A little luck never hurts, but it’s rare for anyone to attribute their success to it -- especially anyone on Wall Street, where appearance seems sometimes to matter as much as performance.
By Michael Carroll
November 2000
Institutional Investor Magazine
A little luck never hurts, but it’s rare for anyone to attribute their success to it -- especially anyone on Wall Street, where appearance seems sometimes to matter as much as performance.
Then there’s James Simons, president and founder of Renaissance Technologies, the hedge fund with the best track record of the past decade (up an average 35.6 percent annually since 1989 and 64 percent so far this year). If anything, Simons can’t seem to say enough about luck. That’s in part a reflection of his unusual background. A brilliant mathematician, Simons won the Veblen Prize for geometry in 1976 before tiring of academia and taking up trading full time. Luck, for him, is a matter of statistical probabilities; trading success comes from scrutinizing data to create models that narrow the range of outcomes.
Personable but publicity-shy -- interviews with the master seem nearly as difficult to arrange as it was to solve, say, Fermat’s last theorem -- Simons toils with a crew of 140 (40 of whom have Ph.D.s in the hard sciences), on Long Island, a two-hour drive from Wall Street. Last month Senior Editor Hal Lux broke through the privacy barrier to spend the better part of a day at the firm’s East Setauket headquarters, investigating the reasons for its success and trying to get his mind around differential geometry, Simons’ specialty. Lux’s story, “The Secret World of Jim Simons,” begins on page 38.
“Since the collapse of Long-Term Capital Management, Ph.D. has almost become a dirty word. But Simons and Renaissance go a long way toward resurrecting the reputation of quantitative finance,” says Lux, who has an MBA in finance from the University of Chicago.
Truly global in his approach, Simons trades 60 different instruments, from such commodities as oil to German government bonds to U.S. equities. He was a pioneer of the kind of electronic systems that are helping to bring down the cost and increase the efficiency of trading around the world.
Nowhere has the benefit of such systems been more evident than in the global stock markets, where an increased use of technology is helping to reduce execution costs. In “Europe’s New Cost Consciousness” (page 95), Staff Writer Justin Schack shows how pension schemes and mutual funds across the Continent have been waking up to the importance of trading costs -- pressuring brokerages and exchanges to either cut them or lose business.
Traders may need luck, but when it comes to the tools they use, they can’t rely on it.
