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

by Gregory Zuckerman

He approached a table that included Rebekah Mercer. She was staring at him. As Magerman got a little closer, Mercer became agitated. She called to him in anger: “Karma is a bitch.”

“You’re pond scum,” Mercer told him, repeatedly. “You’ve been pond scum for twenty-five years. I’ve always known it.”

It’s best if you left the event, Simons told him.

Along the way, he received a text from

Brown: “Best to rise above all this and just live your life without getting caught up in a battle. I honestly think you will be happier.” On April 29, Renaissance fired Magerman.

Mercer also had backed Milo Yiannopoulos, a right-wing provocateur who had called feminism a “cancer,” once appeared to endorse pedophilia, and was barred from Twitter for abusing others.8

At that point, Simons was worth about $23 billion. Somehow, though, each day’s loss felt like a fresh punch to the gut. Part of it was that Simons had made substantial financial commitments to his charitable foundation, which employed hundreds of staffers, and other organizations. That wasn’t really why he was so dismayed, though. Simons knew he’d be more than fine no matter what happened with the market. He just hated losing money, and he was growing anxious about when the pain would stop.

Simons reached for a phone to call Ashvin Chhabra, a Wall Street veteran hired to run Euclidean Capital, a firm managing the personal money of Simons and his family. Simons told Chhabra he was concerned about the market’s outlook. It seemed like a good idea to place some negative bets against stocks, moves that would serve as protection in case the sell-off got even worse. Simons asked Chhabra’s opinion about what they should do.

“Should we be selling short?” Simons asked. Chhabra hesitated, suggesting that they avoid acting until the market had calmed, a course of action Simons agreed to follow. A d...

The goal of quants like Simons was to avoid relying on emotions and gut instinct. Yet, that’s exactly what Simons was doing after a few difficult weeks in the market. It was a bit like Oakland A’s executive Billy Beane scrapping his statistics to draft a player with the clear look of a star.

Simons’s phone call is a stark reminder of how difficult it can be to turn decision-making over to computers, algorithms, and models—even, at times, for the inventors of these very approaches. His conversation with Chhabra helps explain the faith investors have long placed in stock-and-bond pickers dependent on judgment, experience, and old-fashioned research.

The other half of the money was in index funds and other so-called passive vehicles, which simply aim to match the market’s returns, acknowledging how challenging it is to top the market.1

In the years

leading up to 2019, John Paulson, who made billions predicting the 2007 subprime-credit crisis, suffered deep losses and shocking client defections.2 David Einhorn, a poker-playing hedge-fund manager once known as “King David” for anticipating Lehman Brothers’ 2008 collapse, saw his own clients bolt amid poor performance.3

In Newport Beach, California, Bill Gross, an investor known to chafe when employees at bond powerhouse PIMCO spoke or even made eye contact with him, saw his returns slip ahead of his shocking departure from the firm.4 Even Warren Buffett’s performance waned. His Berkshire Hathaway trailed the ...

resulted in a more even playing field, reducing the advantages wielded by even the most sophisticated fundamental investors. No longer could

big hedge funds receive calls from brokers advising them of the imminent announcement of a piece of news, or even a shift in the bank’s own view on a stock.

Ray Dalio of Bridgewater Associates—which is a systematic, rules-based investment firm, but not quantitative—made $1 billion, as well. Israel Englander, Simons’s combatant in the fight over the two renegade Russian traders, pulled in $500 million.7

In early 2019, Ken Griffin, who focuses on quant and other strategies at his Chicago-based firm, Citadel, dropped jaws after he spent $238 million for a New York penthouse, the most expensive home ever sold in the country.

There are reasons to think the advantages that firms like Renaissance enjoy will only expand amid an explosion of new kinds of data that their computer-trading models can digest and parse. IBM has estimated that 90 percent of the world’s data sets have been created in the last two years alone, and that forty zettabytes—or forty-four trillion gigabytes—of data will be created by 2020, a three-hundred-fold increase from 2005.8

recommendations by social media influencers. Rather than wait for figures on agricultural production, quants examine sales of farm equipment or satellite images of crop yields. Bills of lading for cargo containers can give a sense of global shifts.

To explore these new possibilities, hedge funds have begun to hire a new type of employee, what they call data analysts or data hunters,

“Say you’re trying to predict how stocks will perform over a one-year horizon,” Richard Dewey, a veteran quant, says. “Because we only have decent records back to 1900, there are only 118 nonoverlapping one-year periods to look at in the US.”10

The firm’s success is a useful reminder of the predictability of human behavior. Renaissance studies the past because it is reasonably confident investors will make similar decisions in the future.

Another lesson of the Renaissance experience is that there are more factors and variables influencing financial

markets and individual investments than most realize or can deduce.

It’s a bit like how bees see a broad spectrum of colors in flowers, a rainbow that humans are oblivious to when staring at the same flora.

Renaissance doesn’t see all the market’s hues, but they see enough of them to make a lot of money, thanks in part to the firm’s reliance on ample amounts of leverage.

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.

Brown still kept the same manic pace, sleeping in the Murphy bed in his office most weekday nights.

A distinct stoop in Simons’s shoulders accented his advancing age, but he was razor-sharp, asking probing questions and supplying humorous quips throughout the festivities.

Most mornings, Simons woke around 6:30 a.m. and headed to Central Park to walk several miles and exercise with a trainer.

On daylong hikes organized by his foundation, Simons usually led the way, leaving young staffers huffing and puffing behind him. Simons even switched to slightly healthier electronic cigarettes, at least during some meetings, his beloved Merits tucked deep into a breast pocket.

Asked which professional investors students should turn to for guidance, Simons struggled for an answer, a quant still skeptical investors can forecast markets. Finally, he mentioned his neighbor in Manhattan, hedge-fund manager George Soros. “I suppose he’s worth listening to,” Simons said, “though he sure talks a lot.”

Simons shared a few life lessons with the school’s audience: “Work with the smartest people you can, hopefully

smarter than you … be persistent, don’t g...

“Be guided by beauty … it can be the way a company runs, or the way an experiment comes out, or the way a theorem comes out, but there’s a sense of beauty when somethin...