The Man Who Solved the Market — Gregory Zuckerman
The Man Who Solved the Market — Gregory Zuckerman
He came from academia — not Wall Street. Yet he founded the greatest trading firm in history and pioneered the era of the algorithm. Award-winning journalist Gregory Zuckerman tells the story of Jim Simons — an elite mathematician-turned-investor — in The Man Who Solved the Market. And in this episode, Zuckerman sits down with host Charles Mizrahi to discuss how Simons revolutionized trading.
- An Introduction to Gregory Zuckerman (00:00:00)
- Mathematician to Investor (00:8:13)
- Learning Curve (00:15:32)
- Academic Investors (00:21:27)
- Hitting Stride (00:27:29)
- Cone of Secrecy (00:33:44)
- Gut Instinct (00:40:14)
- Greater Good (00:49:31)
- The Next Jim Simons (00:51:23)
Gregory Zuckerman is an award-winning journalist and bestselling author. In addition to being a special writer for The Wall Street Journal and three-time winner of the Gerald Loeb Award, Zuckerman has written several books that span business and science. His penultimate book (below) tells the story of Jim Simons, mathematician and billionaire fund manager.
- The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution
- The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History
- The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters
- A Shot to Save the World: The Inside Story of the Life-or-Death Race for a COVID-19 Vaccine
Before You Leave:
GREGORY ZUCKERMAN: There’s irony there. The greatest trading firm in history was started by someone who didn’t come from Wall Street. He didn’t go to business school or read Buffett, Lynch and all the books that other people read growing up. He was a mathematician.
CHARLES MIZRAHI: My guest today is Gregory Zuckerman. Greg is a special writer at The Wall Street Journal and three-time winner of the Gerald Loeb Award, the highest honor in business journalism.
CHARLES MIZRAHI: Last year, I had Greg on the podcast to talk about his book, A Shot to Save the World: The Inside Story of the Life-or-Death Race for a COVID-19 Vaccine. Since then, it was long-listed for the FT & McKinsey Business Book of the Year award.
CHARLES MIZRAHI: Today, we’ll be discussing The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution. The book has more than 2,000 five-star ratings on Amazon. I recently sat down with Greg, and we talked about the unbelievable story of a secretive mathematician who pioneered the era of the algorithm — and made $23 billion doing it.
CHARLES MIZRAHI: Greg, it’s great to have you back on the show. Thanks so much.
GREGORY ZUCKERMAN: It’s great to be here.
CHARLES MIZRAHI: You are the only guest that has ever had a second appearance. So, congratulations on that.
GREGORY ZUCKERMAN: It’s an honor and a privilege.
CHARLES MIZRAHI: I want to tell everyone why. I have been a big fan of yours for years. I’ve been reading your work since The Greatest Trade Ever. What year was that?
GREGORY ZUCKERMAN: That was 2010. 2009 for the hardcover.
CHARLES MIZRAHI: Great. I read that book and loved it. John Paulson and The Greatest Trade Ever — he made $20 billion. It’s kind of sounds small in the perspective of time. The next book you wrote was The Frackers. Then, you had The Man Who Solved the Market. And on the last episode you were on, we talked about your book on the COVID-19 vaccine — A Shot to Save the World.
CHARLES MIZRAHI: When I had you on for that book, I said: “I’ve got to have you on again.” Because this is fascinating. Folks, you’re going to love this episode because this is absolutely amazing. The name of the book is The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution.
CHARLES MIZRAHI: So, everything you know about quants and quant trading was started by this guy. And his journey wasn’t a straight line. What is Jim Simons worth now?
GREGORY ZUCKERMAN: It’s $25 billion or so. He’s given away over billions of dollars, but he’s still worth about $25 billion.
CHARLES MIZRAHI: His story is fascinating. He revolutionized trading. More importantly, he’s been able to extract $100 billion-plus out of the market. Is that right?
GREGORY ZUCKERMAN: Yeah, more than that.
CHARLES MIZRAHI: Through 2018, the Medallion Fund had $105 billion in trading profits. And that doesn’t include the other funds that he had. Wow, amazing.
CHARLES MIZRAHI: All right. So, let’s start from the beginning. First of all, our audience should know that Jim Simons does not give interviews. He’s rarely out there and is very secretive —NSA-secretive. And you’ll tell us why. How did you get face time with this guy?
GREGORY ZUCKERMAN: Oh, it was a challenge. He didn’t want this book written. He even asked me not to write it a few months before it was published. I said: “Jim, it’s already being published right now. Sorry.”
GREGORY ZUCKERMAN: I always wanted to write about him for a lot of reasons. He founded the greatest investment firm in history. He is the greatest moneymaker Wall Street has ever seen. I don’t know how to define him. Is he an investor, trader or speculator? Whatever it is, he’s a moneymaker and the greatest of all time. No one comes close to him.
GREGORY ZUCKERMAN: His fund — the Medallion Fund — has averaged 66% a year in terms of returns. And they’ve continued. Even in 2021, they were up over 40% — and that’s after the ridiculous fees they charge.
CHARLES MIZRAHI: Let me put this in perspective. So, from 1988 to 2021 — we’re looking at 33 years — he is mostly charging a 20% performance fee and 5% management fee. So, 5% just for the money to sit there and 20% for a share of the profits. Then, he has a phenomenal year in 2000 — when the markets go bust from the dotcom bubble — and he does 98%. So, in 2001, he charges 5% and 36%. Then, after that, he charges 5% and 44%. Is anyone charging close to 44% of the profits?
GREGORY ZUCKERMAN: No. Over the years, people have tried to come close. But they never keep the returns up. So, they have to cut their fees.
CHARLES MIZRAHI: OK. So, let’s frame this properly. For Warren Buffett, from 1965 to 2018 — a much longer period of time — returns are around 20% if it’s annualized. And after fees through 2018, Jim Simmons is now 40% or close to it.
GREGORY ZUCKERMAN: After those crazy fees. So, remember, you’ve given up about 50% of your returns in fees.
CHARLES MIZRAHI: Well, look, he still has 20 years on him. But 30 years is not statistically insignificant — that is absolutely staggering. George Soros did less than that. But over a long period of time, he did have 32%. Steve Cohen of now-closed S.A.C. had 30% over a shorter period of time. And Peter Lynch had 20%. So, when you put it in context, Simons’ numbers look fake.
GREGORY ZUCKERMAN: Yeah, it’s interesting you say that. Because I always heard rumors, speculation and accusations that Simons and his colleagues were frauds. And after Madoff, I started working on a potential story for The Wall Street Journal about whether Simons, Medallion Fund and his firm Renaissance were making up their numbers. The SEC went in there and looked at them for a while. But there’s no evidence of fraud. They’re for real.
CHARLES MIZRAHI: And also — unlike a Ponzi scheme — they give money back to clients.
GREGORY ZUCKERMAN: Exactly. That’s what people don’t get. After the book came out, I kept getting emails that said: “Greg, you’re a fake. There’s no way they have these numbers.”
GREGORY ZUCKERMAN: What fraud gives back money? Every year they give back all of their profits to their investors — who aren’t even outside investors. It’s only their employees, Simons and his family. It’s not a Ponzi scheme when you’re not bringing in outside money.
CHARLES MIZRAHI: Absolutely amazing. All right. So, let’s start with the man — Jim Simons — who is still living. He’s 83 or so and a chain smoker. Goes to show you, huh? Some people just have good genes. And this guy is a genius right from the get-go. So, take us through it. Before Jim Simons was Medallion, who was he?
GREGORY ZUCKERMAN: Just to give you a sense of his importance before we begin … He’s the original — the “O.G.” as it were. Everything on Wall Street is moving towards being quantitative, automated and systematic. About 30% of all trading is done in some systematic way. But he’s the original. He’s a pioneer — and not just on Wall Street.
GREGORY ZUCKERMAN: In our broader society, predictive algorithms govern much of our lives — Facebook, Netflix and such. He was doing predictive algorithms before they were called predictive algorithms. So, he really is a pioneer — which is why I wanted to write this book. And everybody followed in terms of the returns, methods and approach.
GREGORY ZUCKERMAN: Regarding the earlier question, that’s why even though he didn’t want to talk to me, I persisted and maybe wore him down. Finally, I got a meeting with him to talk about whether he might talk to me. And eventually, I got time with him. So, we spent dozens of hours together, and he told me some fascinating stuff. He didn’t give me the secrets — that kind of stuff I can find myself, and you get some of it in the book.
GREGORY ZUCKERMAN: He has a fascinating life. He’s originally a mathematician and scientist. And there’s an irony there. The greatest trading firm in history was started by someone who didn’t come from Wall Street. He didn’t go to business school or read Buffett, Lynch and all those books that other people read growing up. He was a mathematician — and a good one.
GREGORY ZUCKERMAN: He got his PhD, was at MIT and started teaching at Harvard and MIT. Then, he left to go break code for the U.S. government. That was an interesting and important period in his life. He learned how to build predictive algorithms and code — which became really important later on. And then, he got antsy.
GREGORY ZUCKERMAN: He was teaching and working on his PhD And he always had an interest in trading. He did some trading, but it didn’t work so well. And he was an academic for a while. He was a groundbreaking academic.
GREGORY ZUCKERMAN: I should make it clear that in the world of geometry, he goes down as one of the greatest of all time. And he’s still a well-regarded mathematician. But he got a little bored around 1978. He thought there were patterns in the market that most people weren’t aware of. And he said: “I think I can find these patterns.”
CHARLES MIZRAHI: Let me back up. So, Simons is not your average math teacher. This guy is on the top. He’s an elite mathematician. I think there’s some type of proof that he made. I don’t know what it was called.
GREGORY ZUCKERMAN: A couple of them are still very relevant.
CHARLES MIZRAHI: Yeah, he solved these problems. He worked at the NSA?
GREGORY ZUCKERMAN: It was a quasi-academic group in Princeton that worked with the NSA. And they were going up against the Russians in the Cold War.
CHARLES MIZRAHI: So, what he’s doing here is looking at a whole bunch of data. His job is to figure out patterns in the data and what codes there are — what’s noise, what’s predictive and what’s not. And he’s using his tremendous math skills and brilliant mind in order to take what seems to be randomness and find patterns. Is that right?
GREGORY ZUCKERMAN: It is. He sensed that there was some kind of structure beneath the market’s surface. So, to you and I, sometimes it just looks volatile — maybe even random. Some people believe that it’s random luck. He didn’t. He didn’t believe the market was entirely inefficient. And he figured he could find some structure. That’s what scientists try to do — find a structure where everyone else sees chaos.
GREGORY ZUCKERMAN: It’s a bit like the weather. To the untrained observer, it seems all over the place. Well, he thought there were some patterns — like a meteorologist might find — that others were missing. And he set out to figure out what those patterns were and trade on them.
CHARLES MIZRAHI: I want to point out to our listeners that he didn’t care what the company was. He didn’t care what the fundamentals were, who the CEO was or what kind of widgets they made. He said that in that random noise — the price data on a minute-by-minute or day-by-day basis — he could take what happened, crack the code and create a system with predictive value based on what happened over X period of time.
GREGORY ZUCKERMAN: Yes and no. That was the goal when he started his firm in 1978. But for over a decade, he couldn’t pull it off. And he wanted this systematized approach where he could go to sleep at night and it was trading on its own. And yet, to some extent, he’s like you and I. When you meet him, he’s an interesting guy and likes trading, too. He came in some days and said: “You know what? I think gold prices are going higher.”
GREGORY ZUCKERMAN: So, he was torn between these two approaches: [the systematized approach or] using his instincts and intuition to trade. And he did that pretty well with gold, silver and other investments. But on an emotional level, it was hard on him. The way he described it was: “When I made money, I felt like a hero. And when I lost money, I felt like a dope.” It was hard on him. It was even physically hard on him. He was having stomach problems.
GREGORY ZUCKERMAN: And he said: “I’ve got to find a way to trade that’s not using my intuition and brain power. I could hand it over to an assistant — or computer — to do this kind of trading.” And it took him a while to get it right.
CHARLES MIZRAHI: So, he leaves academia, correct? Was he working at Stony Brook University?
GREGORY ZUCKERMAN: Yeah. And a lot of people were like: “You’re crazy. Why are you giving up a thriving career as an academic and head of a department at SUNY Stony Brook to be a hedge fund manager in some little strip mall in Long Island?” I visited there, and it still looks nowhere close to Wall Street. So, he gave it all up, and people thought he was a fool.
CHARLES MIZRAHI: OK. So, he goes and tries this. After a while, it’s not working and he says: “Wow, I’m a failure.” And he is depressed and lying on his couch. Describe that for us.
GREGORY ZUCKERMAN: He’s not unlike others who’ve gotten excited about trading, have some profits, think they’re on top of the world and then realize they have to give it all back. It’s emotionally hard on the guy. He goes through a few partners and has some conflicts with them. These are super smart mathematicians.
GREGORY ZUCKERMAN: So, his instincts are still to find a systematized way to invest — to find structure and hire mathematicians and scientists. He’s not hiring Wall Street traders or anything like that. And yet, he’s having real difficulties and it’s really hard on him. And he’s like: “I can’t trade this way. I’ve got to find some new approach.
CHARLES MIZRAHI: OK. So, he’s about to throw it all away because he just can’t do this. It’s not working. You describe in the book a point where he’s lying on his couch and looks totally depressed. And they were concerned for his health.
GREGORY ZUCKERMAN: Yes. Now he’s a king, so people can’t conceive of that possibility. But I’ve talked to people who were with him at the time, and he was distraught. Frankly, they were worried about him. He was so emotionally down-and-out. It was a very difficult time.
CHARLES MIZRAHI: And this was in 1978?
GREGORY ZUCKERMAN: Even later. In the late 1980s, it was still a difficulty. He spent a decade or so going through ups and downs. And it was very emotionally hard on him.
CHARLES MIZRAHI: What I find so amazing is that here’s a guy who is 40 years old or so by the time he starts this. And he doesn’t just give it three months before saying: “I’ll put my application back in for Stony Brook, they’ll take me in a heartbeat.” He could have gotten a job anywhere in academia. But he sticks it out for 10 grueling years that suck the life out of him. He kept at it.
GREGORY ZUCKERMAN: Yeah, I completely agree. And there are lessons for all of us. I learned about resilience, persistence and having faith in your approach from him. And it’s important to remember that at the time no one was trading like he was — looking for these patterns beneath the market’s structure. It’s a little akin to technical trading, but it’s on a much more sophisticated level.
GREGORY ZUCKERMAN: Back then, everyone was doing the Peter Lynch approach: “My wife came home, and she’s excited about these new pantyhose. Let me take a look at this company.” He buys and makes a fortune. I’m not disparaging that approach in any way. But Simons says: “I think I have a better one.”
CHARLES MIZRAHI: Right. It went against everyone’s thinking, because short-term trading — holding for two days or less — was considered short-term noise. And they’re right, it is short-term noise. There seems to be no rhyme or reason to the market going this way or that over a short term. And you’re talking about thousands of stocks or financial instruments. But he had the balls to go out there and say: “There is a way to crack this code by getting an enormous amount of data. And I can find it.”
GREGORY ZUCKERMAN: Right, that’s exactly the answer. What he found was — what we call today — “big data.” Back then, they didn’t call it anything. And [he did] what we call “cleaning data” — which means making sure it’s accurate. And I give Jim Simons a lot of credit. He deserves it.
GREGORY ZUCKERMAN: He’s a brilliant mathematician, but he’s also a brilliant executive and recruiter. He finds not just super smart people but people who are have a regional thinking. He finds a guy named Sandor Straus. Sandor Straus was in the computer room at SUNY Stony Brook. He had a dead-end career, but he was really good at collecting and cleaning data and making sure it was accurate.
GREGORY ZUCKERMAN: [The data] went back in history. They said: “Let’s go back decades and centuries and find data. There’s been trading of various financial products for centuries. And maybe it’s relevant to today.” We think everything is new, and we’ve never had anything like it. And they’d argue: “No, actually, there’s some similarities 50, 100 and 200 years ago.” And they looked at commodity prices, gold prices etc. going back decades.
GREGORY ZUCKERMAN: They went back and cleaned it. So, they went to see, for example, why all of the sudden there’s this odd price — where it goes down or up a lot. And sometimes, there’s a reason for it, like it actually moved that day. But other times, somebody entered it incorrectly. And people like Sandor Straus actually care about that stuff.
GREGORY ZUCKERMAN: They also found a guy named Elwyn Berlekamp, another world-class mathematician recruited by Simons. Simons is really good at recruiting. He’s able to persuade you to join his firm even if you have no interest whatsoever. And Berlekamp was the one who said: “Boss, maybe we should be shifting our trading to a short-term orientation, like you suggested.”
GREGORY ZUCKERMAN: And that changed everything for them. Their returns started getting better. They weren’t competing with as many people. Most people back then were long-term [investors], and they said: “We’re going to be short-term oriented.” The whole idea was using this big data and looking for patterns in the past — even going back decades.
GREGORY ZUCKERMAN: But also, they wanted to trade enough so that you were like Las Vegas — meaning you don’t have to get it right more than 51% of the time as long as you trade a lot. So, if you trade rapidly on a short-term basis, get it right 51% of the time and do other things like leverage it up, you can make a lot of money.
CHARLES MIZRAHI: Right. What I found so interesting about this is that he has a competitive advantage, because all of these quants — mathematicians and scientists — would not step foot in the disgustingness of Wall Street. He approached them on an academic level and from the perspective of: “I know the life you’re living. I know you’re not being compensated well and you love a challenge.” And it seems like his interviews — when he had them later on — were like giving a dissertation in front of a PhD board.
GREGORY ZUCKERMAN: Yeah, it’s fascinating. I’ve talked to people who interviewed with Simons or his colleagues. They had no interest whatsoever in working on Wall Street. Maybe there was even a little disdain for Wall Street. These are people from the academic world, like scientists. But Simons has a great way of saying: “Just come over and spend the day with us. You might see it as a challenge.”
GREGORY ZUCKERMAN: And these guys love intellectual challenges, puzzles and seeing if they can beat the system. So, they’d spend a day there and say: “You know what? This is intellectually challenging.” And the competition is greater, obviously. And that is one of their secrets: only hiring from the world of academia. They never hire from Wall Street. So, the people there have no interest in going to Wall Street. And as a result, you can share more.
GREGORY ZUCKERMAN: That’s another one of their secrets: the unique ability to share ideas. Everyone knows what everyone else is working on. It’s an open system. I’ve talked to all kinds of firms on Wall Street — including quant firms — and they say: “We would love to do it the way Renaissance does, but we can’t. We can’t have everybody sharing ideas. People will walk away or take the best ideas.”
GREGORY ZUCKERMAN: They don’t have to worry about that at Renaissance because these are academics. They do well and make a fortune. And once they’ve made a fortune, they’re not going to go start another hedge fund. A lot of times, they go back into academia or start a non-profit. They’re not going to go work for Goldman Sachs. They’ve just made tens of millions of dollars at Renaissance. So, they’re not going to work on Wall Street.
CHARLES MIZRAHI: And some of them were embarrassed by the money they made. They still flew coach — not first class. They didn’t build fancy homes. They were embarrassed by taking money out of the system.
GREGORY ZUCKERMAN: Yeah. I’d say two thirds of my book is about how they made all this money. And then, the last third is about what it did to them. In some ways, it created a rift within the firm. Some people were uncomfortable with all this money. Some are left-leaning and more progressive. Others are more right-leaning and supportive of Trump — like Bob Mercer. There’s a fascinating mix.
GREGORY ZUCKERMAN: There’s also a lesson here in how to manage personalities with all kinds of political opinions and quirks. These are all individualists who are odd in some ways. They’re all real characters. So, Simons is a great speculator, brilliant mathematician and trader, but he’s also a great manager.
CHARLES MIZRAHI: You have stories in here of people driving 20 hours from Boston through storms to come to see him. They say: “I’m not going to do this.” But when they sit down with him for the interview and talk, they say: “Wow, this is interesting.”
CHARLES MIZRAHI: He really knows human character. He knows what buttons to push. Some of these people were barely feeding their families on a professor’s salary. And he suggests: “Wouldn’t it be helpful to make more money for this or that?” And there’s the puzzle, challenge and collaboration. Then, it becomes more about who else is at the firm. Some of these people wanted to work with the people there.
GREGORY ZUCKERMAN: Yeah. The secret to his success — and why Jim Simons is the greatest trader and speculator in Wall Street history — is he combines both sides of the brain. He’s a world-class mathematician … I’m going to read you a little something. So, in the book, we talk about a concept in geometry called holonomy. And I needed to understand it. Don’t worry, readers, I don’t get too deeply into it in the book, but it is a sentence or two. And if I’m going to write a sentence about it, I wanted to understand what holonomy is.
GREGORY ZUCKERMAN: So, I asked him to dumb it down for me. I said: “Hey, Jim, can you define holonomy for me?” And this is his email to me: “If it is helpful, holonomy may be defined as parallel transport of tangent vectors around closed curves in multidimensional curved spaces.” This is dumbing it down for me! So, the point is: he’s a great mathematician.
GREGORY ZUCKERMAN: But he’s also a guy you want to hang out with. You want to have a beer with him. He’s drinks gin and tonics and chain smokes. He’s a funny, witty guy. So, he’s able to understand people and know what motivates them. And everybody’s different. Some of these mathematicians and scientists need a challenge. Others could use a little more money. Others are a combination. Maybe they want to see if they can beat somebody else there. Some people want to beat the market. There are all kinds of motivations, and he understands them all. So, he’s a great recruiter, too.
CHARLES MIZRAHI: So, he builds up a team. When does he start to hit his stride?
GREGORY ZUCKERMAN: I would argue that by 1992, they had mastered the world of bond trading, commodity trading and currency trading. But that doesn’t get you far. Those markets aren’t that big, especially some commodities. There’s only so much money you can make and manage. And he was this motivated guy. He wanted to be the greatest ever. You can’t do that managing, let’s say, $800 million. That might be enough for me or you — you can still buy an island. But that wasn’t enough for him.
GREGORY ZUCKERMAN: It wasn’t just about money, but it was part of the motivation. He wanted to make a fortune so he could affect society. And we can talk about how he’s doing that today. So, the only way to do that is by mastering the world of stock trading — equities…
CHARLES MIZRAHI: Because it’s the deepest market out there. It could absorb trillions of dollars.
GREGORY ZUCKERMAN: Exactly. They spent years working on that and using some of the same approaches. And it didn’t work for various reasons. Their approaches weren’t bad, it was the execution of the trades. In other words, they had these signals. They found ways to make money — this stock will go up this way…
GREGORY ZUCKERMAN: And I want to emphasize this before we go any further: they don’t predict stocks. They don’t necessarily know where things are going. They bet on relationships between investments, equities and stocks. They do a little bit of predicting. But a lot of it is relationships — this is going to go higher, or this relation is going to collapse or widen. A lot of it is akin to statistical arbitrage.
GREGORY ZUCKERMAN: So, Jim and his team found ways to make money, potentially with stocks. But when they put on their trades, they were affecting the market too much. They were moving things around and shaking things up. But they were losing all their profits. It’s a little bit like a chef who has a great recipe, but every time he makes the food, he trips on the way from the kitchen to the dining room table.
GREGORY ZUCKERMAN: Simons recruited a group of people from IBM — speech language people. Bob Mercer is one of them. And they changed everything. They figured out equities, and then they were off to the races. So, by 1996, they had the approach that was going to change the world. After that, they were just minting money.
CHARLES MIZRAHI: Right. So, I just want to put this into perspective. Simons was born in 1938. So, by 1988, he was 50 years old. He was only managing $20 million — which was not a lot of money. In his first year, he had a 9% return — nothing to write home about at all. In 1989, he actually lost money. He lost 4%.
CHARLES MIZRAHI: So, he stayed at $20 million. Then, it took him 10 years to go from $20 billion to $1 billion. It wasn’t straight up. There was $20 million under management, then $30 million and $40 million. It crawled. So, by the time he was 55 or 56 years old, he was managing around $70 million. They were making money — don’t get me wrong — but this was not master of the universe.
GREGORY ZUCKERMAN: Not at all. And many people — if not most people — would have given up. He had other opportunities and could have gone back to academia. He was doing some private equity investing. The firm is called Renaissance Technologies because it was a venture capital firm as well as a trading firm. And it was doing better with venture capital. So, many people would have just thrown in the towel. But they persisted, and he was in his 50s when he finally made it work.
CHARLES MIZRAHI: It’s staggering. He started his career when most people were ending theirs.
GREGORY ZUCKERMAN: He became the greatest trader in Wall Street history in his 50s. It’s crazy.
CHARLES MIZRAHI: It’s astounding. So, as time goes on, computer models get more serious and complicated. And computing power continues to increase. And all of this time, he’s never resting on his laurels. They keep getting a deep bench of smarter [people]. Did they ever have any Nobel Prize winners working for them?
GREGORY ZUCKERMAN: I’m not sure, but they have a remarkable number of PhDs. The funny thing is, today, everybody on Wall Street talks about their PhDs. Before COVID-19, I’d go on a tour of a trading floor and they’d be like: “Greg! Over there is our PhD” About a third — maybe even more — of Jim Simons’ firm is [people with] PhDs. So, they were doing this stuff way before everybody else. And we’re not just talking PhDs. We’re talking about groundbreaking mathematicians, scientists, physicists and people from all different worlds.
GREGORY ZUCKERMAN: He hires and manages in a very different way. And now, he’s 83. So, he’s not running things day to day. He’s got other people to do it. But they don’t hire for need. They don’t say: “We need a programmer or coder.” They just hire smart people and say: “Go figure out a way to improve our system.” I’m jumping ahead a little bit. But they’re unique in so many ways.
CHARLES MIZRAHI: Yeah. The description of the office and conference room is pretty tight. But the cafeteria has a lot of open space because he wanted collaboration.
GREGORY ZUCKERMAN: It’s all about collaboration. They’re so unique. Everyone else on Wall Street is siloed — even the quant firms. I’ve talked to people who say: “Well, that guy runs this fund, and this woman and her team are over there.” There’s none of that at Renaissance. It’s all one fund. The Medallion Fund is the key fund. And they all work together on that one fund. There are risks involved. Everyone knows everything, but they don’t have to worry so much about people leaving.
CHARLES MIZRAHI: But people did leave, and he made everyone sign non-disclosure agreements. Except in one case, where he slipped up. The guy left and went to…
GREGORY ZUCKERMAN: Millennium.
CHARLES MIZRAHI: He went there, and it was a battle.
GREGORY ZUCKERMAN: It was a huge battle. It rocked their whole firm. It jeopardized what Jim and his team were trying to do.
CHARLES MIZRAHI: Why was this so jeopardizing for him?
GREGORY ZUCKERMAN: As well as they’ve done over the years, they’re scared it’ll all go away at some point. They have an edge, but they have unique approaches, too. There are some things I write about — and others that aren’t in the book — that other people don’t do. They’re a little bit paranoid, maybe even neurotic. They believe in complete secrecy.
GREGORY ZUCKERMAN: There were so many times when people at Renaissance told me they wouldn’t talk to me. Simons eventually talked me, but he didn’t tell me any secrets. I had to get that stuff elsewhere. But at one point, I had a meeting with a top quant on Wall Street to talk about Renaissance and Simons.
GREGORY ZUCKERMAN: Then, he canceled the night before. He said: “Sorry, Greg. I apologize.” And I said: “Why are you cancelling?” And he said: “Jim doesn’t want me to talk to you.” And I’m like: “Jim’s your competitor! Why do you care?” And he said: “No, it’s Jim Simons, Greg. I can’t offend him.” He’s like a mafia don. And you don’t want to offend the mafia don. So, there’s this cone of secrecy around them. And they’re nervous about anybody leaving.
CHARLES MIZRAHI: Wow. So, as time goes on, they become not only great but the greatest of all time. The two competitors that come somewhat close are D.E. Shaw…
GREGORY ZUCKERMAN: D.E. Shaw is a great firm. It’s not as good, but it’s a successful quant firm in its own right.
CHARLES MIZRAHI: Jeff Bezos started out as an analyst there. So, they also hired brilliant people and mathematicians. But they don’t hold a candle to Jim Simons. Why is that?
GREGORY ZUCKERMAN: There are a lot of reasons. Some of them are the open architecture, how they manage and the types of talent. Again, D.E. Shaw has brilliant people. But are they people who ran Stanford’s mathematics department? I’m sure they have PhDs from Stanford — but maybe not the guy who ran the department. So, the talent is better at Renaissance.
GREGORY ZUCKERMAN: They also use more leverage. They use more borrowed money than other firms. For years, that was a huge advantage for them. And they could do that because their returns were so good. So, Wall Street gave Renaissance better borrowing terms than any other firm — including D.E. Shaw.
GREGORY ZUCKERMAN: And you can understate the importance of leverage. They borrow a lot of money. So, when they sense a real opportunity, they go for it. Their terms are ridiculously good. They’re not quite as good the last few years. There’s been more scrutiny in the lending to Renaissance. So, they haven’t been able to enjoy the same terms. But for years, that was a huge advantage.
CHARLES MIZRAHI: I saw sometimes they were leveraged 12 to 1 on some trades. They had very low rates. So, that’s a huge advantage.
GREGORY ZUCKERMAN: And frankly, it made it scary for them. There are a few times they had down periods. They didn’t have long down periods — never a whole month. But there was a quant meltdown a few years ago. And there was 2008. There were difficult periods. When you’re borrowing that much money, even Renaissance gets scared.
GREGORY ZUCKERMAN: Now, it all worked out in the end, and they’ve got the data showing how they can take advantage of these kinds of markets. And they usually do the best in those kinds of markets. Those are the years they do the best. But it doesn’t mean they’re not scared to death, internally.
CHARLES MIZRAHI: Because in 1998, you had Long-Term Capital. They were the smartest guys in the room. You had PhDs and people who worked on Wall Street — specifically in bond trading — like Meriwether worked for Salomon Brothers. And they go into a business, attract oodles of money, have unbelievable performance and blow up.
GREGORY ZUCKERMAN: Yeah. And people always say: “Why hasn’t Renaissance blown up like LTCM did? Aren’t they similar?” And I would argue that there are differences. I’ve talked to people internally and they were worried, too. People at Renaissance are like: “LTCM blew up. Aren’t they a little bit like us? How do we make sure we don’t blow up?”
GREGORY ZUCKERMAN: Part of the problem was LTCM doubled down when the spreads widened. They put even more trades. The Renaissance models don’t usually do that. They’re a little humbler in their approach. So, they won’t necessarily add money to their trades. They also use a lot leverage, but not nearly as much as LTCM did.
GREGORY ZUCKERMAN: One of the keys for Renaissance is they don’t interfere with their models — even if their instincts tell them they shouldn’t be buying or selling at one time. They don’t override the model. It automatically trades. So, if the model says to go long something or go short something else, they almost never [override it].
CHARLES MIZRAHI: Almost never — because I remember there were a couple of times when they did.
GREGORY ZUCKERMAN: Yes. That was more when Simons was running things. Remember, he’s a like you and I. He’s human — more so than his colleagues. His colleagues are much less human.
CHARLES MIZRAHI: By the way, you write in the book about how they got pissed at him. Because he said: “We’re a quant firm and you’re running it.” And the market was experiencing … was it 1998 or 2008? I’m not sure.
GREGORY ZUCKERMAN: That was later. In 2007, there was a quant meltdown.
CHARLES MIZRAHI: Yes. All the quants got burnt.
GREGORY ZUCKERMAN: And Renaissance’s models said they should be buying. Simons said: “No. I’m nervous. Let’s pull back here.” And his colleagues were really pissed. Now that he’s not running things day to day, they run it only by deferring to their models. And they would have made more money.
GREGORY ZUCKERMAN: So, yeah, he historically stepped in a few times. I write about that in the book — partly because it’s more dramatic and interesting when he would sell. But most days, they deferred to their trading system.
CHARLES MIZRAHI: I’m jumping towards the end, but I thought this was so interesting. Here is a scientist with all the data to avoid emotions. Here it is on page 308. I thought this was great. Simons is now out of the firm. He’s somewhat retired and has someone managing his money at Euclidean Capital.
CHARLES MIZRAHI: And Jim starts saying: “I think we should do this and that.” And you write: “Jim Simmons and Renaissance showed it was possible. 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.”
GREGORY ZUCKERMAN: Yeah. So, to paint the picture: the market is melting down a few years ago. Simons is on vacation at the Beverly Hills Hotel. He looks up at CNBC, and things are collapsing. He calls his broker — the guy who runs his family office — and says: “Shouldn’t we put on some hedges here? I’m getting a little nervous.” He told me that story, and I was shocked.
GREGORY ZUCKERMAN: I was like: “Jim, you are the pioneer of this quantitative approach and deferring to computers and systems — not instincts and intuition. And your intuition is telling you that you need more protection? How do you explain that?” And he didn’t pick up on the irony. He was like: “Well, I don’t know. I wanted to see if we had enough protection.”
GREGORY ZUCKERMAN: But the point is: It’s hard to be a quant. Even Jim Simons — the OG, pioneer and guy who built a system that conquered the market — panics and gets nervous about the market and where it’s going. Even he says: “Show me the buying protection here.” So, it underscores why it’s hard to hand the reins over to the computers.
CHARLES MIZRAHI: But that’s also his greatness. He had this demon. In quant trading, emotion is a demon. Back in the day, I was a quant trader. We called it “technical.” And the way we used to look at it is: You are a dumb clerk. You’re paid minimum wage in order to execute the order. Don’t think. Thinking will cost you. And we never overrode our signals.
CHARLES MIZRAHI: We used to go to conferences and hear people say: “Yeah, I overrode it. I missed out on this move.” Because when you override a system, you then have a new one with a one-day track record. So, your track record goes right in the toilet. I never did that.
GREGORY ZUCKERMAN: It’s easy to say, but most people cannot pull that off. They used to wonder: “Why are we making so much money?” And they joked: “We’re trading on the other side of a lot of dentists.” Because dentists are notorious for thinking they know a lot about investing and can get emotional sometimes. Renaissance, Jim Simons and the fund take advantage of people like me. I can’t trade because I’m at The Wall Street Journal, but I would panic and get nervous. And there’s the greed and hubris of investors. Renaissance is on the other side ready to take advantage.
CHARLES MIZRAHI: Right. Then, when it doesn’t work out your way and goes down, you start second-guessing. I remember those nights when I second-guessed everything. I used to go back, look at my computer models and the history and say: “OK, I have one day of emotion and 50 years’ worth of data. What am I trusting?” And I was smart enough at the time.
CHARLES MIZRAHI: When I was a quant trader, we got out two weeks before the crash in 1987. It was looking terrible then, but we got out October 6. The market was down from August 25 to October 6. It was not looking right. Our system told us to get out. I said: “Oh man, there’s going to be a snapback here — to the upside.”
CHARLES MIZRAHI: We got out and didn’t get back in until November. And it made the business. We were managing a few million dollars at the end. The New York Times wrote us up. And it was a big deal. But the biggest deal was pulling the trigger. It wasn’t the trade. Getting out of the crash was great, too — don’t get me wrong. But to actually take a trade when every instinct is telling you this is the wrong time. Those are the best trades — when everything feels terrible. Those are the best ones because you’re missing it.
GREGORY ZUCKERMAN: Yeah. It’s easy to say, but it’s hard for people to pull off. I’ve been writing about smart investors since 1996 in The Wall Street Journal and my books. And you’d be surprised how many of them have the same emotions as a dentist.
CHARLES MIZRAHI: It’s like if a world-class surgeon, faced with a difficult surgery, goes in with a rabbit’s foot or a potion. Humans are humans. And it’s the hardest thing to stick to a system. But the system has to constantly evolve. And that’s why, in 2000, I became more of a fundamental trader because I knew in the long term, I was not going to evolve as quick as everyone else was. The systems were evolving much quicker.
CHARLES MIZRAHI: Back in the 1980s, it wasn’t hard because few people were doing it. So, if you had a rule-based system, you were doing pretty well. It was mostly predictable. If you do this, that will happen. Because very few were doing it. That was the time when WINS only had business news at 27 minutes and 57 minutes past the hour. And it was only for around 60 seconds. So, it wasn’t this constant flashing of the screen. There was a lot of opportunity then.
GREGORY ZUCKERMAN: And it’s not just that. Today, the quants digest data quicker than you and I can even think about — be it an earnings report, something that comes on the news or geopolitics.
CHARLES MIZRAHI: It’s a totally different ballgame.
GREGORY ZUCKERMAN: They identify, read and trade on it before you and I have even thought about it.
CHARLES MIZRAHI: It’s trading in nanoseconds. So, the game has changed. Thank God I was smart enough to see in 2000 that the game was changing. I was always following Warren Buffett. And I said: “Enough. He’s the greatest guy so far and makes all the sense in the world. Let me get into that.”
CHARLES MIZRAHI: But I was a technical trader. We didn’t call them quants. And I used to farm out to computer guys. Very few people coded back then. There was no coding. Excel was pretty new — VisiCalc was before that. So, we paid people to go through reams of data. We’d buy the data, and it was very expensive. If you had data that was screwed up — a wrong high or low — and your system was based on that, you had garbage.
GREGORY ZUCKERMAN: Yeah. And that’s one of the advantages that Renaissance always had. Its data is better than everybody else’s. Lately, people have caught up. It’s not as hard to get clean data going back decades — or even centuries. But back in the day, no one was close to them.
CHARLES MIZRAHI: OK. So, Jim Simons becomes master of the universe. Him and Renaissance do amazingly well. And then, he leaves the business. Well, he has tragedies in his life, this poor guy. Two of his sons, right?
GREGORY ZUCKERMAN: To me, that’s one of the lessons from this book. You can make billions of dollars predicting the market, and yet you’re left flat-footed by what happens in your personal life. So, yeah, he had two sons who died tragically — one in a bicycle accident and the other in a scuba diving accident. It’s devastating stuff. So, on a personal level, he was much less successful. He has a happy marriage and his children are thriving, but he has also lost two children.
CHARLES MIZRAHI: You quote him in the book, and it’s just chilling. He’s mourning his second son, Nick, and sitting Shiva — which is the Jewish mourning period. And he says to someone visiting him: “My life is aces and deuces.” All the greatness he’s had here, and all the tragedies he’s had there, didn’t make any sense. I find that very ironic. Here’s a guy who predicted everything and broke the code. But the code of randomness in life … no one gets around that one.
GREGORY ZUCKERMAN: It’s a reminder.
CHARLES MIZRAHI: Yeah, it’s an attitude adjustment.
CHARLES MIZRAHI: So, what does Jim Simons do? How is he impacting the world around him with all his great wealth?
GREGORY ZUCKERMAN: He took all those billions and dedicated himself to a few passions. One was education. So, he subsidized science and math public school teachers in New York. He believed that they didn’t get paid enough, and too many of them left for private industry — for firms like Renaissance. So, he spent years subsidizing their salaries.
GREGORY ZUCKERMAN: He’s got an effort to help cure autism. Some people in his family are autistic, so he dedicates himself to that. And they believe they’re making progress in autism. We’ll see what happens — fingers are crossed.
GREGORY ZUCKERMAN: He’s also spent a lot of money trying to figure out the origins of life. He’s got an effort. We’re talking maybe a $100 million — some huge amount of money — trying to figure out the first moments of existence and whether or not the Big Bang is an accurate description of what happened. He’s got some skepticism. He’s working with someone who’s a bigger believer.
CHARLES MIZRAHI: That’s Brian Keating, right? He’s a mutual friend of ours. Brian was on the show a while back. So, Jim is funding his efforts to find the beginning of the universe?
GREGORY ZUCKERMAN: Yes, he’s the financing behind it. So, he has dedicating himself to that. And that could be the greatest achievement of his lifetime.
CHARLES MIZRAHI: Wow, absolutely amazing. And does he have a son who’s in the money management business too?
GREGORY ZUCKERMAN: He manages some of the family wealth, yeah.
CHARLES MIZRAHI: Wow. Do you think we’ll see another Jim Simons?
GREGORY ZUCKERMAN: There are people, like Ken Griffin, who are very successful. They do it differently. They’re more market makers. They’ve got a hedge fund side to them, too. But they also do market making and other kinds of investing.
GREGORY ZUCKERMAN: But in terms of beating the market year in and year out? I don’t know. That’s a great question. To the extent that they’ve done it … And they continue to do so. In 2021, the Medallion Fund was up 49% after those crazy fees. So, it’s hard to believe anybody else can come close.
CHARLES MIZRAHI: Well, when you look at a population as big as ours, you don’t have dozens of these. You’ve got one guy and one firm, in a sense. There other firms are there, but it’s nowhere near to the same extent.
CHARLES MIZRAHI: Most people don’t know about Jim Simons. And they want it that way. I’m sure when you came out with this book, people weren’t too happy — not Jim, but all the other folks. Because you are pulling back the curtain on a company that values its secrecy to the extent of paranoia. But when you look at George Soros, D.E. Shaw, Ray Dalio or Warren Buffett, Renaissance is in front.
GREGORY ZUCKERMAN: There’s no comparison in terms of returns. Now, you can make the argument that Simons and his team don’t manage as much money as, say, Buffett. Buffett is enormous. So, maybe it’s not fair to compare. I would argue that Buffett didn’t have to get so big.
GREGORY ZUCKERMAN: Simons keeps giving money back. The Medallion Fund is at about $15 billion right now. For years, it was $10 billion. And they give back all their profits each year. So, they start over every year at that original number because they don’t want to get too big and have to use their third- and fourth-best ideas. They only want their best ones.
GREGORY ZUCKERMAN: So, yeah, the market is getting more efficient. That’s another reason to think that you won’t get these kinds of returns. With information and news flow, it’s a much more efficient market. When you talk to some of the smart people on Wall Street, it’s gotten harder to make money, rather than easier. So, that’s another reason to think you may not get anybody like him again.
CHARLES MIZRAHI: That’s why — in my humble opinion — the game is not on the short term. Because that’s become too smart and crowded. The edge is the longer term because few are looking there.
GREGORY ZUCKERMAN: I wrote that in the book. I don’t think people should be trading short term for lots of reasons. One, is you don’t want to go up against Jim Simons and his team. They’re not doing long-term investing. Just so people understand, they trade what they call internally “moments to months.” They don’t hold anything for years. So, if you and I can, we’ve got an advantage.
CHARLES MIZRAHI: Yeah, amazing. I want to tell you, this is a great book. I read this in one and a half sittings. I just read the whole thing yesterday. It’s a great read. First of all, it’s fast-paced. There are a lot of players and human emotion. It’s really a drama. I’d like to see this made into a movie.
GREGORY ZUCKERMAN: I would also! So, if anyone in your audience wants to reach out, let me know. The characters are fascinating. I was a little worried when starting the book. It’s a bunch of mathematicians and scientists. How much conflict can there be?
CHARLES MIZRAHI: There’s a lot of conflict. They’re crazy.
GREGORY ZUCKERMAN: Oh my gosh! What the money did to them and how it tore them apart. What politics did to them. One supported and helped put Donald Trump in office. And then others hated Donald Trump. So, it split them in two. There was a lot of conflict and emotion behind the scenes — but within the firm. So, these are real characters.
CHARLES MIZRAHI: Greg, once again, you keep knocking the cover off the ball. What’s your secret? How do you keep finding these great ideas to write about?
GREGORY ZUCKERMAN: I look for quirky, interesting people. There are a lot of interesting people out there, and I’m fascinated by them. So, I’m always looking for people who achieved big things and have outsized personalities. And I delve into how they pulled it off.
CHARLES MIZRAHI: Do you have another book in the works, or you taking some time off?
GREGORY ZUCKERMAN: I’m taking a little time off. My last book, A Shot to Save the World, was a difficult one. I’m still kind of publicizing that one and giving speeches around the country. I’m doing some speaking around the country for this book as well (The Man Who Solved the Market).
CHARLES MIZRAHI: How long does it take you to write a book like this with all the information?
GREGORY ZUCKERMAN: A couple of years. But frankly, it should take longer. On average, I go to bed around 3 a.m. when I’m writing a book. It’s intense. I’m pushing and pushing. I’ll sleep on the Sabbath, and then I’ll start over again. So, it’s intense. You could talk my family. I get very caught up. It’s all for about 1.5 to 2 years. So, it’s all-consuming and a difficult process. But once I get into it, I get consumed by my subjects.
CHARLES MIZRAHI: I wrote one book — nowhere on par with yours — called Getting Started in Value Investing in 2007 for Wiley. And it took a year. I’m similar to you. It’s very intense and has to be perfect and attributed properly. I found so many quotes with so many mistakes that people would carry over from book to book. One day, I spent eight hours finding the correct quote of something because it was misquoted in 20 different books. It was absolutely staggering.
GREGORY ZUCKERMAN: As we say in our business: “Writing is rewriting.” And you’re rewriting all day long.
CHARLES MIZRAHI: I said: “I’m never going to write another book.” It tears the guts out of you. And you can’t sleep because you’re always thinking about the subject matter. I was thinking about markets. You were thinking about personalities — which is much harder and not on the same level. But I totally get what you’re saying. To do this four times and do it well — wow.
GREGORY ZUCKERMAN: Yeah. And I did two books for young people. Frankly, as much as I’ve enjoyed the books — and I have enjoyed writing them — they’re so hard. They’re worth doing — but just barely. Because it’s an emotional roller coaster, and it’s difficult. Some people won’t talk to me, and I’ve got to get them to talk to me…
CHARLES MIZRAHI: Dave Cote, the former CEO of Honeywell, wrote a great book. We had him on the show a while ago. And he said: “I’m never writing another book.” First of all, if you figure out how many hours it took, I was getting paid $0.35 an hour to do it. And secondly, it tears your guts out.
CHARLES MIZRAHI: Those are people who care about what they put out. If you don’t care, you’ll throw out garbage. You’ll regurgitate something else. But if you’re writing new stuff … And there wasn’t anything on Jim Simons.
GREGORY ZUCKERMAN: And then, half the time, people write books and barely anyone reads them. So, it can be a difficult process.
CHARLES MIZRAHI: Well, once again, all the power to you, and lots of success. The name of the book is The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution. If you’re interested in markets, math or human beings and how they deal with stress, it’s a phenomenal book. Greg, thanks for coming on the show.
GREGORY ZUCKERMAN: It was a lot of fun. Thank you for having me.
CHARLES MIZRAHI: Thanks for listening to this episode of The Charles Mizrahi Show. If you’re a new listener, welcome! If you’ve been listening for a while, we’re glad to have you back. Either way, we’d love to know what you think of the show. Please leave a review if you listen on Apple Podcasts. Reviews make it easier for others to find the show. You can also see the video of the interview on The Charles Mizrahi Show channel on YouTube.
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