5/31/2024: Emperors Build Empires

I recently read The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution by Gregory Zuckerman. Dr. Simons recently passed away at 86. I picked up this book after reading about the returns of the Renaissance Medallion fund. The fund generated insane returns over the course of 30 years and from 2009 to 2018, it generated 55+% gross returns in every single year with a $10B fund size as shown above. That was very very impressive. I was expecting to read a book on how these math geniuses effortlessly produced amazing returns but the reality is far more complicated.

Dr. Simons was an ultra accomplished mathematician before starting his hedge fund. Unlike typical top mathematicians who dedicated their life to math, Simons wanted to be rich. He did become super rich after establishing a hedge fund that made hundreds of millions dollars a year in bonds and commodities. But he didn’t stop there. He wanted to be the world’s most successful hedge fund by getting into equities, which are a lot more volatile and a lot less predictable. The Medallion fund initially struggled but eventually they figured the equity trading out by recruiting top researchers and built out a world-class data system. Dr. Simons established a world-class team to figure out the equity trading. But I think the critical element here is actually his oversized ambition. Many of his team members objected to his plan to expand into equities because “What’s the point of making even more money? We already made way more money than we need on bonds and commodities.” and “Equities are too risky and markets are efficient.” But Dr. Simons persisted and eventually succeeded at an unprecedented level. I found his journey quite inspiring and it reminds me of the entrepreneurs that defied the odds and tuned out the naysayers to ultimately succeed. . He could have just stayed in commodities and bonds trading and simply be successful. But he chose to make his life difficult by getting into equities and originally suffered loss and internal revolt. He ultimately succeeded and became the hero but things could have gone other ways.

Even after the Medallion Fund reached the pinnacle of success, Dr. Simons still had to constantly deal with the drama inside the firm. The fund is making a lot of money but they can’t really expand the fund size because there are only limited opportunities in the market. The lack of growth and the insane amount of money the senior employees earned created some tensions inside the firm as the newer employees were not satisfied with their compensation and the growth opportunities. One of his top lieutenants, Robert Mercer, also caused some major drama as he was a prominent Trump Supporter and gave a lot of money to Trump’s 2016 Presidential campaign. Dr. Simons was just constantly bombarded with all the internal drama and he has to address them to keep everything together. Being a CEO is a thankless job but Dr. Simons was born to deal with all the chaos and he was handsomely rewarded by it.

In his later years, Mr. Simons gave money to math education and basic research through the Simons Foundation. He was very clear what he wanted and I am sure his legacy will live on and do great things for humanity.

My main takeaway from this book is that the price of success is very very high. The bigger the success, the higher the price. It may look effortless from the outside but the reality is way more messy. If you have a choice, would you rather be a top mathematician who leads a simpler life doing mathematical research all day long or be Jim Simons, a rich and powerful figure who has to shoulder enormous stress to make his empire work?