is capped at $10 billion. In fact, as Medallion grew, it closed its doors to outside investors in 2003 and is only available to employees. The fund is capped at $10 billion. They bought so many mansions in one neighborhood that it earned the nickname “Renaissance Riviera.”

How exactly Renaissance has managed to achieve stunning results is a secret. Employees are bound by non-disclosure agreements, ensuring they remain silent about the coding and algorithms Renaissance uses. Many firms on Wall Street are trying to crack the Renaissance code. JPMorgan Chase makes it mandatory for new investment bankers and managers to learn coding. With advancements in technology and AI, more data sets can be collected and analyzed. Even scrutinizing the tone of voice executives use on conference calls. Monitoring which aisle shoppers spend most of their time in grocery stores. Or analyzing social media posts to gauge sentiment.

Medallion is the most successful hedge fund of all time. The returns are so high that it charges a performance fee of 44%. Simons had achieved everything he wanted to achieve in the world of investing. He thought about retiring. But then…tragedy struck again. His son Nicholas wanted to become a doctor and open a medical clinic in Nepal to help its poorest people. A week before he was scheduled to come home, he drowned while freediving in Bali. Simons had to bury a second child.

For a man who believed so strongly in science and logic, this unbearable loss was a reminder of the inherent unpredictability of life. He threw himself into his work once again to distract him from his grief. Simons launched a larger fund, the Renaissance Institutional Equities Fund (RIEF), which is available to outside investors. RIEF weathered the storm of the 2007 subprime mortgage crisis triggered by high-risk loans given to Americans with questionable credit. In an unusual move owing to extraordinary circumstances, Simons felt the need for human intervention, guiding his team to reduce equity positions and build cash reserves.

Ultimately, Renaissance rebounded and during the turmoil of 2008, Medallion boasted 82% in profits, highlighting the sophistication and adaptability of their trading systems. Having achieved all that he wanted in the world of investing, Simons stepped down as CEO of renaissance technologies in 2009, handing over the reins to Brown and Mercer. Throughout his entire career, Simons maintained a low public profile compared to some of his peers. Yet the spotlight couldn’t help but shine on Renaissance because of its new co-CEO, Robert Mercer.

Mercer distrusted the government, disapproved of the Clintons, and questioned whether humans are the primary cause of climate change. He emerged as one of Trump’s biggest financial backers in 2016 as he felt only an outsider could win the election. The Mercer family also acquired a significant stake in the conservative outlet Breitbart News. Mercer’s daughter Rebekah recommended the head of Breitbart, Steve Bannon, run Trump’s campaign, while Kellyan Conway became a familiar face on TV. Together, Bannon and Conway helped propel Trump to the White House.

On the other hand, Simons was a significant supporter of Hillary Clinton's campaign. Despite their different political leanings, Simons felt Mercer shouldn’t be fired for his political actions. But then, it started affecting business. Renaissance programmer David Magerman was horrified by the election of Trump and expressed concerns about Mercer’s involvement to Zuckerman for the Wall Street Journal. Investors shared similar concerns. When the Baltimore City Fire and Police Employees’ Retirement System pulled $32 million from Renaissance, the firm feared a mass exodus.

Simons suggested Mercer step down. According to Zuckerman, Mercer “looked sad and hurt.” In November 2017, Mercer resigned as co-CEO at renaissance technologies and sold his stake in Breitbart News to his daughters.

As for Simons? With a personal net worth of $27 billion, he can afford to indulge in luxuries, like a $100-million super-yacht. Yet his wealth doesn’t just fund lavish pursuits. He’s donated $500 million to Stony Brook University. Established a nonprofit that provides exceptional math teachers with additional support and started a charitable foundation that, among other pursuits, is dedicated to autism research, a cause close to his heart as his daughter Audrey, with his second wife, is autistic.

The Simons Foundation is also heavily focused on discovering the origins of the universe. Its Observatory under construction in Chile’s Atacama Desert will search for gravitational waves from the Big Bang - hoping to unravel the mysteries of the universe’s first moments. Perhaps history will not remember Simons solely for being a master of markets but as the master of the universe.

Jim Simons would never have become the greatest trader of all time had it not been for his background in mathematics. Strengthening your math skills is invaluable, regardless of your profession. And there’s a FREE way to boost your skills. I highly recommend Brilliant, a website and app where you can learn math, data science, and computer science interactively. I personally take a few minutes out of my day to go through Brilliant’s logic puzzles to improve my analytical thinking. You can start at your own comfort level and then progress to more advanced lessons. And if you get stuck, you can view the explanation to discover the correct approach.

You can try out Brilliant for FREE for 30 days using my link in the description: brilliant.org/newsthink. If you’re one of the first 200 people to sign up via my link will get 20% off, you’ll get 20% off your Premium subscription, unlocking all of Brilliant's courses. Thanks for watching. For Newsthink, I’m Cindy Pom.

Jim Simons, Mathematics, Technology, Investment, Economics, Innovation