The Man Who Solved the Market

I just finished reading The Man Who Solved the Market, a book by Gregory Zuckerman about Jim Simon and his company Renaissance Technologies. Renaissance is the most successful hedge fund in history generating average annual returns of 66% in the roughly thirty years since it was founded in 1988.

Renaissance was one of the first quant funds. This means they built an automated model that would make all the trading decisions and the Renaissance team would only be concerned with improving the model, not with making direct trading decisions.

One thing that seems to have been an important decision is to build just a single model that would trade in all the markets, as opposed to having different models for different markets and conditions. In the book, they mention that access to more data is one advantage of that. Also the model being generalizable would mean they could more easily expand to new markets.

Simons was an academic and mathematician before starting Renaissance and both how they hired and how the company works internally was shaped by the academic background. They focused on hiring brilliant people, especially scientists and mathematicians, who mostly had no prior knowledge of financial market.

Internally, the company emphasized transparency and collaboration. Since people were contributing to the same model, it naturally fostered collaboration more than competition. Also, the source code was fully open, so everyone could run experiments to modify and improve the system.

Simon definitely created a familial and intellectually stimulating environment full of brilliant people. What he also did well was compensating people well and over time, Renaissance closed its fund to external investors so only the team members would be able to invest through Renaissance. As a result, many people seemed to stay with the organization for a very long time.

That being said, it seems to me that while Renaissance did amazing in hiring intellectually brilliant people dedicated to a scientific approach, they weren't clear enough about other guiding values. For instance, one person is described who was clearly seemed to have a corroding effect on the organization, and from afar not letting him go seems to have been wrong.

Another person who features prominently was Robert Mercer, Renaissance’s Co-CEO, who ended up becoming one of the main funders of the alt-right movement and Donald Trump’s campaign. This led to tension in the company as many others disagreed with the political views. And in the end another person was fired because of the ensuing conflicts and Mercer ended up stepping down.

Overall, I enjoyed the book and learning about how they have been able to perform at such an exceptional level for over 30 years.