Interview with James Simons, Billionaire Mathematician [video]

https://www.youtube.com/watch?v=QNznD9hMEh0

by Jupe • 11 years ago

163 63 11 years ago

melling4• 11 years ago

For people who enjoy this video, I recommend this book:

http://www.amazon.com/The-Physics-Wall-Street-Unpredictable/...

Simons is mentioned but he refused to be interviewed for the book. However, it covers the history that leads up to the current day.

It's interesting that Simons' fund is pure algorithmic trading. No one decides that a position is too big, for example. Humans are out of the process after they write the algorithms.

dangero• 11 years ago

That is incredibly facinating. The way he talks about the quant models in the interview they sound simple in comparison to his prior work. My suspicion is that mathmeticians are involved in the front end model creation purely to create efficient ways of finding performant models but the models themselves are pretty mundane. The idea of purely data driven models is fascinating because it's generally rejected as too limited and inefficient. I wonder what types of anomolies they have discovered and what data sets they find useful. Also how does historical simulation work when the computer models you were competing against 10 years ago are so different than now?

melling4• 11 years ago

His fund is one of the best on the street, and he has been in business since 1982.

http://blogs.wsj.com/deals/2009/03/25/the-hedge-fund-worlds-...

http://www.insidermonkey.com/blog/here-is-why-jim-simons-is-...

burger_moon• 11 years ago

Here's a link without some unnecessary endpoints http://www.amazon.com/The-Physics-Wall-Street-Unpredictable/...

dsugarman• 11 years ago

I am from Stony Brook, he has done a lot for the community including a nice nature preserve but I can not read his name and not be sad. Despite all this money, his life has been very tragic, two of his three children died young, one drowning and one in a car crash.

yownie2• 11 years ago

Not only that, they once funded the collider experiments at a physics laboratory where I worked when NSF had cut funding drastically, we're talking millions of dollars here.

https://en.wikipedia.org/?title=Relativistic_Heavy_Ion_Colli...

http://www0.bnl.gov/newsroom/news.php?a=21314

cherry_su• 11 years ago

Minor correction: he has 3 living children; he had 5, but 2 died. Source: http://www.bloomberg.com/apps/news?pid=nw&pname=mm_0108_stor...

tim_sw• 11 years ago

The full (hour long interview) is here https://www.youtube.com/watch?v=QNznD9hMEh0

dang• 11 years ago

Thanks. That seems covered by the original source rule, so we changed to this from https://www.youtube.com/watch?v=gjVDqfUhXOY.

chollida12• 11 years ago

If anyone is interested in more reading on the history of algorithmic trading, I've posted a screen grab of the top half of one of my book shelves.

Some of this maybe a repeat to people as I often get asked for recommendations on how to get into algorithmic trading.

http://imgur.com/OdzB4aW

http://www.amazon.ca/Fortunes-Formula-Scientific-Betting-Cas... The history of hte first real quant

http://www.amazon.ca/Dark-Pools-Machine-Traders-Rigging-eboo... The history of the rise of algorithmic trading

The phyisics of wall street was mentioned by someone else, great book

http://www.amazon.ca/Quants-Whizzes-Conquered-Street-Destroy... This profiles 4 famous traders including Simons, alos a great book

http://www.amazon.ca/Heard-Street-Quantitative-Questions-Int... A must read if you want to get into quantitative finance.

As always, email if you'd like to chat.

splike• 11 years ago

Do any of the books go into detail explaining how and why successful strategies worked? Historically that is. I wouldn't expect any strategies outlined in a book to be profitable today, but I would be interested in how a strategy was formalised.

gbersac• 11 years ago

Totally agree. A description of his model and how he created it would be awesome !

By the I really enjoyed dark pools. No practical knowledge, but a pleasure to read.

evanpw2• 11 years ago

I've found this blog to be really excellent: https://mechanicalmarkets.wordpress.com. Example: https://mechanicalmarkets.wordpress.com/2015/04/30/market-da...

darkmighty3• 11 years ago

I prefer to pick that sort of thing up from mathematical texts or a textbook.

The principles are pretty simple from a probabilistic perspective: it's just a matter of making inferences from the available information and choosing an optimal course of action from that. Information theory provides a nice framework for this basis, imo.

You can find this introduction (including topics like Kelly's criterion etc) in Cover's Elements of Information Theory, a good introduction to information theory in general if you like.

https://en.wikipedia.org/wiki/Gambling_and_information_theor...

Havoc• 11 years ago

screen grab of the top half of one of my book shelves.

aka a photo?

Pretty cool regardless of name. :)

jason_slack2• 11 years ago

I have some of those same books. Is there anything interesting on the bottom half of your bookshelf?

chollida12• 11 years ago

Sure, here you go http://imgur.com/zdLSEek

mhomde• 11 years ago

Here's another really interesting documentary about the Black-Scholes formula

https://www.youtube.com/watch?v=lmvxZgnwwD4

abulman• 11 years ago

I can also recommend the rest of the Numberphile videos https://www.youtube.com/channel/UCoxcjq-8xIDTYp3uz647V5A - as well as the other channels by the same person.

tfgg• 11 years ago

What I love about Simons is that he's funding to solve the problem of my field, the Many Electron Problem:

https://www.simonsfoundation.org/mathematics-and-physical-sc...

It's so important for physics, materials science and chemistry, but feels so esoteric. It's wonderful that there's someone like Simons with both money and the ability to understand the problem :)

edit: He also possibly implies that the best way to help maths and theoretical physics is to leave the field, attempt to get rich in finance, and pump money back in.

chii2• 11 years ago

It's sad that this is a good way to fund fundamental research. Why is it that finance make more than what seems to be more important and useful like math or science!?

darkmighty3• 11 years ago

Being sad about it is not so useful. You can actually help! Either becoming rich and helping basic science (of course) or voting well and influencing government decisions.

Simons is clearly very talented at what he does, his firm (how it is run, etc) seems quite amazing. And he's "doing" more science this way. It makes an awful lot of sense.

fleitz2• 11 years ago

Because keeping the current people we have alive and happy is also important.

The trick is finding the balance, science and math are probably more important than growing food, until you don't have any food to eat.

mathgenius• 11 years ago

Wow, I love his brooklyn accent. Makes him sound so grounded. I guess Feynman has (had) a similar accent; and i was similarly enthralled hearing his voice (recording) for the first time.

Somehow I always presume these guys should speak with an English accent, like Penrose. Hehe.

davnicwil• 11 years ago

Or Hawking.. oh wait :-)

telcal• 11 years ago

Brooklyn accent?? No, not at all. He grew up in Brookline, Massachusetts, a much different place... and accent!

discardorama• 11 years ago

His Medallion Fund seems to have done really well. From another article:

Simon's flagship fund, Medallion, requires aminimum investment of several million dollars and charges a 5% management fee and a jaw-dropping 44% performance fee. The fund is closed to new investment and has returned an astounding annual average net of 38% (remember, that's after the high fees). Since its 1988 launch, the fund has lost money in only one year, 1989, which saw a drawdown of 4%.

But I have to ask: why limit the fund to multi-millionaire investors? Why not open it to the other investors too and let them benefit for a change? This is just the "rich-getting-richer". If anybody needs a 38% average annual return, it's most certainly not a multimillionaire; it's more likely a middle-class person who could use the gains.

I apologize for sounding negative here, but this inequity is something that bothers me.

proksoup• 11 years ago

I also wonder why those limits exist more generally, not just for this fund.

Maybe those limits affect the timelines on which money is invested and in which it is withdrawn, where-as actually having rules about such things would not work as well.

gech• 11 years ago

Was thinking about this as well. In the interview he talks about the act of making a trade moves the market itself. You can't create too much trading volume or you will have distorted the market so much that you can't trade effectively after. I would imagine he can move and make money at a certain volume (a bank roll of 200 million) and guarantee returns because that level won't distort. But if he had hundreds of billions he couldn't guarantee returns because the moves he would have to make would be so large as to distort the market beyond their measuring. Much like the observer effect in physics, possibly a trader's effect here.

melling4• 11 years ago

Well, there used to be a limit in the number of investors. I think it was only 500 people. Does that limit still exist?

You aren't guaranteed returns. Many hedge funds fail:

http://www.forbes.com/2009/03/18/hedge-fund-failures-busines...

mark212• 11 years ago

first off, there are strict SEC rules on what constitutes a qualified investor. But second, nobody in the hedge fund world wants to hand-hold a bunch of limited partners -- the fewer the better. And if you've got a track record like Simon (and Steve Cohen and Ray Dalio and Paul Tudor Jones and DE Shaw and a few others) then you're likely way oversubscribed whenever you want to open a new fund and as a result can be very picky about whose money to take. Hence the 44% carry.

blue11• 11 years ago

Even if RT removed their limits, there are still government imposed ones (supposedly to protect unsophisticated investors from risk): https://en.wikipedia.org/wiki/Accredited_investor#United_Sta...

RT's limits are much higher though, and that probably is done with the goal of limiting the number of individual investors. Dealing with investors is a distraction for the fund managers. But the main issue is proprietary information. The more investors you have the higher the risk of information leakage to your competitors.

Tloewald• 11 years ago

He states another reason in the interview — if the fund gets too large their models will stop working because their decisions will have too much influence on the market.

evanpw2• 11 years ago

The Medallion fund is a bizarre outlier. For the most part, high expected return => high risk, which is not what you want for a middle-class wealth-generating engine. It would be much better to tax the hedge-fund winners (at the end-point, with a consumption tax), and redistribute that.

nostrademons2• 11 years ago

a.) It's much easier to maintain high returns with lower amounts of invested capital. Warren Buffett has talked about this at length; when you're investing $5M, there are a large number of undervalued opportunities where you can gain outsized returns, but when you're investing $500B, you are the market, and it's extremely unlikely that you'll get above-average returns.

b.) Private capital with a personal relationship to the fund manager is usually more patient. Many public funds have a problem where all the individual investors head for the exits at the slightest sign of trouble, but the best investment opportunities are usually available when everybody else is panicking.

Basically, if you want to do well in investing, you really need to do it yourself, and you need to have an information advantage on everyone else in the market. It's a field that rewards being smarter than everyone else, not being more cooperative.

melling4• 11 years ago

If it was really that easy to identify undervalued companies, you'd think more people would be doing it. I don't think many managers, or individuals, beat the market by a lot, if at all.

nmrm22• 11 years ago

Simons specifically talks about a) in the video, and how this limits them to a niche.

Tycho2• 11 years ago

The Medallion Fund is not only closed to new investors, it's closed to anybody who doesn't work at the firm itself.

The interesting question becomes what are they doing with all the money they make.

bgilroy26• 11 years ago

I would imagine they're reinvesting it

lumberjack• 11 years ago

Maybe it operates in someway by taking advantage of small time private investors.

auntienomen• 11 years ago

Maybe it operates in someway by taking advantage of big time private investors.

icu• 11 years ago

The simple answer to your question is this: regulation.

The U.S. Securities and Exchange Commission (SEC) prevents hedge funds, private equity firms and other private investment managers from marketing their products to a wide audience.

High risk funds, like the Medallion Fund, are limited to fund raising to an exclusive group of investors that must meet the following criteria:

a) those with a net worth of at least $1 million excluding their primary residence, or

b) annual income of more than $200,000 in each of the two most recent years.

The deeper answer to why the SEC does this is: protection of the 'lowest common denominator' investing public.

By and large the investing public are not what you might call:

1) 'professional' (keeping an eye on the market as part of their job), or

2) 'sophisticated' (as in have a knowledge of the multitude of securities, how they work and how to trade them), or

3) Have a high risk profile and matching capacity for loss.

I think these points, from the SEC's point of view, make the selling of the Medallion fund to the general public inappropriate. I would imagine that from the SEC's perspective, the Medallion fund would be a 10/10 risk profile (highly speculative) and therefore the SEC would want an investor to make an investment fully understanding what they were investing in, and having enough wealth to suffer a total loss of money invested.

This leads into another point, the wording of your post implies that the 'astounding' annual average of 38% net of fees is practically a 'sure thing' when you say that since the fund's launch it took one drawdown in 1989.

However, you miss the obligatory warning that past performance is no guarantee of future results.

Speaking as a retail trader I can quite happily say that for different levels of risk I can make (and have made) the following returns (net of fees):

a) 1% per month with a high level of confidence with what I would call a very low risk trading strategy (annualised to 12% per annum),

b) 2% per month with a medium to high level of confidence with what I would call a medium risk trading strategy (annualised to 24% per annum),

c) 3% per month with a low to medium level of confidence with what I would call a medium to high risk trading strategy (annualised to 36% per annum), and

d) 4%+ per month with a low level of confidence with what I would call a high risk trading strategy.

The point I'm making here is that:

* If you know what you are doing,

* You have the capital (and capacity for loss), and

* You have the risk profile,

Then you can make decent market returns too. Technology has democratised the markets so there really isn't any reason for being negative and bothering about inequality.

You would however have to work for it and if the Medallion Fund are making 82% per annum (38% + 44%) before management fees they are working extremely hard for that.

athesyn• 11 years ago

I always wonder if this type of success what naturally happens when someone this highly intelligent uses all their brainpower for gaining wealth.

adventured• 11 years ago

No, right place / right time / right choices etc still plays an overwhelming role in the wealth generation.

For every thousand geniuses that try to get really rich, there's one Simons or Buffett that pulls it off. You could run a simulation with a large number of people of equal mental capability, almost all of them would fail. Just the broader requirements alone would be enough to instantly flunk most people out of the running (the other skills required that Simons possesses beyond his intellect).

Tycho2• 11 years ago

Information on Renaissance Technologies is so incredibly sparse. It must be a fascinating workplace! It's fun to speculate on the nature of their success (specifically the Medallion fund).

3 possibilitiese spring to mind: 1. Best in class execution on winner-takes-all strategies. Eg. 10 hedge funds all try the same arbitrage trade but only the quickest one make money. 2. A killer app that no one else knows about. Like, I dunno, artificial intelligence... 3. Medallion is just a legend built up to lure investors into their public funds and collect the fees.

Joking on that last one.

What I drew from this interview was that while Simons is obviously incredibly smart, they key thing was that at Stony Brook he learned how to put together a team of other very smart people, and that more than any individual financial insight has generated his success in investing.

jgalt2123• 11 years ago

For me, James Simons, is first and foremost a tax dodger.

Renaissance Technologies LLC used contracts with the banks to establish the “fiction” that it wasn’t the owner of thousands of stocks traded each day

http://www.bloomberg.com/news/articles/2014-07-21/renaissanc...

vixen992• 11 years ago

As elsewhere in these comments: tax dodging is an obligation for any intelligent person.

"No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue"

Lord Clyde gave this famous quote (in taxation circles) in the case of Ayrshire Pullman Motor Services v Inland Revenue [1929] 14 Tax Case 754, at 763,764:

jgalt2123• 11 years ago

except for the fact that the tax dodging services Barclays helped enact for Rennaissance were illegal.

matthewwiese• 11 years ago

Anyone happen to have a transcript or alternative site to view the video from? I'm stuck behind the GFW without a VPN, and I'd love to watch this now as opposed to waiting until I get back to the States.

orthoganol• 11 years ago

Just sign up for a free trial for Astrill. Being in China without a VPN is insanity.

lmg643• 11 years ago

Also engaged in one of the most ridiculous tax dodges of all time. Uses a "derivative" with his brokers that allows a bunch of short term trades to be taxed at long term capital gains rates.

http://www.bloomberg.com/news/articles/2013-07-01/simons-str...

laichzeit0• 11 years ago

Are you implying that he shouldn't do this even though it's not breaking any laws?

vixen992• 11 years ago

Nothing ridiculous about any legal interpretation of tax laws that allows one to minimize one's contribution. It's common sense. Even more so given the outrageous way in which government wastes the revenue it gets.

Lord Clyde gave this famous quote (in taxation circles) in the case of Ayrshire Pullman Motor Services v Inland Revenue [1929] 14 Tax Case 754, at 763,764:

yownie2• 11 years ago

He was also part of the team that audited Lucifer an early precursor to DES, that Steven Levy mentions in his Crypto Wars book.

argumentum• 11 years ago

Also worth reading about is his co-founder & the former chief scientist at renaissance, Nick Patterson. If there's anyone whose literally a "mad scientist" he's it (in a good way). A close friend of mine at MIT collaborates with Nick, and when we asked why he left finance to return to academia he said "well, James is into boats and he wanted a bigger one". Nonetheless, both great guys.

http://www.nytimes.com/2006/12/12/science/12prof.html?pagewa...

Interview with James Simons, Billionaire Mathematician [video]

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