Interview with James Simons, Billionaire Mathematician [video]

Do any of the books go into detail explaining how and why successful strategies worked? Historically that is. I wouldn't expect any strategies outlined in a book to be profitable today, but I would be interested in how a strategy was formalised.

>screen grab of the top half of one of my book shelves.

aka a photo?

Pretty cool regardless of name. :)

I have some of those same books. Is there anything interesting on the bottom half of your bookshelf?

It's sad that this is a good way to fund fundamental research. Why is it that finance make more than what seems to be more important and useful like math or science!?

Not only that, they once funded the collider experiments at a physics laboratory where I worked when NSF had cut funding drastically, we're talking millions of dollars here.

https://en.wikipedia.org/?title=Relativistic_Heavy_Ion_Colli...

http://www0.bnl.gov/newsroom/news.php?a=21314

Minor correction: he has 3 living children; he had 5, but 2 died. Source: http://www.bloomberg.com/apps/news?pid=nw&pname=mm_0108_stor...

Are you implying that he shouldn't do this even though it's not breaking any laws?

Nothing ridiculous about any legal interpretation of tax laws that allows one to minimize one's contribution. It's common sense. Even more so given the outrageous way in which government wastes the revenue it gets.

"No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue"

Lord Clyde gave this famous quote (in taxation circles) in the case of Ayrshire Pullman Motor Services v Inland Revenue [1929] 14 Tax Case 754, at 763,764:

I also wonder why those limits exist more generally, not just for this fund.

Maybe those limits affect the timelines on which money is invested and in which it is withdrawn, where-as actually having rules about such things would not work as well.

Well, there used to be a limit in the number of investors. I think it was only 500 people. Does that limit still exist?

You aren't guaranteed returns. Many hedge funds fail:

http://www.forbes.com/2009/03/18/hedge-fund-failures-busines...

first off, there are strict SEC rules on what constitutes a qualified investor. But second, nobody in the hedge fund world wants to hand-hold a bunch of limited partners -- the fewer the better. And if you've got a track record like Simon (and Steve Cohen and Ray Dalio and Paul Tudor Jones and DE Shaw and a few others) then you're likely way oversubscribed whenever you want to open a new fund and as a result can be very picky about whose money to take. Hence the 44% carry.

Even if RT removed their limits, there are still government imposed ones (supposedly to protect unsophisticated investors from risk): https://en.wikipedia.org/wiki/Accredited_investor#United_Sta...

RT's limits are much higher though, and that probably is done with the goal of limiting the number of individual investors. Dealing with investors is a distraction for the fund managers. But the main issue is proprietary information. The more investors you have the higher the risk of information leakage to your competitors.

The Medallion fund is a bizarre outlier. For the most part, high expected return => high risk, which is not what you want for a middle-class wealth-generating engine. It would be much better to tax the hedge-fund winners (at the end-point, with a consumption tax), and redistribute that.

a.) It's much easier to maintain high returns with lower amounts of invested capital. Warren Buffett has talked about this at length; when you're investing $5M, there are a large number of undervalued opportunities where you can gain outsized returns, but when you're investing $500B, you are the market, and it's extremely unlikely that you'll get above-average returns.

b.) Private capital with a personal relationship to the fund manager is usually more patient. Many public funds have a problem where all the individual investors head for the exits at the slightest sign of trouble, but the best investment opportunities are usually available when everybody else is panicking.

Basically, if you want to do well in investing, you really need to do it yourself, and you need to have an information advantage on everyone else in the market. It's a field that rewards being smarter than everyone else, not being more cooperative.

The Medallion Fund is not only closed to new investors, it's closed to anybody who doesn't work at the firm itself.

The interesting question becomes what are they doing with all the money they make.

Maybe it operates in someway by taking advantage of small time private investors.

The simple answer to your question is this: regulation.

The U.S. Securities and Exchange Commission (SEC) prevents hedge funds, private equity firms and other private investment managers from marketing their products to a wide audience.

High risk funds, like the Medallion Fund, are limited to fund raising to an exclusive group of investors that must meet the following criteria:

a) those with a net worth of at least $1 million excluding their primary residence, or

b) annual income of more than $200,000 in each of the two most recent years.

The deeper answer to why the SEC does this is: protection of the 'lowest common denominator' investing public.

By and large the investing public are not what you might call:

1) 'professional' (keeping an eye on the market as part of their job), or

2) 'sophisticated' (as in have a knowledge of the multitude of securities, how they work and how to trade them), or

3) Have a high risk profile and matching capacity for loss.

I think these points, from the SEC's point of view, make the selling of the Medallion fund to the general public inappropriate. I would imagine that from the SEC's perspective, the Medallion fund would be a 10/10 risk profile (highly speculative) and therefore the SEC would want an investor to make an investment fully understanding what they were investing in, and having enough wealth to suffer a total loss of money invested.

This leads into another point, the wording of your post implies that the 'astounding' annual average of 38% net of fees is practically a 'sure thing' when you say that since the fund's launch it took one drawdown in 1989.

However, you miss the obligatory warning that past performance is no guarantee of future results.

Speaking as a retail trader I can quite happily say that for different levels of risk I can make (and have made) the following returns (net of fees):

a) 1% per month with a high level of confidence with what I would call a very low risk trading strategy (annualised to 12% per annum),

b) 2% per month with a medium to high level of confidence with what I would call a medium risk trading strategy (annualised to 24% per annum),

c) 3% per month with a low to medium level of confidence with what I would call a medium to high risk trading strategy (annualised to 36% per annum), and

d) 4%+ per month with a low level of confidence with what I would call a high risk trading strategy.

The point I'm making here is that:

* If you know what you are doing,

* You have the capital (and capacity for loss), and

* You have the risk profile,

Then you can make decent market returns too. Technology has democratised the markets so there really isn't any reason for being negative and bothering about inequality.

You would however have to work for it and if the Medallion Fund are making 82% per annum (38% + 44%) before management fees they are working extremely hard for that.

That is incredibly facinating. The way he talks about the quant models in the interview they sound simple in comparison to his prior work. My suspicion is that mathmeticians are involved in the front end model creation purely to create efficient ways of finding performant models but the models themselves are pretty mundane. The idea of purely data driven models is fascinating because it's generally rejected as too limited and inefficient. I wonder what types of anomolies they have discovered and what data sets they find useful. Also how does historical simulation work when the computer models you were competing against 10 years ago are so different than now?

Here's a link without some unnecessary endpoints http://www.amazon.com/The-Physics-Wall-Street-Unpredictable/...

As elsewhere in these comments: tax dodging is an obligation for any intelligent person.

"No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue"

Lord Clyde gave this famous quote (in taxation circles) in the case of Ayrshire Pullman Motor Services v Inland Revenue [1929] 14 Tax Case 754, at 763,764:

Thanks. That seems covered by the original source rule, so we changed to this from https://www.youtube.com/watch?v=gjVDqfUhXOY.

Or Hawking.. oh wait :-)

Brooklyn accent?? No, not at all. He grew up in Brookline, Massachusetts, a much different place... and accent!

Just sign up for a free trial for Astrill. Being in China without a VPN is insanity.

No, right place / right time / right choices etc still plays an overwhelming role in the wealth generation.

For every thousand geniuses that try to get really rich, there's one Simons or Buffett that pulls it off. You could run a simulation with a large number of people of equal mental capability, almost all of them would fail. Just the broader requirements alone would be enough to instantly flunk most people out of the running (the other skills required that Simons possesses beyond his intellect).