James Simons' Medallion Fund has achieved an average annual net return of 34% since 1988, while the S&P Index during the same period was only 9.6%. Assets have never decreased in 15 years. In 2005, Simons became the world's highest-paid hedge fund manager, with a net income of US$1.5 billion, almost twice that of Soros. The average annual return from 1989 to 2006 was as high as 38.5%, and the net return has exceeded the stock god Buffett (he has maintained a record of beating the market for 32 consecutive years, with an average annual return of 20% in the past 20 years). Even in 2007, subprime bonds When the crisis broke out, the fund's returns were as high as 85%, and Simons was hailed as "the most profitable fund manager" and "the smartest billionaire".

Before entering Wall Street, Simons was an excellent mathematician and became a professor of mathematics at Harvard University at the age of 24. Simons' Renaissance Technologies Corp. has spent more than 15 years developing computer models that sift through billions of individual pieces of data to select the securities to buy and sell.

Different from Buffett's "value investing", Simons relies on mathematical models and computers to manage his huge funds, uses mathematical models to capture market opportunities, and computers make trading decisions. He calls himself "Mr. Model" and believes that models can effectively reduce risks compared to individual investments. Quantitative investors use the collection and analysis of large amounts of data to search for investment opportunities in the entire market 360 degrees, use computers to screen investment opportunities, embody investment ideas or concepts in the model through the design of specific indicators and parameters, and conduct different market assessments based on this. Tracking analysis without any subjective emotions, using the powerful data processing capabilities of computers to select investments to ensure maximum returns while controlling risks.

Quantitative fund managers rely on the system's powerful information processing capabilities to have greater investment breadth and can minimize the impact of human emotions on the portfolio.

This type of investor represented by Buffett can be regarded as qualitative investment. Qualitative investors believe that the real world is extremely complex, and experience and thinking are the keys to wealth. Therefore, the key to its success is not top-notch technology, but the understanding and insight into the market and the courage not to follow the crowd, that is, to use the "people" factor to create the appreciation of wealth. Qualitative investors take in-depth fundamental analysis and research as the core foundation, supplemented by research on listed companies, communication with management, and various research reports. The portfolio decision-making process is that after the fund manager synthesizes all the information, he relies on subjective judgment and intuition to select individual stocks and construct a portfolio to generate excess returns.

In 2005, Simons became the highest-paid hedge fund manager in the world, with a net income of US$1.5 billion, almost twice that of Soros; since 1988, the average annual return rate of the Medallion Fund he was in charge of As high as 34%, assets have never decreased in 15 years.

Simmons almost never hires Wall Street analysts, and his Renaissance Technologies is filled with Ph.D.s in mathematics and natural sciences. Using mathematical models to capture market opportunities and using computers to make trading decisions is the secret to this super investor's success.

“People ask me all the time, what’s your secret to making money?” James Simons always says this sentence almost every time he is interviewed by reporters, and he seems to have Get used to those longing eyes. In fact, in the hedge fund world, that should be the secret that everyone wants to know.

Simmons, 68, has silver hair. He likes to wear elegantly colored shirts and casually wears a pair of loafers brand casual shoes barefoot. Although he has become the most profitable fund manager of the year in "Institutional Investor" magazine, many people still don't know who he is. Simons once co-created the famous Chern-Simons law with the Chinese scientist Chen Shengshen, and also won the highest honor in the American mathematics community. In the storied world of Wall Street, Simons and his Renaissance Technologies Corp. are a complete anomaly.

Simmons, who has a low-key style, rarely gives interviews. However, since he gave up his prosperous career in mathematics and started an investment management company, in more than two decades, Simons has created many unparalleled achievements. Records, both gross and net, make him one of the greatest hedge fund managers on the planet.

The following are some figures related to Simons: Since 1988, the Medallion hedge fund managed by Simons has an average annual return rate of 34%, which is higher than Soros and other investment masters in the same period. The average annual return rate is 10 percentage points higher, and it is more than 20 percentage points higher than the average annual return rate of the S&P 500 Index during the same period; from the end of 2002 to the end of 2005, the Medallion Fund with a scale of US$5 billion has invested investors paid more than $6 billion in returns.

This rate of return is obtained after deducting a 5% asset management fee and a 44% investment income share, and has been audited. It is worth mentioning that these two fees charged by Simons should be the highest in the hedge fund industry, equivalent to more than twice the average fee.

High returns and high fees made Simmons quickly become a super rich man. In the list of "400 Richest Americans" released by Forbes magazine in September 2006, Simmons ranked No. 1 with a net worth of US$4 billion. 64 bits.

Mr. Model

Designing quantitative investment management models for different markets, and using computer calculations as the mainstay to conduct short-term transactions in various markets around the world is the secret to Simons' success. However, Simmons has been tight-lipped about the details of the transaction. Except for the company's more than 200 employees, no one can get any clues about their operations.

For quantitative analysis hedge funds, trading behavior is more based on computer analysis of price trends rather than human subjective judgment. Renaissance Company is mainly composed of three parts, namely computer and system experts, researchers and traders. Simons designed the original mathematical model himself, and he employed more than 70 people with Ph.D.s in mathematics, physics, or statistics. Simmons meets with the research team once a week to discuss trading details and how to improve the trading strategy.

As a mathematician, Simons knows that there is only a 1/2 chance of success by luck, and that beating the market must be based on careful and accurate calculations. The mathematical model of Medallion Fund mainly uses the statistics of historical data to find out the mathematical relationships among the changes in various indicators such as financial product prices, macroeconomics, market indicators, technical indicators, etc., and discovers the small profit opportunities currently existing in the market, and through Leverage ratio for fast and large trading profits. There are currently some funds on the market that adopt the same strategy, but they often pale in comparison to Simons' achievements.

Renaissance Technology's flagship product, the Medallion Fund, was established in March 1988. By 1993, when the fund size reached US$270 million, it began to stop accepting new funds. Medallion Fund's investment portfolio now includes thousands of investment targets in stock markets and other markets around the world. The model continuously monitors the prices of major investment targets such as treasury bonds, futures, currencies, and stocks, and makes buy or sell decisions. instruction.

When the order is issued, 20 traders will capture the fleeting opportunity through thousands of rapid intraday short-term trades. The trading volume is so large that it sometimes accounts for the entire Nasdaq market. 10% of transaction volume. However, when the market is in special moments such as extreme fluctuations, trading will switch to manual mode.

Contrary to the popular "buy and hold for a long time" investment philosophy, Simons believes that abnormal market conditions are usually small and short-lived. "We are buying, selling and selling at any time. and buy-ins, we make money off activity,” Simmons said.

Simmons revealed that the company has three criteria for selecting trading varieties: publicly traded varieties, high liquidity, and meeting certain requirements for model settings. He said, "I am Mr. Model and do not want to conduct fundamental analysis. One of the advantages of models is that they can reduce risks. And relying on personal judgment in stock selection, you may become rich overnight, or you may lose everything the next day."

What Simons is doing seems to be going beyond the efficient market hypothesis: the efficient market hypothesis believes that market price fluctuations are random, and traders cannot continue to profit from the market. Simons emphasized that "some trading patterns are not random, but are traceable and have predictive effects." Just as Buffett once pointed out that "the market is efficient in most cases, but it is not absolute." Simons also It is believed that although the market is efficient overall, there are still temporary or partial market inefficiencies that can provide trading opportunities.

In an interview with the New York Times, Simmons mentioned a nuclear accelerator test he once observed. “When two high-speed atoms collide violently, a huge number of particles will be ejected. ” He said, “The job of scientists is to analyze the changes caused by collisions.”

“I looked at the trajectory diagrams formed by particle collisions on the computer screen. They seemed chaotic, but they actually existed. "It naturally reminds me of the securities market. Those very small transactions, even a transaction of only 100 shares, will have an impact on this huge market, and thousands of transactions will occur every day." Tens of thousands of such transactions occurred. "Simmons believes that what he does is to analyze the complex reaction of the market when the wings of the trading butterfly flutter.

"This topic may not be important to the world, but it is very interesting to study the dynamics of market operation. This is a very serious issue." Simons smiled like a naughty child, and His story sounds more like a scholar proficient in mathematics who finally defeated the myth of the casino through complex odds and probability calculations. The former U.S. Department of Defense codebreaker and mathematician seemed to believe there should be a simple formula for how to stay ahead of the curve, and that discovering it would be a ticket to wealth.

Black box operation

The hedge fund industry has always had a "black box operation" investment model, which does not require the disclosure of transaction details to investors. Among leading hedge fund investors, Mr. Simmons' box is said to be "the blackest."

Even excellent quantitative hedge fund managers can’t figure out what indicators Simons’ model uses. “We trust him and believe he can navigate the stormy waves of the stock market, so we no longer Think about what computers do," said a long-term Medallion Fund investor. When the investor began to describe Simons' investment approach, he admitted that he was completely speculating.

However, whenever someone suggested that Simons' fund lacked transparency, he would always shrug helplessly, "In fact, everyone has a black box, we call it a brain." Simons pointed out, The company's investment method is actually not mysterious, and many times it can be solved through specific methods. Of course, he had to add, "It's not really a mystery to us."

In New York, there's a saying: You have to be out to be. in), Simmons’ experience seems to be just the annotation for this sentence. On Wall Street, what he does is always a source of curiosity.

Simons' Renaissance Technologies is headquartered in Long Island, New York. The one-story building with a wood and glass structure looks more like an ordinary brain bank or a mathematics institute from the outside. Unlike many fund companies, the heart of Renaissance Company is not a trading room that trades around the clock, but a 100-seat auditorium. Every half month, company employees listen to a scientific lecture there. "Interesting and practical statistics lectures will definitely inspire your thinking." said an employee who likes this learning method.

That's not all. Simons didn't like Wall Street investors at all. In fact, Wall Street experience was a handicap if you wanted to work at Renaissance Technologies. Among the company's more than 200 employees, nearly one-half are top scientists in the fields of mathematics, physics, statistics and other fields. Only two of all employees have Ph.D.s in finance, and the company never hires business school graduates. It also doesn't employ Wall Streeters, which is unique among American investment firms.

“We don’t hire students who are not good at mathematical logic,” said Simons, who once taught at Harvard University. "Good mathematicians need intuition and always have a strong curiosity about the development of many things, which is very important to beat the market." Renaissance Technology Company has first-class scientists, including Peter Weinberger, a famous scientist at Bell Labs, and University of Virginia professor Robert Lourie. He also recruited some employees from IBM who were familiar with speech recognition systems. "Traders are similar to speech recognition workers in that they are always guessing what will happen next."

Turnover is almost non-existent. Every 6 months, company employees will receive corresponding cash bonuses based on performance. It is said that the performance benchmark within half a year is 12%. In many cases, this indicator can be easily reached, and many employees also own equity in the company. Simmons attaches great importance to the atmosphere of the company. It is said that he often shares weekends with employees and their families. As early as 2000, they flew to Bermuda for vacation together. At the same time, every employee is sworn to keep company secrets.

In recent years, the most questions Simons has received are related to Long-Term Capital Management (LTCM). LTCM was once brilliant in the mid-1990s. The company had two Nobel Prize winners in economics. They used computers to process large amounts of historical data, obtained the normal historical price difference between two different financial instruments through precise calculations, and then combined it with market information. Analyze the latest price differences between them. If there is a deviation between the two, the computer will immediately issue an order to enter the market in large quantities; after a period of market adjustment, the amplified deviation will automatically return to the normal trajectory. At this time, the computer will order to close the position and exit the market to obtain the difference in the deviation.

LTCM always follows the principle of "market neutrality", that is, it does not engage in any unilateral transactions, and only focuses on looking for arbitrage space formed by the efficiency gap between markets or commodities, avoiding risks through hedging mechanisms, and making the market Minimal risk. However, since its model assumptions and calculation results are based on historical statistical data, once a trend opposite to the calculation results occurs, hedging becomes a high-risk trading strategy.

Under extremely leveraged lending, this risk is further amplified. At its peak, LTCM used US$2.2 billion of capital raised from investors as collateral to buy securities worth US$125 billion, and then used the securities as collateral to conduct other financial transactions with a total value of US$1.25 trillion, with a leverage ratio as high as 568 times. . In just four years, LTCM has achieved a 285% return rate. However, due to excessive manipulation, it lost another US$4.5 billion in just two months, heading towards a point of no return.

“Our approach is completely different from LTCM.” Simmons emphasized that Renaissance Technology does not have and does not need such a high leverage ratio. The company never has any preconceived concepts when operating, but only Look for those tiny profit-making moments that can be replicated. "We never put money into betting that the market will return to normal. One day the market will finally be normal, but who knows which day."

”

Simons’ supporters are also mostly dismissive of the risks of black box operations. They said, “Long-term Capital has only two Nobel Prize winners as its face, and the main ones are Wall Street people. Their bets are Nature determines that something will eventually go wrong." Another well-known quantitative fund manager also said, "It is hard to believe that there are not some safety measures in Simons' method. " He pointed out that the most important difference between Simons' method and LTCM is that it does not involve hedging, but mostly short-term directional predictions, relying on trading many varieties at the same time and making a large number of transactions in the short term to make profits. Specific to each transaction. Loss, because the position will be closed in a short period of time, so the loss will not be large; and after thousands of transactions, as long as there are more profitable transactions than losing transactions, the overall trading result will be profitable.

Mathematical Master.

Simons rarely speaks at financial forums; what he prefers is mathematics conferences, and he celebrated his 60th birthday at a geometry seminar for the mathematics community and children with autism. Donating money, when giving speeches, he often emphasizes that mathematics has led him to the path of investment success. Some people say that having nothing to do with Wall Street fashion may be one of the reasons why he does not attract attention.

< p>Simmons has a natural sensitivity and intuition in mathematics. The son of a shoe factory owner determined to become a mathematician at the age of 3. After graduating from high school, he successfully entered the Massachusetts Institute of Technology and graduated from college only three years later. He received a PhD from the University of California, Berkeley, and became a professor of mathematics at Harvard University at the age of 24.

However, despite being a rising star in the international mathematics community, he soon became tired of his academic career. , Simons, who was naturally adventurous, entered the Defense Logic Analysis Association, a non-profit organization under the U.S. Department of Defense, to work on code cracking. Later, due to his opposition to the Vietnam War, he returned to academia and became a professor at Stony Brook University. ), where he did 8 years of pure mathematics research.

Simmons had been involved in investment for a long time. In 1961, he and his classmates from MIT invested in Columbia floor tiles. and pipeline companies; when he was at Berkeley, he also invested in a wedding gift company, but the results were not satisfactory. At that time, he felt that the stock market was annoying. "I also found a broker from Merrill Lynch and tried to do some soybean trading." , Simons said.

It wasn’t until the early 1970s that Simons became really fascinated with investing, when he was still teaching at Stony Brook University and a mathematician beside him was involved in a ceramic tile company. The sale “made me 10 times my money in eight months. "

In the late 1970s, when he left Stony Brook University to found a private investment fund, he initially used fundamental analysis. "I didn't think of using scientific methods to invest," Simmons said. For a period of time, he mainly invested in the foreign exchange market. “As my experience continued to increase, I thought that I might be able to use some methods to create models and predict the trend changes in the currency market. "

In the late 1980s, Simons and Princeton University mathematician Henry Larufer re-developed trading strategies and shifted from fundamental analysis to quantitative analysis. Since then, Simons has completely transformed into " Mr. Model” and has created amazing results for nearly 500 investors of the Medallion Fund.

In 2005, Simons announced that he would establish a new fund that may be as large as US$100 billion. It caused a sensation on Wall Street. Remember, this figure is equivalent to almost one-tenth of the total assets under management of global hedge funds. When it comes to the new fund, Simons is more cautious. He said that unlike the Medallion Fund, which is mainly aimed at the wealthy, the new fund is different. The minimum investment amount of the fund is US$20 million, which is mainly aimed at institutional investors, and will attract investment through lower fees; in addition, the new fund will focus on investing in the US stock market, holding positions for more than one year - relative to Medallion's fast trading It seems that new funds are beginning to adhere to a "buy and hold" philosophy. "The models and methods that worked very well for Medallion may not necessarily work for new funds," it seems, Simons believes. For a hedge fund with an amount of over 100 billion, it would be very risky if it still adopts an operation method similar to that of Medallion.

Although the new fund has a good pedigree, many investors still have it. There are still doubts about how much it can do, and the fact is that the fund size of up to $100 billion may be too large relative to some illiquid small markets, which will increase their difficulty in exiting. < /p>

Despite a lot of skepticism, by mid-February 2006, Simmons had raised $4 billion and said it would absorb more funds. The company also promised investors that the fund would be available at any time. If the operation shows signs of weakness, it will stop absorbing new funds. At that time, the new fund will no longer continue to increase to the upper limit of 100 billion US dollars.

As of August 2006, this fund was named Renaissance Legal Person Stock Fund. (Renaissance Institutional Equities Fund)'s new fund recorded a 13% increase during the same period when the S&P 500 Index rose 4%.

Simmons' current net worth is approximately $2.5 billion.

Renaissance's core business, the $5 billion Medallion hedge fund, has achieved an average annual return of 34% since its inception in 1988, making it the best-performing hedge fund during this period. This rate of return has deducted 5% asset management fees and 44% investment income sharing and other fee factors, and has been audited. Both fees charged by Medallion are more than double the average hedge fund fees.

If the assets under management are too large, it will be increasingly difficult for a hedge fund to achieve returns above the industry average, right? Tell that to James Simons.

Simmons is both a world-class math master and the boss of Renaissance Technologies Corp. At present, the news that he is preparing to set up a fund that may be as large as US$100 billion is making a fuss in the industry. You must know that this is about one-tenth of the total assets under management of the entire hedge fund industry. Judging from early promotion materials, the minimum investment amount of this fund is US$20 million and is available to institutional investors.

It is estimated that Simmons’ current net worth is approximately $2.5 billion. Renaissance's core business, the $5 billion Medallion hedge fund, has achieved an average annual return of 34% since its inception in 1988, making it the best-performing hedge fund during this period. This rate of return has deducted 5% asset management fees and 44% investment income sharing and other fee factors, and has been audited. Both fees charged by Medallion are more than double the average hedge fund fees.

So far this year, Medallion's assets have appreciated about 12%, while the broader market has declined. In various markets, short-term trading dominated by computer calculations is the secret of Simmons' success. Medallion is reluctant to reveal details of its strategy, even to its own investors. There are other funds that have adopted the same strategy, but they are far less successful than Medallion.

The new fund will adopt a completely different operational strategy: focusing on investing in the US stock market and holding positions for more than one year.

Medallion has not received new funding for 12 years. Simons, 67, has been delivering returns to existing investors. He also believes that if a fund becomes too large, its return rate will decline. In fact, Renaissance is expected to return the balance to outside investors at the end of the year, leaving Simons and his employees as the only investors in Medallion. By then, the size of the fund will be roughly the same as it is now. Dealing with a handful of investors helps the publicity-shy Simons avoid the media spotlight.

Simmons declined to comment. A Renaissance spokesman also declined to comment on the Renaissance Institutional Equities Fund.

Simmons' latest move seems at odds with Renaissance's reluctance to let its assets exceed a certain range. Indeed, many fund managers have found that increasing assets will constrain performance growth. Investors who have a general understanding of the new fund say it will be different from Medallion's existing hedge funds and hopes to attract more capital by setting a more modest target return rate.

The new fund is the latest sign that hedge funds are vying for clients from institutional investors such as pension plans and seizing the turf of traditional wealth management companies such as mutual funds. The fund will use models developed jointly by more than sixty mathematicians and physics Ph.D. The fund targets returns that are stronger than those of the S&P 500 and strives for more consistent performance.

Investors said that although Simons is not well-known on Wall Street, his past achievements have generated strong interest in the fund. Antoine Bernheim, author of "U.S. Offshore Funds Directory," said Renaissance's average annual return of 34% since 1998 has led the hedge fund industry. Even George Soros's Quantum Fund had an average annual return of only 22% during the same period, while the S&P 500 index's average annual increase during the same period was only 9.6%.

In the past two years, Medallion’s monthly assets have never decreased. An investor revealed that Medallion has provided investors with huge returns over the past few years, but investors cannot use these huge returns to invest in additional Medallion. However, it is also likely to stimulate investor interest in new funds.

Medallion writes this in its promotional materials: Although past excellent performance does not guarantee that the new fund will be successful, the new fund will also adopt Medallion’s scientific operation strategies and use Medallion’s technology as the cornerstone. .

Benheim pointed out that Simons created higher returns than Bruce Kovner, Soros, Paul Tudor Jones, and Louis Bacon. ), Mark Kingdon and other legendary investment masters are 10 percentage points higher. He is outstanding in the hedge fund industry.

Simmons will attract investment by lowering fees (such as setting the asset management fee rate at around 2%). But at the same time, he may have to disclose more details about his financial operations. That's because pension plans and their advisers often require full disclosure of a brief summary of investment strategies from the financial firms they hire.

Renaissance investor Jeffrey Tarrant, president and chief investment officer of Protege Partners LLC, said that Renaissance is now basically operating in the dark, and its staff are sworn to keep secrets , adopting a proprietary trading operation strategy.

Simons's first career was as a mathematics professor, teaching at the Massachusetts Institute of Technology and Harvard University. He and others discovered the geometric law called Chern-Simons, which became an important tool in theoretical physics.

Professor Edward Witten, professor of physics at the Institute for Advanced Study in Princeton, said that it is remarkable that this outstanding mathematics professor can break into another world.

Simmons violated military discipline during the Vietnam War and then devoted himself to the financial management industry. He hired experts in applied mathematics, quantum physics and linguistics. It can be said that his company's background has almost nothing to do with Wall Street.