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

by Gregory Zuckerman

Subjects, even recalcitrant ones, usually come around.

“The lesson was: Do what you like in life, not what you feel you ‘should’ do,” Simons says. “It’s something I never forgot.”

“Jim understood at an early age that money is power,” Barbara says. “He didn’t want people to have power over him.”

“Bad ideas is good, good ideas is terrific, no ideas is terrible.”

They posited that the market had as many as eight underlying “states”—such as “high variance,” when stocks experienced larger-than-average moves, and “good,” when shares generally rose.

Simons and the code-breakers proposed a similar approach to predicting stock prices, relying on a sophisticated mathematical tool called a hidden Markov model. Just as a gambler might guess an opponent’s mood based on his or her decisions, an investor might deduce a market’s state from its price movements.

Getting fired can be a good thing. You just don’t want to make a habit of it.

“Humans are most predictable in times of high stress—they act instinctively and panic. Our entire premise was that human actors will react the way humans did in the past … we learned to take advantage.”

No one ever made a decision because of a number. They need a story.

Identify anomalous patterns in historic pricing data; make sure the anomalies were statistically significant, consistent over time, and nonrandom; and see if the identified pricing behavior could be explained in a reasonable way.

“We’re right 50.75 percent of the time … but we’re 100 percent right 50.75 percent of the time,” Mercer told a friend. “You can make billions that way.”