There is a saying circulating in the investment community: There is only one Buffett and only one Simons in the world. Who is Simmons? Who is the person who can be compared with "Stock God" Buffett?

Simons was a tenured mathematics professor who only moved to Wall Street when he was 40 years old. Even though he has not taken any financial courses, it does not affect the fact that he led the Medallion Fund to achieve an average annual return of 66.1, surpassing Buffett and Soros for 27 consecutive years, becoming one of the most successful traders in modern financial history.

Simons’ secret is: while others are still using old-fashioned methods such as instinct and intuition to make predictions, he has decided to rely on data mining and advanced mathematics. and computer models to make investments.

He ignited a revolution in the investment world - by the beginning of 2019, hedge funds and quantitative traders had become the largest participants in the market, accounting for 30, far exceeding retail investors and traditional institutional investors. The management of major companies used to be very disdainful of using technology and computer models to invest. But now the situation is reversed, and programmers have almost made it impossible for managers to keep their jobs.

Simons found a way to turn talent, brainpower, and algorithms into wealth. Today's Changjiang Reading will take you closer to Simons, the king of quantitative investment, and his alternative management methods.

"The Man Who Conquered the Market: The Biography of Simons"

Author: [US] Gregory Zuckerman

Publisher: Zhanlu Culture

Year of publication: February 2021

What is quantitative investment?

Quantitative investment can be understood as using the powerful information processing capabilities of computer systems when investing, while using mathematical models to replace humans to maximize returns while controlling risks—— To put it simply, machines and algorithms are used to replace people in making investment decisions.

Quantitative investment illustrations

On Wall Street, there is a mysterious quantitative trading company that relies on complex mathematics to Models and algorithms perform massive data analysis and are famous in the market. It is "Renaissance Technologies".

The Medallion Fund managed by James Simons, the founder of Renaissance Technology, has an ultra-high annualized return rate of 66%, the highest handling fee in the industry of 5%, and daily transactions. Thousands of ultra-high-frequency trading models and ultra-high profits of more than US$100 billion are unrivaled in the investment community. This record includes even Warren Buffett, George Soros, Peter Lynch, and Steven Cohen. , even Ray Dalio is out of reach.

Even in 2020, when the market was turbulent, the Medallion Fund still achieved a return rate of up to 76%.

The comparison of annual returns of major funds far exceeds that of Buffett and Dalio

What’s even more amazing is that this The fierce wealth creator truly joined the investment circle when he was 40 years old. During the same period, Buffett, Soros and others had already made their mark on Wall Street.

But before the age of 40, Simons was not idle. He was just creating a legend in the mathematics circle that had nothing to do with the investment circle.

He had a talent for mathematics since he was a child. He graduated from MIT early at the age of 20; he became a professor at Harvard at the age of 23; he broke into the intelligence community at the age of 26 and became a codebreaker. Agent... At the age of 30, James Simons single-handedly revitalized the mathematics major at the State University of New York at Stony Brook and met Chen Ning Yang, then a professor in the Department of Physics. Among his most famous "Yang-Mills Theory", Simons also Si's shadow.

In Yang Zhenning’s office at Tsinghua University, a photo of him and Simmons hangs

At the age of 36, Simmons owned He came up with the theory "Chern-Simons Theory" named after himself; at the age of 37, he won the Nobel Prize in mathematics - the Veblen Prize in the United States.

The formula of "Chern Simons Theorem" hanging in Simons' office

At this point, Simons has the formula to do For everything a mathematical genius should have, academic status, a theory named after himself - his academic career has reached its peak.

Although everyone in the academic world knows it, this mathematical genius’s desire for money has not been satisfied. In the eyes of his friends, Simmons has a He has his own unique view on wealth. He doesn’t want to own luxury things. He believes that wealth can make people independent and influential. What he wants to do is to change the world.

So Simmons decided to climb another mountain.

In 1978, various currencies became more elastic and began to decouple from the price of gold, and the pound also began to plummet. The 40-year-old Simons saw this market opportunity and officially decided to leave the academic circle, join in foreign exchange trading, and start running his own investment company. He established a company called Monemetrics, which was the name of the famous hedge fund Renaissance Technology Company in the future. predecessor.

He opened the company in an unremarkable town on the North Shore of Long Island, USA, and hired a group of employees who knew nothing about Wall Street's investment theories.

Completely different from the thinking of investors at the time, Simons adopted a strategy similar to that he used when breaking codes at the Institute for Defense Analyses. He was convinced that he could use mathematical models to mine Find out the hidden patterns behind prices - "There must be a way to model prices."

"Never hire business school graduates and never hire Wall Street people", the company Among the more than 300 employees, almost all are top scientists in the fields of mathematics, physics, statistics and other fields. Even Simons himself has never taken a formal finance course.

The former site of Renaissance Technologies' offices, nearby a boutique women's clothing store, a pizza restaurant and the Stony Brook train station

In addition to being different in hiring people, Simmons' management style is also slightly weird. His secret is to create a completely different open culture: completely transparent internally and completely opaque externally.

1. Get the brightest minds to collaborate with the brightest minds

When chatting with employees during weekly meetings , Simmons will always emphasize several principles that he always adheres to. Many of the principles were gleaned from Simons' previous years of work, including his work on code-breaking at the Institute for Defense Analyses and later work with distinguished mathematicians at the State University of New York at Stony Brook. Now, he's asking Renaissance Technologies employees to put those principles to good use.

A key principle advocated by Simons is that scientists and mathematicians need to debate and share ideas with each other in order to produce desirable results.

This principle seems self-evident, but given the circumstances at the time, it can be called radical. Renaissance Technologies has many highly intelligent employees—think of them as Sheldon from The Big Bang Theory. They achieve achievement and recognition early in their careers but are familiar with individual research rather than collaboration with others. In fact, talented quants may be the last people to work with others. A classic industry joke: Introverted scientists will stare at their shoes when they talk to you, while extroverted mathematicians will stare at your shoes.

2. Even the company secretary can access the absolute openness of the source code

General trading companies usually let researchers Work in "silos" with other employees, sometimes even encouraging employees to compete with each other.

But Simons insisted on a different approach: Medallion had a single, monolithic trading system, and all employees had access to every line of work behind the money-making algorithms. Code, all of which can be read in clear text within the company's internal network, there is no code hidden somewhere that only upper management can access. Anyone can try to modify the code to improve the trading system.

Simons wanted his researchers to be able to exchange ideas and not be limited to their private projects. For a time, even the company's secretary had access to the source code, although this ultimately proved unnecessary.

Simmons has created an unusually open culture. Employees can pop into their colleagues' offices, make suggestions and initiate collaborations. When faced with setbacks, they tend to share their work with others and ask for help rather than pivot to new projects, ensuring that, as Simons puts it, no promising idea goes to waste.

3. Bonuses depend on the performance of the fund, not whether your boss likes you

Simons uses The compensation design allows employees to focus on working towards the overall success of the company. Every six months, employees can receive bonuses, but only if the Medallion Fund's profit level exceeds a certain standard. Renaissance Technologies will defer bonuses over several years to retain talent.

Whether employees discover new trading signals, complete data processing work, or perform other more low-key tasks, as long as these employees can stand out, and Medallion Fund grows If they do well, they'll earn bonus points, each representing a percentage of Renaissance Technologies' profit pool, calculated based on a clear and easy-to-understand formula.

"Employees know their bonus formula from the beginning of the year. Except for a few coefficients depending on the level, everyone's formula is almost the same." Once the core of Renaissance Technology Company Management member Glen Whitney said,

"You want a bigger bonus? Then do whatever you can to help the fund get a higher bonus. Rewards, discovering predictive data sources, fixing bugs to make your code run faster, having a cup of coffee with the woman downstairs who had the great idea...the bonus depends on the performance of the fund, not whether your boss likes you .

”

When Simmons first distributed shares, he awarded 10 shares to Laufer, who had made great contributions to the Medallion Fund, and later gave a considerable portion of the shares to Brown. , Mercer, Mark Silber and others, these moves have reduced Simons' ownership to just over 50. Other high-performing employees can buy shares of the company, and employees can also invest in the Medallion Fund. Their biggest benefit

4. Relying on an informal and academic working atmosphere to attract more talents

Despite the awards. Chapter Funds have strong earnings, and recruiting remains a problem, with Simmons, Nick Patterson and other executives emphasizing the positive aspects of the job. > For example, many scientists and mathematicians are natural problem solvers, so Renaissance executives talk about the rewards of solving tough trading problems, and some academics are attracted by the friendly atmosphere among their colleagues and the The pace of hedge funds attracts

Academics struggle with academic papers for years; Renaissance Technologies, by contrast, can push through in weeks or even days. As a result, this sense of urgency appeals to the preferences of some academics.

The overall atmosphere at Renaissance Technologies is informal and academic, yet imbued with a sense of urgency. Visitors liken it to "perpetual exam week."

The interview process at Renaissance Technologies is usually step-by-step: discuss your past achievements, solve some problems involving probability theory and Challenging questions in other areas, and then see if the company has suitable positions. Usually, the applicant will be challenged by 6 staff members in turn. Each interview lasts 45 minutes, and then the applicant will be asked to give a lecture to the entire company. its scientific research.

Simons generally focuses on recruiting experienced scholars who often have many academic achievements and, in addition, those who can write scholarship that they feel is outstanding. Fresh PhD students with dissertations are also favored

But even big-name candidates must pass a programming test, a requirement that demonstrates an attitude that everyone is welcome. They should have computer programming skills and be willing to perform tasks that other companies might consider unimportant, and they must also be able to get along with each other, Simons said in a speech at MIT. Say "I think there is beauty in everything, at least for me." You may ask, what's the beauty in building a trading company? The beauty of it is doing the right thing, finding a group of right people, and using the right method to do it right.

Like many new technologies, quantitative investing was also the object of ridicule when it first appeared. No one believed that computers could invest like humans. But Simmons keenly foresees that with the development of computer technology, one day the "impossible" will become a reality.

Today, with the amount of transaction data increasing exponentially, quantitative investment has become the mainstream, whether in the futures market or the stock market; in the chaotic and disorderly stock price fluctuations, Real gold can also be found using boring mathematical analysis methods. This is the best proof that knowledge can be exchanged for wealth.

On January 1 this year, Simons, the all-powerful "King of Quantitative Funds", announced his retirement and devoted himself to the foundation business.

"My first career was a mathematician, my second career was a businessman, and my third career was, in a sense, a Philanthropist,” he said.

In recent years, he has funded thousands of public school math and science teachers, advanced the research and development of autism treatments, and expanded our understanding of the origin of life. It can also be said to be “giving back knowledge with wealth”.