BOOK REVIEW: The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution

One of the books that I highly recommend on the Global Stock market and trading is “this book” that I am also writing my latest blog on. This book tells about the birth of ‘Quant based Trading’, which I most enjoy! Quantitative or Quant based Algorithm Trading is also my forte and expertise as a financial investor. But more about that later. Let’s dive deep into the book called “The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution”

More than 3 decades ago, Jim Simons decided to dig through mountains of data, employ advanced mathematics, and develop cutting- edge computer models, while others were still relying on intuition, instinct, and old- fashioned research for their predictions. Simons inspired a revolution that has since swept the investing world.

Quant finance or Quantitative finance —is greatly reshaping the investment industry today. This book is about this shy billionaire, Jim Simons, who taught Wall Street how the investing game is played by applying modern technology, big data, and lots of brainy people.

But first about the author – the book is written by Gregory Zuckerman, who is a special writer at the Wall Street Journal. Zuckerman writes about big financial trades, hedge funds, private-equity firms, and other investing topics. And it is due to this reporter’s persistent efforts that this book and the story of Simons’s secretive hedge fund, Renaissance Technologies – actually saw the light of day. Forbes puts Jim Simons’ fortune at above $21bn, leaving other hedge fund magnates and financiers such as Ray Dalio, George Soros, and Stephen Schwarzman behind. The author estimates that Renaissance Technologies has generated over $100bn in trading profits since 1988 — more than any other hedge fund in history-making millionaires of many of its employees, and several billionaires.

But Simons and his strategies are super secretive. To date, Renaissance Technologies gets its employees to signs a 30-page iron-clad non-disclosure agreement. What’s more, they are rumored to be able to double their money every 15 months! Also, an exceptional lesson for investment professionals – the most truly skilled investment managers privatize their returns; they do not “want or need your money”. And so Renaissance had other investors invest into its Fund called the Medallion for only the first 5 years – a post which the Fund became the exclusive reserve of Renaissance’s owners and employees. When it notched up its first $1m one-day profit in 1990, Simons handed out the champagne — but $1m one-day gains quickly “became so frequent that the drinking got a bit out of hand”, according to Zuckerman. Today, it wouldn’t create a murmur at Renaissance’s headquarters in the US, let alone the clink of champagne glasses.

After a legendary career as a mathematician and a stint breaking Soviet codes, Jim Simons set out to conquer financial markets with Quant-based Algo Trading. But Renaissance’s outsized returns flowed more from Simons’s deft management of the hundreds of number theorists, quantum physicists, and AI (Artificial Intelligence) PhDs under his command rather than from his formidable mathematical genius. (Notably, the firm generally avoided hires with finance backgrounds). Simon’s talent was to spot, nurture and harness beautiful but often combustible minds such as James Ax, Lenny Baum, Elwyn Berlekamp, Henry Laufer, Peter Brown and Robert Mercer.

Over the year’s however, the Renaissance also embodies how money and power are accruing to an increasingly small number of people. The choices that these people make can change the world! While Simons has become one of the world’s biggest backers of scientific research and philanthropy — and a host of Democratic politicians — his former colleague Robert Mercer funneled his billions into the far-right Breitbart News, Steve Bannon, Cambridge Analytica and the election (victory) of Donald Trump. Companies formerly owned by Mercer and now in the hands of his daughter, Rebekah played key roles in the successful campaign to encourage the United Kingdom to leave the European Union.

One Renaissance employee, David Magerman, was fired for objecting strongly to Mercer’s politics, an episode that shone a bright light on the “organizational glue” that held Renaissance together: the ability of its employees to invest in Medallion, perhaps the greatest “employment perk” known to humankind. When Magerman sued the firm over his discharge, Renaissance settled by granting him the effortless wealth offered by access to Medallion.

Coming back to Jim Simons, his pioneering methods have been embraced in almost every in­dustry, and reach nearly every corner of everyday life. He and his team were crunching statistics, turning tasks over to machines, and relying on algo­rithms more than three decades ago— long before these tactics were em­braced in Silicon Valley, the halls of government, sports stadiums, doctors’ offices, military command centers, and pretty much everywhere else fore­casting is required.

With many more such interesting details, this book is a page-turner and appeals to both ‘Stock Market Minded’ and the regular reader who just wants to know more about how this world operates. “Gregory Zuckerman lifts the lid on the most fascinating man in financial markets…superb reporting,” says Financial Times. Don’t miss reading this one or you can also hear the Audible of The Man Who Solved the Market (book read by the author), which is equally fascinating!

References

https://www.google.co.in/amp/s/amp.ft.com/content/868d0902-f0b4-11e9-ad1e-4367d8281195
https://blogs.cfainstitute.org/investor/2020/05/01/book-review-the-man-who-solved-the-market/
https://www.amazon.com/Man-Who-Solved-Market-Revolution-ebook/dp/B07P1NNTSD

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