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The Greatest Money Manager of All-Time

In Memoriam of Jim Simons

Jim Simons 1938 - 2024

Last Friday, May 10, we saw the passing of an investor we consider the most successful portfolio manager of all time. 

His name was Jim Simons. He was a mathematician and hedge fund manager who founded the legendary hedge fund Renaissance Technologies. 

There is much to be learned from his story and methods, and we will share those insights this week.

First, though – why do we consider him the “greatest money manager of all time"? 

Let’s put some qualifying statements in there. 

We use the word "money manager" here for someone who deploys capital in securities to generate a return. It is specific to financial instruments. 

The word “investor” can be used for someone who buys companies or hard assets. This is not what Jim Simons did. He exclusively focused on the buying and selling of securities. 

We consider him the "greatest" because he put together a twenty-year track record at his central fund (the Medallion fund) of a 66% annual return.   

He also did this with consistency. This was not a situation where they had one giant year and many mediocre ones. They consistently delivered strong double-digit returns. 

The fund was closed to outside investors in 1993, and they capped assets at $10 billion. In this context, it is estimated that the fund produced over $100 billion in profits for its investors since 1988. 

There are some enviable track records out there by very famous money managers. Those include Warren Buffett, George Soros, Peter Lynch, and Steve Cohen. 

Many of those have made more aggregate money than Simons did with his company. None of them came even close to those kinds of annualized returns with this level of consistency with a substantial ($10 billion!) amount of capital. 

If you were to get those great investors in a room and ask them whether Simons was the most outstanding "money manager" of all, they would likely agree. 

What is fascinating about Simons is that his approach differed from that of all the other money managers. 

Buffett is known for understanding “value,” buying, and holding great businesses for a long time. Soros is known for trading the movements in the global economy, Lynch for buying growth companies, and Cohen for a diverse group of trading strategies. 

Simons? He did one and only one thing – MATH. 

His background was originally as a mathematician. Math fascinated him from an early age, and he had quite an accomplished academic career. After graduating from the Massachusetts Institute of Technology (MIT) in just three years, he went to Berkeley and got his PhD by the time he was 23 years old.  

From there, he went to teaching stints at MIT and Harvard and even worked at Princeton on breaking Russian codes during the Vietnam War. 

Simons, though, developed an interest in the financial markets. He didn’t get his start until he was forty years old when he quit academia and opened an investment firm in a Long Island strip mall. 

Initially, he traded like many others, looking at the news and fundamentals to assemble his hypothesis. He made some money, but he found the entire process incredibly stressful. 

As a brilliant mathematician, he also began seeing clear patterns across the financial markets. These patterns repeated themselves and were not “random.”  They were not perfectly predictable, but you certainly could identify probabilities.  

The combination of his mathematics background, his view that there were clear patterns, and his desire to make money AND avoid stress led him to explore putting together automated trading systems. 

He also had considerable insight into the fact that human psychology interfered with investment success. As he said, he wanted to build "A pure system without humans interfering." 

Simons took an approach that focused on the data and what could be measured. 

One common misperception is that this means he would be a "technical" trader. Looking at just a few variables, such as price and volume, like most technical analyses. 

That is wrong. One of the key differentiators to Simons’ investment approach is that he looked at ALL the data! 

Analyst expectations may have a poor track record of predicting what will happen in the future. Regardless, however, most investors still pay attention to them, and they factor into THEIR decision-making. Changes in them also factor into their reactions. 

Simons' approach may or may not care about those analysts’ opinions. Still, they did care if there was an ability to identify a pattern in them that could produce a higher probability situation. 

Another way to say this is that Simons took "opinions" out of the investing process and focused exclusively on the DATA. 

They wanted to understand how and why something worked the way it did, but by far, their primary (99%?) focus was that it worked that way. 

For us, this is the greatest lesson from Jim Simons' spectacular career, one that any trader or investor can use. 

In building your process, focus on what DOES work. Sure, it is essential to understand the "how" and "why," but the "does" is the most critical part. 

Don’t worry about the opinions of other investors, analysts, the media, etc. Find a process that works. 

Once you identify what works, incorporate it into your plan. Constantly test and retest that plan to make sure that it is still working, but then stick to it. 

Much of our process is built on the same framework as Simons, and we think he would agree with our favorite motto… 

“Plan the Trade and Trade the Plan.” 

Who do YOU think is the greatest money manager of all time? Send us your thoughts via email at [email protected] or in the comments section on our website. 

Enrique catches up with his old friend and colleague Herb Greenberg. They talk about the glory days of TheStreet.com, short-selling, Herb’s new (awesome) platform and some great common sense investing advice

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