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

by Gregory Zuckerman

For all the unique data, computer firepower, special talent, and trading and risk-management expertise Renaissance has gathered, the firm only profits on barely more than 50 percent of its trades, a sign of how challenging it is to try to beat the market—and how foolish it is for most investors to try. Simons and his colleagues generally avoid predicting pure stock moves. It’s not clear any expert or system can reliably predict individual stocks, at least over the long term, or even the direction of financial markets. What Renaissance does is try to anticipate stock moves relative to other stocks, to an index, to a factor model, and to an industry. During his time helping to run the Medallion fund, Elwyn Berlekamp came to view the narratives that most investors latch on to to explain price moves as quaint, even dangerous, because they breed misplaced confidence that an investment can be adequately understood and its futures divined. If it was up to Berlekamp, stocks would have numbers attached to them, not names. “I don’t deny that earnings reports and other business news surely move markets,” Berlekamp says. “The problem is that so many investors focus so much on these types of news that nearly all of their results cluster very near their average.”