Wall Street Journal writer Gregory Zuckerman details the life of codebreaker, polymath, early quant investor and billionaire Jim Simons.
Wall Street Journal writer Gregory Zuckerman – author of The Greatest Trade Ever and The Frackers – presents the saga of mathematician Jim Simons, who started with no grounding in finance but became a transformational figure in financial markets. Through quantitative modeling, data analytics, algorithmic trading and mathematical formulations, Simons’s trading platform became the industry’s most successful franchise, netting a 66% annual return and bringing in more than $100 billion in profits since 1988.
Zuckerman takes a deep dive – with remarkable access to Simons and to his current and former employees – into this larger-than-life story, which investors, traders, quants, mathematicians, finance professors and students will find engaging and instructive.
A New York Times bestseller, The Man Who Solved the Market was shortlisted for the Financial Times/McKinsey Business Book of the Year award. Reviewers praised Zuckerman’s inside perspective and the way he makes Simons’s abstruse world comprehensible to laypeople. For example, Brandon Kochkodin of Bloomberg News wrote, “Zuckerman brings the reader so close to the firm’s inner workings that you can almost catch a whiff of the billionaire’s Merit cigarette.” Publishers Weekly called it “a gripping biography of investment game changer Jim Simons…readers looking to understand how the economy got where it is should eat this up.”
While Zuckerman’s The Greatest Trade Ever provides a superb overview of Wall Street, other books offering insight into Simons’s world include Scott Patterson’s The Quants and A Man for All Markets by Edward O. Thorp.
Zuckerman begins at the beginning: Simons grew up in Boston, attended MIT – where else would a revolutionary quant attend college? – and, in 1959, married Barbara Bluestein while working on his PhD dissertation at the University of California at Berkeley. His 1962 doctoral thesis, Zuckerman notes, earned Simons acclaim and an academic job back at MIT.
Zuckerman takes readers to the Institute for Defense Analyses (IDA) in 1964, where Simons used computer algorithms to break Soviet codes. The author details Simons’s development of a mathematical principle – the Simons Equation – that confirmed him as a significant mathematician. At 37, Simons received the American Mathematical Society’s distinguished Oswald Veblen Prize in Geometry. Step by step, Zuckerman astutely paints Simons as an early polymath and game changer.
Early on, Simons made a decision 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 own predictions.Gregory Zuckerman
The author underscores Simons’s belief that he could trade profitably through mathematical investing – the precursor to 21st-century quantitative trading – by identifying patterns in market prices and conditions.
Mastering Financial Markets
Zuckerman somewhat simplifies – and thus earns the gratitude of non-mathematically inclined readers – Simons’s trading methods, which included data analysis, mathematical formulation, and a belief that patterns existed that he could see but others could not. The latter, of course, is a fundamental tenet held by many traders and by gamblers, too – some astute and some deranged.
‘There are patterns in the market,’ Simons told a colleague. ‘I know we can find them.’Gregory Zuckerman
Simons’s currency trading company lost money early on, but the author discloses Simons’s determination to automate trading and build algorithmic models. Simons sought to incorporate historical pricing data on equities, bonds, commodities, interest rates and currencies into his framework.
Zuckerman details how Simons’s Renaissance trading platform made exorbitant sums of money by tackling the most challenging problems. In 1988, Simons set up the trading fund Medallion, which earned a 39% return in 1991 and saw a 71% gain in 1994. Zuckerman also reports that the firm’s astonishing upfront fees rose from 36% to 44%. The author finds that Simons’s work presaged AI – as programmers developed the platform and incorporated their signals and process mapping, the platform began to teach itself.
Noting the death of Simons’s 34-year-old son in 1996, the author portrays a grief-stricken Simons tackling equity markets with proprietary mathematical models. He summarizes Simons’s automated system as relying on a trading principle of equity prices reverting to the mean. Renaissance excelled in futures trading in the commodity, currency and credit markets. By March 2000, it had made $700 million in profits, but, as the author describes with foreboding, that’s when the dot-com era ended, and the firm lost hundreds of millions of dollars.
Amid what Zuckerman paints as a topsy-turvy business world, Simons’s firm still managed to earn a 99% return by the end of 2000. Simons believed that trading stocks bore some similarities to the mechanics of speech recognition, so his firm used speech-recognition methodologies in trading.
Simons and his colleagues are the ones who changed the way investors approach financial markets, leaving an industry of traders, investors and other pros in the dust.Gregory Zuckerman
In 2008, the housing market imploded. Despite the near-collapse of the entire financial system, the firm’s earnings jumped an incredible 82% that year.
In 2010, Simons retired at the age of 72. His mind-blowing 22-year average annual return, after fees, was 45%. Simons, the author asserts, had amassed a fortune of $11 billion that eventually grew to $23 billion.
Zuckerman notes that Simons wanted to leverage his wealth to improve society: He donated $300 million in awards to Stony Brook University and committed to fund mathematics as well as autism studies. His brainchild, Math for America, seeks to help good teachers remain in New York City’s public school system.
Zuckerman marvels at a man determined to achieve greatness, whether by working in mathematics, breaking codes, building world-class academic programs, automating quantitative trading, funding causes or developing a foundation. Simons’s story is singular, and it turns out to be truly inspirational. Much of that inspiration derives from Zuckerman’s canny explanations of Simons’s more arcane activities, as well as from the author’s clear empathy and admiration for his subject. Zuckerman has written an awe-inspiring work on an awe-inspiring figure.