markets speculation and risk this is the chaplet traders podcast hosted by Erin Fifield what's up welcome back here we are for episode 183 featuring is Gregory Zuckerman a writer at The Wall Street Journal and the author of several books his latest release pain the man who solved the market how Jim Simons launched the Quandt revolution and that is the very reason why he's here today for anyone unfamiliar Jim Simons is the brilliant minded mathematician who founded hedge fund Renaissance Technologies using quantitative models and with billions in AUM Rene sonses averaged annualized returns of net 39 percent since 1988 these returns only become more spectacular once you actually discover that Renaissance investors pay a management and performance fee of five and forty four therefore bringing the gross annualized returns to 66% due to the fund superior performance today Jim has an estimated net worth of twenty three billion dollars Greg describes him as being the greatest money maker and modern financial history although journalists have previously covered the rise of Renaissance for the longest time much of it was still shrouded with mystery but by gaining remarkable access to Jim and also many of the people around him Greg has been able to now tell the full story in print with detail and accuracy if you'd like to pick up a copy of the man who solved the market it is available now just make your way to chat with traders comm slash Symons which will take you straight to Amazon now I know Gregg has been doing a bit of media lately as the book has just come out he's done several other podcasts and he's been featured in many online publications and deservedly so but fingers crossed you'll hear something new during our chat about Jim and how he reached the pinnacle of trading success hopefully I'm also aware that the audio is a bit scratchy at times sorry about this though I'm sure you will manage just fine and that is that let's jump across to the interview Harry's Gregory Zuckerman probably a good place to start this conversation is why did you actually want to write a book about Jim so I've been at The Wall Street Journal 23 years I've written a few books and have a range of interests but the one story that I always wanted to do the one story that hadn't been written was how Jim Simons became the greatest investor slash trader in history and part of the reason I wanted to do this project is because I knew it was gonna be a big challenge I had approached Simons over the years at least once and he didn't have any interest in sitting down with me sort of a fewer financial report or financial writers or the great white whale this is the one you wanted to capture so I for whatever reason thought this was the time to write it in and frankly he's getting older and a lot of his colleagues are getting older and if it wasn't now it wasn't gonna be done in five ten years I don't think anyone could write this story so now was the time I just imagined it being such such a huge undertaking because he's renowned for the his say Chris a and the whole fund is renowned for its sake Chris a I just imagine it would have been really ambitious setting out to take this on yes so I agreed to do it and I got an advance as a writer you get a book advance and most writers ninety-nine percent of them go and cash their check but we don't exactly have a lucrative profession so you have sizeable check you cash it but I had mine on my desk in my downstairs office and suburban New Jersey for months and I wouldn't cash it because I wanted the ability to return it because I wasn't sure I could pull this thing off and eventually the accounting department of Random House penguin Random House that the accountants were kind of like well what's going on with that we got a discrepancy here dude this cash his check is in cash and that's pretty unusual and they came to me and I was like yeah I'm not sure I can do this so I did get comfortable I finally got in touch with people who would talk but for months I was concerned that I wouldn't get enough for this book and then I broke through so tell me about that because I know this is one of the things he highlighted in the beginning of your book how reluctant and how I guess in some ways it was surprising how to the extent of how reluctant people close to Jim and his colleagues etc how hesitant they were to actually speak with you well I wasn't surprised but it was quite difficult this is the most secretive firm the financial industry has ever seen has ever dealt with they aren't from the industry they're not people that went came from other firms they're generally speaking academics they work there make a lot of money and then go back into academia and they generally don't have any incentive to talk and they also are bound by pretty pretty sophisticated non-disclosure agreements and beyond that they all love it respect Jim Simons and Jim Thomas doesn't want anyone speaking as I mentioned in the book I had interviews scheduled with some of Simon's competitors and these are billionaires in their own right often and people work for them etc but keep in mind these arrivals these are but should be enemies competitors and on the eve of those meeting I was told so sorry Greg have to cancel my the meeting with you I can't talk to you because Jim asked me not to talk to you and which is again pretty curious given that their competitors why should they care that Jim Simons is a want them to talk but people who work for him people who used to work for him people even compete with him don't want to get on his bad side and part of it is because they have respect for him part of it is they fear him a little bit this is the greatest trader in history he's got a powerful firm you kind of don't want to get in on his bad side so for all those reasons right from the beginning I was told don't waste your time on this book but but I was lucky enough to get some people who did talk to me and their stories were just compelling it was a lot of drama early on in the in the firm's history and I figured and I knew he Simons himself had gone through a lot even before he started Renaissance even before he started Renaissance you could write a book about that period quite honestly and people will read it in my book so III did have this breakthrough where I got enough people to talk early on that it gave me it encouraged me gave me hope I wasn't sure I could get others to talk but at least I had some hope and how did you get the opportunity to actually speak with Jim himself so eventually I think Simon's realized that wasn't going away I spoke to people he grew up with I spoke to people he was colleagues with people he was in school with family members and one point when I did get to speak to him I showed him a picture and he didn't really recognize the photo of my phone it was one of the homes he lived in growing up so I think he got the message that I wasn't going away and also that I was serious about it and I wanted to tell the story accurately and I made it clear that you know if I don't do it someone else is gonna do it and probably may not take it as seriously but for me I'm pretty obsessive maybe not to the level of the math of it I dealt with and I did recognize a new brand of character what when dealing with these people there they are a different breed where I don't know I would share a paragraph or two that I've written with with the mathematician and they would get all upset correct you can't write this how do you write this what kind of research do you do pretty critical stuff and at first I was pretty insulted you know I've been doing this for a while I didn't think it was all wrong and then we dig into it and basically 5% of what I wrote was inaccurate and it was inaccurate it needed to be changed but that's kind of why I sent it to them so we could we could discuss it and see what was wrong so they are a different breed they are obsessive about details and accuracy even more so than I am but you know you learned to deal with that and I think Jim realized I take it seriously I wanted it to be accurate and not be frivolous and so he eventually decided to talk they'll let I do need to be clear he didn't address things he didn't want to address he didn't give me secrets and I said to him Jim you can lay out your best algorithms in front of me I'm not gonna understand them but nonetheless he he didn't want to do that so he was very clear about what he did and what didn't want to speak with but he gave me enough he talked a lot about his early period and his evolution as an investor and as a person he talked a lot about his later periods of his life and I got enough about how they became what they are how why Renaissance is the greatest investment power that the financial industry has ever seen how Jim Simon's made twenty three billion dollars and why they've got returns of 66 percent a year for the since 1988 how many times did you get to speak with him was it just the one softball were there a couple times so we end up speaking in person about five or six times and I'd say each time was about an hour and a half or so so I got enough smoke I breathed enough smoke from his cigarettes to qualify for having having interviewed him and and it was it was a it was a privilege because he's a fascinating character he's not a perfect individual he's made mistakes some people can hold their things against them but net-net pretty impressive and he's done a lot both for the investing world obviously but society at large that's also quite impressive that you got that much time with him as well that's a it's a little bit surprising actually I can be persistent and definitely I wasn't going away he you kiddo and maybe you know at some point I yeah part of him wanted to tell his story he's got a remarkable story and again even if he had never traded a single equity or or bond her commodity contract he'd still be worthy of a book in my eyes he's got a really interesting life just in terms of his accomplishments in mathematics he was a code breaker he's trying to cure autism today he's trying to figure out the origins of life he's a big big political involvement he's an interesting guy so I think part of him most of him didn't want to speak and even as of a few months months ago he said he doesn't want the book coming out but part of it must have really also wanted to share some of his accomplishments and perspective yeah I was gonna ask you about that cuz yeah that's what you've said in the beginning of the book is that he asked you not to publish this or to go ahead with the book and put it out I mean how do you feel about that does it put you in a bit of an awkward position as a writer if you're told not to write something it's a little bit of kin to a young person you know told not to touch a stove you kind of want to touch it a little bit more so I am not out to make friends I'm out to tell an accurate story so the fact that Jim didn't want me to write his story on a personal level III sounds a little bad for him I guess but my job is to deliver for my readers so my audience I bought for most and I needed it to be accurate and they deserve to hear his story I mean these aren't state secrets at the end of the day I'm not jeopardizing the nation's security so these people and they take themselves quite seriously and they have accomplished a lot but let's be honest here they're trading stocks and other kind of investments so the fact that Jim didn't want me to write the book he's a very nice guy and in generous individual so I you know I I feel for him to some extent but you can't trade in the size that he does and his colleagues do and you can't manage money for institutions and others as they have over the past decade or so obviously the medallion finest is for their own money but now they take outside money and she can't take outside money and expect not some level of scrutiny so that's my job sure that makes sense I understand we coming from there let's hear a little bit about Jim's life prior to Renaissance as you've already mentioned he led quite a outstanding life even before he went full-time into trading you know he had a pretty accomplished academic career so yeah just tell us a little bit about life before renascence sure so Jim Simons is someone an individual who is especially smart mathematically inclined he did MIT Massachusetts Institute of Technology one of the top undergraduate programs he did that in three years he got his PhD from a top school began teaching he taught at both MIT and then later at Harvard and was popular and respected and was on his way to a career in academia but he always had sort of this outside interest and he's a really unique guy an individual and we could all in some ways learn from him but it's hard to emulate him because he has talents sort of in both worlds the the quantitative world of the mathematic world he is as complex as anybody he was a geometers and his accomplishments really did rival almost anybody that world but he also had the talent has the talent of dealing with people and interacting people he so early on and he's got us sends an interest in business not so he didn't really have an interest in trading until he played with his money and he played with some of the money he got from his wedding his wedding gifts but then he gave that up he couldn't do both it was difficult to really pull off both so he really focused on academia but he always had this pull that very few other people in that world in the world of mathematics world of academia had and he had a pull to make money and it's really this like unvarnished appetite for wealth and some people close to him thought he wanted the money the wealth to to be able to change the world and later he has been able to do that a little bit in terms of politics and philanthropy but others just didn't understand that drive and really couldn't figure out why he had that interest in making money but he really did so he had these two interests he had this interest in academia and mathematics and again his he won awards that the Oswald Veblen prize in geometry which is the top he eventually was elected National Academy of Sciences so he rivaled almost anybody in that world in the world of geometry and there's still some they're still citing him chern-simons is an accomplishment which very few people can match it's he did work with jingshan a churn and it's something called that Syria of characteristic classes and and and turned Simon's is a theory that is cited over and over again in academic papers till to this day so again these it had an impact in physics that he didn't realize would have but it did but so his accomplishments were pretty remarkable but he always had this pull always had this interest making money trying to figure out ways to trade on the side he'd get distracted he'd come back so I find it kind of fascinating that he had one foot and he kind of acknowledges as much sort of that in one foot in both worlds and then eventually got into code-breaking we can talk about that as well okay yeah sure let's let's hear a little bit about that because that's quite a significant part sure so he in the early 60s was again teaching at Harvard and was a little bit unhappy wasn't making enough money had these debts that had piled up he and his father had borrowed money to invest in a business and South America which was doing okay but it wasn't really thriving so they needed to pay down their debts he was teaching extra courses on the side to make money but he had this focus on getting wealthy and first his initial focus was just paying down his debts so he had an opportunity to go work for a division of the National Security Agency in 1964 he went and did that and for four years he was on the staff of something called the the ce c rd the communications research division it's a division of the institute for defense analyses basically it's connected with Princeton and they do work for the government and what they were trying to do at the time was break Soviet code and it was challenging because they were going through a difficult period of the time where they hadn't been able to really break code and he was a tremendous success there and he rose the ranks and he could have run the whole thing but he found himself on the outs he had spoken out about Vietnam and he did it in a public way he wrote an article I wrote a letter in the New York Times and his superiors weren't thrilled with that so eventually he lost that job quite an opinionated interesting person it underscores that theme so originally his academic he goes and breaks code for the government in the United States government in the Russians is quite successful but loses that job and then he begins a different job a position running mathematics department at Stony Brook sorry Burke University and that was in 1968 and each step along the way he developed new skills so at and when he's working for the government he just he figured out he learned he was really educated in creating algorithms and that's what how they broke code they used mathematical models for the first time he learned how to do that again that kind of led to his future success and what happened at Stony Brook University was he led this department that really was struggling no one really had heard about the school and he built it up and he did that by finding and wooing and luring Talent talented individuals to come and work for the school and again those were new skills and new towns that he had to develop and it's it really set the groundwork for his eventual ferb because his firm I'll talk about how he went and started to trade full-time but eventually he was somebody who hired the best talent from all over the country and convinced them to leave sometimes cushy jobs sometimes really respected positions in academia and elsewhere to go take a chance on this firm he started called Renaissance technologies so each step along the way in academia code-breaking mathematics he developed skills that eventually led to success now one of the things you highlighted a couple times there was he had a pretty strong motivation to become wealthy you also mentioned that he had you know borrowed some money and he wasn't sort of happy with the money he was making what was his financial situation like during this period in his life and I just think that's an interesting question to ask because we know Jim Simon's today is worth 20-something billion dollars but where did he actually start out from like what was his financial situation like before Renaissance came into the picture sure so he was born and lived outside Boston in the city of Newton and his firmly middle class his father was someone who worked in a shoe factory it was his grandfather's Jim Simon's grandfather's shoe factory Jim someone's father went and worked in the family business it's his father-in-law's business and was always a little bit disappointed in his life this is Jim Simon's father I'm talking about Maddie he had opportunities elsewhere he was in the film industry for a little while it was a thriving growing industry and he was loving it and due to family obligations he felt compelled to go and work for his father-in-law in this new business and he thought I was gonna get equity and he never forgot the equity and he basically that was a lesson that Jim Simon's learned that you should follow what your passion and he decided when it comes to Kem's to my own life Jim Simon says I'm gonna do what I love and it what he loved was mathematics and again he was middle class the the factory the family factory was successful but not not tremendously so and then he went into academia and he was like any other academic got paid like an academic when he worked for the government he's a little bit better but we're not talking about wealth whatsoever and he did have this hunger this real desire so people think of Jim Simons as this remarkable success and he is but I don't think people pay enough attention or are aware and I spent a lot of time in my book focusing on how much he overcame and how he struggled for years I mean until passed his 40 years before youth birthday he still had it figured out could really understand how to trade how to make good money he was still investing like a macro kind of tourists using his instincts and intuition and reading the news and trading off that even though he's a mathematician it took a while for him to become a quant and to modeling to use algorithms so it's it's sort of a lesson of both the importance of resilience and having confidence in oneself but also how difficult it is to be a yeah that's one of the things which I find so fascinating about Jim is that he didn't completely focuses attention on trading like he didn't go full-time in to train until he was like 40 years old I mean when you think about German and how much he's accomplished to know that he didn't start until he was 40 it's it's quite amazing yeah it's funny I've written this is my third book and if whatever reason all those who've accomplished a lot in my books are people that Pat did it past 50 or 40 and it's a nice reminder that there's greatness ahead if you haven't reached at that age you still can so when it comes to Jim Simons and I I write it in the book he really had a series of ops that goes in difficulties and it could have flamed out a bunch of different places along the way and given up he really could have given up and it took this resilience and innate confidence in himself and his colleagues and he was able to motivate them hire the right people keep them focused on the job figuring out how to solve this this challenge this problem of trading algorithmically and developing the proper model they eventually did but it could have gone in another direction yeah well let's get into that a bit more about the early days of Renaissance like what was some of the early wins or some of the stumbling blocks which but you know they came upon who was some of the first people that he hired what were their roles like you know just interested to hear a little bit more about the roots how this started when Simon started he decided to become a trainer full-time start a firm to do that his first hire was a guy named Lenny Baum he was an American mathematician who was pretty famous in in various circles of mathematics he developed the bound Welch algorithm which helps in terms of predictions and various areas and some people even cite it as part of the reason things like Google can operate the way it does and other predictive methods and he's a guy who went to Harvard and got PhD from Harvard as well as an interesting guy gentleman that they work together when they were breaking code for the government so he knew Baumer smart he knew he was talented he can but but that meant no interest in trading and time after time in my book Simon's will find top scientists mathematicians and say hey come work for my trading firm and they have no interest whatsoever what do I know some trading well I don't care about trading there were even these people don't even hunger for money really they're not people that always wanted to be wealthy and BOM was one of it he was an academic but it was the challenge it was the idea of yes you've accomplished a lot in academia see if you can now solve this riddle and the real being a market and you know trading is among the most challenged to griddles and there's been an existence and that's what captivated Lenny Bao so Dom got curious about markets in simon's sparked that curiosity and together they started building a system and early on it had some success they called it the the piggy the piggy model because it bought a lot of hogs well they weren't doing equities back then and for whatever reason it bought a lot of hogs and at one point and it was going pretty well but at one point it it was early you could really see it as an early form of AI machine learning it started the model taught itself in some ways and then it started loading up on potatoes and before they knew it they had cornered the market on Maine potatoes potatoes from the state of Maine and regulators called and they were upset and it disrupted the markets and Simon Starr was kind of humorous he's a funny guy actually and got a good view on life but the regulators did not see any humor in there so they find him and they lost millions of dollars on the escapade and eventually both Simons and Lady Bob just said you know enough of these models it's just not gonna work let's trade like everybody else let's read the news let's analyze economic data they hired this consultant named this economist named Alan Greenspan we're not to do big things they tried to get news and react quicker than other people they were like anybody else that's the irony here's a mathematician genius borderline genius Khanna gee ometer and he was training like I would you know and my basement kind of oh I read a piece of news and some some politician made an announcement so I'm gonna go quickly by yourself and you know they made a lot of money they lost a lot of money net net they actually did quite well let me bow though became a little headstrong and determined and and stubborn and he and Simon's sort of do their own trading of their own accounts and eventually had a falling out and net net they made money but it was just too hard emotionally on Simon's and he couldn't take it he's like I can't trade this way anymore maybe I'll make money but emotionally I can't handle the ups and downs and feeling like an idiot one day and on top of the world the next and physically he had some issues with his stomach back in college I write about in the book and they were recurring now so he had to find a different approach and to do so he brought in a different academic who he had come across again he had the advantage of dealing with real superstars when it comes to the world of mathematics and so he brought in a different individual named Jim axe another American mathematician he was he all he did some groundbreaking work in terms of algebra and numbers theory he won the Cole prize in number theory which is one of the top prizes in that area and once again and had no interest in trading or investing until Simon's told him about it and and kind of put the challenge to him and axe left academia I he was at Stony Brook and joined Simon's firm and once again it worked for a while and they did algorithmic trading but they developed a computerized models and Simon's wanted it to be automated just we're talking this we're now we're in the seventh the 1970s at this point in early 80s and and then until like sort of the late 80s they they tried they make they tried to work on it and eventually his real character are not fascinating individual in his own right Jim axe and he moved out to California and want to get away from people and brought part of the firm there and they struggled and it made some money lost some money eventually they had a falling out so there it was Jim Simons in 1987 didn't really have much hope for his firm he had it had it worked with a couple of superstar academics so he didn't have any reason to think it would work going forward but he brought in a different individual named Ellen Birla camp who managed to help turn this thing around and while my book is really about Jim Simon's it's just as much about the people around him the people work there the people he dealt with colleagues staff members and others who in their own right are I found one thing that I found surprising is how many of them are just fascinating accomplished characters in their own right so I was very lucky as a writer that it wasn't just a book about Jim Simons it was about these are the real carrot colorful oddballs in their own right and so it sounds like there was a lot of up and downs to this point was there like is this something you can pinpoint like a key turning point that turned Renaissance around and sort of put it on the projectory to be the superstar fund that it's become yeah it was the shift by Birla camp at the helm Simon's was always sort of around helping dealing with investors giving guidance hiring making some key decisions but he was also doing things like venture capital and that's why they call it Renaissance Technologies he had some interest in different businesses and he's one of these guys with a lot of different interests in life so he was focused on his firm but he had other things going on too and he would hire people to help run the firm and step in and guide them but he was off doing other things so I really did give a lot of credit to a mathematician named elwyn berlekamp who was known for his work in computer science and coding theory and combinatorial game theory again pretty well-known person in those areas of mathematics and he's a guy who just doesn't even didn't even trust he died last year unfortunately but I had the privilege of spending a lot of time with him he's a guy doesn't even trust financial markets not even sure he believes in capitalism he thinks that markets are kind of rigged then he's suspicious of them and yet Simon's got him to leave academia to try to figure out what to do how to turn around their key hedge fund which was called medallion at the time and it was a shift the turning point was in 1988 or so and it was a shift to shorter term trading and the idea that it's just too hard to make these large outside bets outside that's that some will write something else gonna go wrong and but when they go wrong they could really sink you and they decided to turn their firm into something of a of a casino where if you can get it right most of the time even if it's just 50 or 51 or 52 percent of the time that's enough if you trade frequently enough and it's not to say they don't do longer trading but on average back then and it's continued today they hold investments their positions for about two days on average sometime they get confused with these flash traders and my frequency they're not high frequency their medium frequency and that all changed in 88 when Birla camp started running the firm he only did it for a year he got in a fight with Simon's like a lot of these other people I write about it in my book and he said I'm going back to academia and quite frankly Birla camp and the others who left didn't think that Simon's and medallion and Renaissance would go on to make history they thought it was a successful firm and maybe would go on to be profitable but no one had a clue that Simon's could keep improving things and that's pretty starting start that was startling to me as well I mean these were people who could have stayed or kept their interest or fought to keep an interest in adalian and they did well enough and they left and they made their millions but they didn't suspect that medallion could be what it was I mean Birla camp had a fight with Simon's at one point he said because time and said I think we can make I think was to 80% a year and Birla Kem's come up saying come on there's no way we can do that Jim that's preposterous and they he left and Simon said you know what I'm gonna run this place and the rest is history [Music] let me ask you just a real quick question how long was it until Jim made his first billion dollars that's a good question so the turning point was in 1988 and they started this they were small for years they were small they couldn't get much backing from investors even though quants were just getting going some firms like DE Shaw 1989 1990 Simon's couldn't get many people to back him institutional investors or others I described a scene where Donald Sussman who was one of the backers Adi Shaw and a super smart guy in his own right Simon's came to Sussman asking for money for the firm and Sussman liked Simons thought he might be successful but didn't have an interest in investing he was already backing Dee Shaw when it worked out so for a while Jim and his colleagues didn't invest much money so they could make that much then the turning point was sort of when they got into equities and that and figured out equity so it took them years to figure out equities but there's a cap in terms of how much in a um you can have CI can say a um for your audience most people I can say a om so there's a cap when it comes to the futures world and commodities and bonds and currencies it's just so much these are some of those corners of those markets are just too small you can't manage tens of billions and that's what Simon's wanted to do because again he won huge well he wanted to become the guy who solved the market and you couldn't really do that just by managing commodities and such so equity was the key and it took them years to do it but I finally turned the corner in 1996 and started allocating much more to it to they're they're fun but also to equities and then that was really the turning though that that's when huge wealth wealth started piling up for Simons and the late 90s right right okay now you said just before and I'd love to go in this a little bit more if we could you spoke about they often get confused as like a fund that just does high-frequency trading you know in and out without it when it's in seconds and minutes etc but you said that they they tend to hold most positions for an average of two days and a could be described as a medium frequency operation so I mean can you give a little more insight and this is obviously what everyone wants to know a little more insight to the strategies that they are running and you know that their actual approach to the market sure so what they do today and although we're fast-forwarding to today it's not dissimilar from what they did even a decade ago so it's okay to discuss it they've built on what the accomplishments of a decade or so ago and I write about it in the book but the principles in the approach are similar they do fast trading but it's not super fast and it's not for lack of trying they actually looked into being a fast trading and high frequency and it didn't work and the irony is you know you think of Jim Simons and they are cutting edge it's in a lot of ways but when it comes to technology if not they're not the most sophisticated firm believe it or not people internally kind of joke about it yeah they're high-powered and they've got great technology and computers etc but there are firms with much more power and they looked at high-frequency stuff and they they're not one of these people that can do it millisecond type trades they look for patterns in the market everything is about path patterns that might repeat and these are all based on relationships among equities yes they still do bonds and and debt investments and commodities and they make money there but the bulk of their it profits come from equities and the way they invest is they holds four thousand or so stocks long and there's four thousand or so short so it's a version of statistical arbitrage in pairs trading but much much more sophisticated that's really a just a simplistic way to look at it these are trades that yes I said that the average a holding period of about two days they do trade much more frequently but that's usually when they're establishing positions or getting out of position so they'll do rapid-fire trades to put on a trade they'll break up the trade so that will seem like they're really rapid-fire high-frequency type operation but those are again just just getting into positions and yes some are a little bit longer they'll do minutes to two months is the way they describe it but on average is a two days and what they've discovered our relationships among equities and they'll trade they're never looking they've never outright betting on a stock or even a group of stocks to go up or down it's all groups of individual stocks and larger segments of the market in relation to each other in relation to an index in relationship to a factor it's pretty sophisticated stuff and they increase the it's become much more sophisticated so it's not like they've discovered okay every Tuesday morning at 10:00 a.m. the market always goes up people always think of it that way not like that there are principles that they've discovered and they're all based on historic patterns of the market but the one takeaway one of the one of the many takeaways in the book is that we are just not aware of all the factors affecting the market that we should be and they have a sense that there are more that are just not we just can't see I liken it to sort of a bee that looking at a flower can just see many more hues then you and I can just looking at that same flower there that bee they can see other things affecting markets and they trade on them but they have so many more advantages that it's not just about where things are going they've got much better system of evaluating their impact on the market they've got a much better system of evaluating the risk they know one to put on leverage they've got the ability to put on lots of leverage that other people don't have and they can do it at moments where they have more opportunity they hire much better talent partly because there are Renaissance partly because they come from the world academia they know who the talent is they're talking super stars every firm nowadays says oh yeah we've got you know PhDs but it's not just of course with PhDs these are people who dominated their fields be it physics be it astronomy and they also have this real emphasis on data that needs to be discussed they were pouring through they were collecting data much earlier than anybody else I started liking it too the amount of data they have is comparable to let's say let's say I were to say to you okay how long would it take you to start a library like a local library well you know I don't know a few months maybe to get a decent library going on your corner kind of thing getting enough books etc but what if I were to say to you okay now build me the United States Library of Congress the Smithsonian Museum in other words artifacts historic artifacts that no one can get their hands on and they've got that data it goes back to the 1700s and 1800s and they don't usually use this data frankly it's sometimes it's no making very curious they check it out that compare stuff but basically they're looking for patterns and we as investors we repeat our behavior is one of the conclusions from the Renaissance and Jim Simon's experience and they're better able to than others to identify these patterns that sometimes the average person or most the times can't really pick up on you mentioned data there what was perhaps some of the most obscure data sets that you you heard that they were collecting the data they collect it's not so much they started off with pricing data and they had it before others it's more sophisticated more detailed then it goes back much much much further but they also early on began developing and collecting a database that includes other kinds of data and it includes everything everything you could imagine they've purchased and they've scrutinized and that's weather patterns that's all kinds of economic data behavior shipping etc anything you can imagine they've got and they've poured through and they figure it out and if that even so much that they have better than others but they've been scrutinizing it for longer and they have a better ways of looking for four different patterns so it's better data it's older it's more sophisticated but they've also been dealing with it much much longer did you hear about any areas of mathematic mathematics come on even say the word yeah yeah yeah did you hear about any areas of mathematics or specific methods of modeling which commonly been used inside of Renaissance I think Markov models is maybe something that gets mentioned a little bit in the book you know it maybe that's it or is there something else which you heard popping up a few times so the math they use is sophisticated and it's it's not what an average investor we're used but other quants share some of these approaches things like as you said Markham miles but also the kernel method is a it's a it's an approach to AI and and and that they were doing that early on so you do have to give them credit for their in that regard they weren't doing simple regressions they were doing more sophisticated approaches and again it's it's it's sophisticated stuff but it's it's or its earlier than other people in terms of things like again the kernel method which is a you know a class of algorithms for for pattern analysis so they were doing that but I have to emphasize that people don't feel recognized I don't think that it's how they manage as much as anything else and how Jim Simon's manages so it's not so much as genius I like to say and I think I even quote someone in my book saying at someone who works with sent with Jim it's how he manages genius so he incentivizes people gets them on the same page like no one else he's really a management marvel in some ways he's a rare breed sort of its world class mathematician who learned early on how to recruit and manage star scientists and mathematicians and few quants share this ability to motivate employees keep them on the same page so it's his ability to manage genius as much as his genius itself he attracts top talent few people defect he's got his open architecture they they share work like nowhere else they've got one model anybody in the firm can see the code there aren't corners of the code that are available only to the most senior people like some tech firms and others there's no there's only one model unlike some some firms they all share they all can work they could all can pick apart and they're encouraged to think about each other's working and they can see each other's work and that open architecture I think it's a advantage so because they don't lose as many people as others they make a lot of money they've got these they've got these documents these none can be documents and others so they don't fear the loss of talent and the loss of intellectual property like other firms and as a result they can share more than others they're less fearful that employees are going to leave arrivals so they embrace this open architecture and even allow you know junior employees to see every line of code which is pretty impressive yeah yet absolutely what you're talking about here is it's quite insightful it's very interesting as well and you know it's it's a little bit surprising that you were able to kind of get this information as well as Renaissance is so renowned for their secrecy was there anything that you uncovered that surprised you or you didn't expect to discover so I was surprised that I eventually could explain to the reader some key breakthroughs how Bob Mercer and Peter Brown figured out equities they had some stumbling blocks and they were able to figure that out I think I outlined for the reader I tell the story of how they had approaches that really others couldn't match I haven't been able to match yet some nuances how they do things like hiding their signals and trade in the market in a way that people can't pick up on little nuances so there's no I I guess I did come into the project thinking wild there's just one huge secret that I'm hopefully gonna find and for a while kept me up at night God what what is that secret what is that one secret that Jim Simon's knows that no one else knows again maybe it's you know at 4 o'clock on every Wednesday there's an order that he places it there's nothing like that it's a it's a collection of a good 20 or 25 secrets I would say and it's things like keeping a cap on the fund they have limited competition they've got these great cost risk and impact models is having this collaborative culture stuff they that I thought I hadn't really focus on that kind of stuff but there are nuance as to how they trade and how they find signals and the fact that they don't mind non-intuitive say no stable trade and it's not true places like 2 Sigma and some other big quant forms they will trade signals that don't make any sense whatsoever and you do worry about that as a trader most again most rivals won't do that and but they are scientists and if they decide that there's a enough of a convincing data they're scientists it's the story really in some ways is a is a reminder of the importance of the scientific method and not letting store you're not getting carried away with stories and you see it time and time again investors make that mistake you look at what's happened with with we work you look what happening with uber with with the company after company where it's a story and you get carried away even sophisticated investors get carried away with the story fair enough etc you look at the present United States it's all about instinct and intuition and and God and the Federal Reserve to some extent - it's ironic to me and almost sad that some of the biggest and most important decisions in the world get made are made based on intuition and research and I've become much more of a subscriber to the view that you need to embrace the scientific and Pro approach testing using data not being swayed by your intuition and your your instinct and it's hard it's really hard I mean I tell a story I mean what you talk about what's surprising to me one of the most surprising things to me was learning that last year at the end of last year Jim Simon's panicked and the market was going down if your memory and thousand 18 the market was going down and Jim Simon's was on vacation on his super yacht somewhere and he started panicking about the market because he's got a lot of money still in the market and he's got a huge family office and he has these huge philanthropic commitments he's got one of the biggest foundations in the world and they've got huge ambitions so the market was tumbling Jim Simon's picks up the phone he calls his financial advisor we should put on some some short here we should get some some some some protection and his advisor says well Jim you know maybe let's wait here he is Jim Simons the quantum elk wants the hero in the quant world and he wasn't using quantitative analysis he was investing like he had back in the 80s using his intuition and instinct and and emotion and that's and he's the one who takes advantage of emotion he and his his colleagues are trained to do so so it's hard to be a quant it's really hard even for quants and in the end he didn't panic and it all worked out fine but I was just struck by if Jim Simon's can panic that who isn't liable to panic and have fear and it's important to just remember to stick with the model and with the data and with a scientific approach and it's hard yeah we will have moments of vulnerability yeah even Jim Simon's yeah yeah that's sign something um what's jim's level of involvement in renascence today so it's a fascinating thing that he makes about a billion dollars a year billion and a half give or take you know hundred million he ride revealing there and he hardly ever goes in the office he's pretty good pretty cushy position there where you only have to go into the office and you make a billion and a half dollars so he's still in touch with them and he from a management perspective he's the one who else did Bob Mercer Bob Mercer was the co-ceo and was doing a really great job and an interesting character in his own rate he became involved in politics he helped put Donald Trump in office and Jim Simons is a left-leaning guy he he was third biggest supporter of Hillary Clinton in the 2016 presidential campaign and and yet he liked Bob Mercer on a personal level and he liked him also because bombers was very successful and he made Jim Steinman's a lot of money so simons was really torn what to do and you can't fire someone for their politics he decided and he didn't but eventually he became such a divisive character within the firm I'm talking about Bob Mercer and I write about it in the book that morale was being impacted and Simon's had to step in so he had a tough conversation with Bob Mercer and forced Mercer to step down he's still there but he's not running things so Simon's will get involved with those kind of bigger decisions but in terms of day to day Simon's has really focused on philanthropy and trying to change the world while cashing his checks that's something I wanted to ask you you know as we spoke about earlier on in this conversation Jim was someone who you know had a drive to become very wealthy and he became outrageously wealthy what's he done with his money what does he do with it so Jim Simon's runs one of the largest foundations in the United States charitable foundations and he does a lot of interesting things with that money he subsidizes every public school teacher in math and science in the in New York State and she does that with about ten thousand dollars each and does that so that they'll stay as teachers he believes in the importance of math and science and he thinks we've lost too many people from that world to private industry as I kind of point out in the book Simon's and Renaissance are among those who do that hiring and so he has himself to blame but he wants there be more better teaching of math and science so he subsidizes all these public school teachers with considerable amount of money he is that the forefront of autism research he's got dozens and dozens of scientists he funds to make progress and there are some drugs in the pipeline hopefully they're successful that will help those with autism he funds research on the beginning of life and how this universe began the first moments and whether the Big Bang was was truly how things began or not he does all the kind of scientific and healthcare related research math for America which tries to encourage mathematics education in the United States Stony Brook University education etc so he does a lot of really good things with his money oh so you know we speak about Jim Simons making a lot of money from renascence obviously there were other people involved in some of them we've spoken about who else made a lot of money from this venture like and how does their wealth compared to Jim's people don't really focus on it but the average individual there their average researcher they just como researchers or maybe they're on the other side of the business elsewhere in the business is pretty darn wealthy in their own right so a guy like David magaman who I write about in my book who spent a good a decade or so at the firm and was senior but he wasn't the most senior person when he left the firm he had enough money to become one of the largest philanthropists in his own local community he's probably worth a good 50 to 100 million dollars and again this is somebody who was senior and important and made contributions but never ran the firm wasn't a top you know five people at the firm so there's remarkable amount of wealth there and increasingly you're seeing the impact in various areas be it in philanthropy or elsewhere of secondary type people and the people who run the firm have a lot of impact so Bob Mercer who was the CEO co-ceo for a number of years and is a billionaire in his own right he it was the top a supporter financial supporter for Donald Trump he got involved with conservative causes he helped in terms of making brings it a reality he was the person who put Kellyanne Conway and Steve Bannon in the Trump campaign stabilizing it in a really difficult tumultuous period in the Trump campaign and one can argue that there's really no one more important then bombers are in terms of putting Donald Trump in the White House so you're seeing an impact from these different characters within Renaissance so it's not just Jim Simons this might be a little bit controversial but what do you know about Jim Simons and the Paradise Papers Lake I read something when I was doing a little bit of prep this discussion that we're having here and it went something along the lines of his act his net worth had been reported in Forbes I'm not sure what year this was maybe early 2000s has been a certain amount I think it was around about eight billion dollars at the time and then this paradise papers leak came out and it turns out he's got another eight billion dollars or so in a tax haven offshore in Bermuda I don't know how much truth is in that but what do you know about ya the Paradise Papers and Jim Simons so the paradise paper is revealed that Simon's is wealthier than most people assumed I add up all his money at being twenty three billion dollars I'm very comfortable and confident of that number and in terms of the Paris papers and the offshore money he has a lot of money offshore but he's not the only one and frankly I didn't find anything nefarious about it did he take advantage of tax benefits for sure but there's nothing nefarious it's and frankly almost all that money offshore is going to go into his foundation at some point it's dedicated to his foundation so at some point we'll be given away I do write in the book about their use of really aggressive tactics to convert short-term profits to long-term profits and thereby avoiding billions billions and millions of dollars of taxes both the firm and the individuals themselves and I think they're gonna lose this case so the United States eventually found out about it and is challenging their use of these tax returns and I think Renaissance and Symons are going to lose this case they're gonna have to write checks for billions of dollars I mean Simon's will still be worth tens of billions of dollars but I think they're gonna lose that case so yeah I do fault them or at least I critique them for converting I mean here he is Simon's talks about how the government people don't support the government perhaps enough he's left-leaning he's believes maybe taxes should go a little bit higher and yet he and his firm were so aggressive in avoiding tax payments so one can fault him in that regard but generally speaking the offshore money I didn't find really that trouble yeah I just thought that was incredible that he'd been quoted in Forbes as being worth however much and then all of a sudden it comes out that he's also got you know another eight billion dollars or whatever it is offshore and his actual net worth is like double what everybody thought it was you know yeah then there was a time when someone was cleaning his couch and they found a couple hundred million dollars and then in the corner there - yeah you need the guys really Bobby but uh he hasn't it's different than you and I but right for years people internally kind of giggled about how little Forbes listed him each year and people internally - there are other people here al fried and talked about Bob Mercer Peter Brown there were all billionaires and yet it was hard for Forbes and other people to realize this isn't the most secretive firm and a group of individuals were just secretive unlike anybody else so that's kind of why I wanted to do this book shed some light on them explain how they made their wealth maybe we can learn from them or just be entertained by their exploits yeah well I gotta say on a personal level I appreciate you for writing this book I mean I was I was pleasantly surprised to hear that there was a book coming out about Jim's story because you know if there's any trader I'd love to learn more about it's it's Jim Simon's I mean it's he's kind of the pinnacle of trading success yeah massive undertaking from you and you've done a really great job at the book um only partway through it but um I'll certainly be finishing this one it was the most difficult project I've ever undertaken I would do these late night sessions typing and trying to figure out and understand and there were a couple times when I heard some noise upstairs I worked out in my basement and I said oh my kids left the TV on again I gotta go turn it off and I go upstairs and there's no TV on and I realized it's the birds getting up in the morning so I just had just worked through the night and I needed to because they were it was a it was difficult to get information from these people but it was also difficult to understand it and to make it comprehensible to people and to write it in the form of a narrative and but I thought it was a compelling story here tale and I wanted to be the one to do so I kept working at it ya know that's incredible man I'm glad you've done it thank you anyone who's listening to this podcast if you want to get a copy of Greg's book you can go to chat with traders comm slash Simons they'll redirect you to it on Amazon off I've set up that link chat with traders comm slash Simons and the book is titled the man who solved the market Greg really appreciate you coming on the podcast man thank you very much oh it was a lot of fun thank you for having me you've reached the end of this episode of chat with traders but rest assured there are more episodes loaded with real market insight and zero hype on the way soon so to stay updated with each great new release subscribe to the podcast on iTunes and we'd love it if you'd leave a rating and review we'll catch you next time unhhhh chat with traders you