JIM SIMONS
A former NSA employee, a heavy smoker, and a math genius who brought together other brilliant minds into one investment fund.
This fund has made over $100 billion for its investors, and an average annual return of 66% puts Warren Buffett, George Soros, Carl Icahn, and all major Wall Street funds to shame.
Meet Jim Simons - the smartest billionaire on Wall Street.
If you had invested $100 in the S&P500 in 1988, you’d have about $2,000 today.
But if you had put that same $100 into Jim Simons’ Medallion Fund back in 1988, you’d be sitting on $400 million today.
Just take a moment to let that sink in.
Medallion has returns that are mind-blowing compared to other multi-billion dollar investment funds on Wall Street. For 30 years, Simons and his team of math geniuses have delivered an average annual return of 66%.
Warren Buffett’s Berkshire Hathaway, over the same period, has averaged a return of 20%, and his company is considered the gold standard in investing. While many funds struggle to even match Buffett's returns for a single year, Jim Simons casually strolls up to Wall Street’s doors and knocks them down in one blow, making it clear that he’s the one in charge here.
Even during the financial crisis of 2008, the fund posted a net profit of 82%. They make so much money for their investors that they charge a management fee of 44%, occasionally lowering it to 20%.
Simons uses mathematical calculations to open and close his positions, and no market trends affect his approach. He wins by creating order out of chaos.
No one knows how they make so much money, and their algorithms are among the most closely guarded secrets in the world. The fund itself is so secretive and private that no one has been able to invest in it for the last 30 years. Simons shut the doors to new investors in 1993.
Medallion grew so quickly that it could have eventually swallowed Wall Street. So Jim stopped allowing new investors in. Otherwise, the fund would have become too large, and every trade it made would move the markets. Hello, BlackRock.
Simons changed the markets by bringing mathematical predictive equations into the financial world. Today, most trading firms use AI and incorporate mathematical forecasting theories in their decision-making. Medallion was one of the first to do this.
Jim Simons' fund makes money not by having a better understanding of finance, but through pure mathematics.
To this day, no one has been able to figure out their strategies. However, it’s known that the fund's code consists of several million lines that work together as a cohesive unit. They don’t follow any market trends, and looking at their positions can give the impression that it’s all completely random.
The most interesting part of the whole story is that Jim Simons isn’t even a finance guy.
Before founding Medallion, Simons worked at the NSA, helping them crack Soviet codes during the Cold War. Thanks to Simons' code-breaking models, the NSA was able to decode secret Soviet messages, something they hadn’t been able to do for 10 years.
The real reason behind Medallion Fund's incredible profits is that it’s run by the best scientists in the world, not traders. The Medallion Fund team included some of the smartest mathematicians, Nobel laureates, and top researchers of the time.
Leonard Baum is best known for the Baum-Welch algorithm and the Baum-Sweet sequence.
James Ax is recognized for his groundbreaking contributions to algebra and number theory using model theory.
The fund's first employees were his colleagues from the NSA and ARB—the American Research Bureau. They managed to control all the variables. Their approach might seem chaotic and aggressive, but it’s carefully calculated by computers that use some of the most ingenious algorithms.
Together, they built a massive database of all assets and their pricing on the stock market dating back to World War II. It wasn’t easy because this was the 1980s, and the data wasn’t yet organized by computers.
Simons and his team bought hundreds of books from the World Bank (which at the time was the only place that had the financial data they needed) and manually input the data into their computers.
Their goal was simple:
To develop the most powerful quantitative algorithm. To do this, they needed to study the entire history of the market and identify some "anomalies" to predict movements in places and assets that no one was paying attention to. Their computers were the first to store this kind of information.
But even with all that data and computing power, it was still the people and their ideas that mattered most. The key to their work was applying Baum's predictive mathematics to the massive amounts of data their computers had accumulated. They were able to predict even the wildest market fluctuations.
The principles of Medallion are really straightforward:
- Find a pattern that looks like an anomaly.
- There's no better information than more information.
- Don’t ask why, just follow the forecast.
This is pretty standard practice in the financial market, where traders occasionally come up with great strategies and dominate the market. But competing firms quickly catch on to these profitable methods, adopt them, and ultimately kill the strategy.
That hasn’t happened with the Medallion Fund.
The fund maintains this level of secrecy because Renaissance (the fund's management company) is notorious for making its employees sign strict confidentiality agreements.
The team keeps a very low profile, and not much is known about this small group of scientists. But it’s clear that their combined wealth exceeds the GDP of many countries. Plus, Medallion's money has a significant impact on U.S. politics.
During the 2016 presidential race, Simons was one of Hillary Clinton's top donors, contributing $26 million to her campaign.
As of now, Simons’ net worth is estimated at $28 billion, and since 2009, he’s been pretty much out of the day-to-day operations of the fund, but that doesn’t stop him from raking in a nice profit from the overall earnings of the company every year.
Medallion continues to outperform the rest of the market, showing phenomenal returns, and there doesn’t seem to be any signs of that changing anytime soon.