The secret behind the Man Who Solved the Market: Remove all emotions

The secret behind the greatest modern day moneymaker on Wall Street: Remove all emotion

The most successful money maker in modern finance has one simple rule of thumb for investing: remove all emotion.

Jim Simons revolutionized investing when he left academia in 1978, at the age of forty, to begin trading. Relying on his experience and skills as a decorated mathematician, professor and code breaker, Simons looked at the market in a fundamentally different way when he launched his quantitative-focused fund Renaissance Technologies in 1982 from a strip mall in Long Island.

According to “The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution,” a new book by the Wall Street Journal’s Greg Zuckerman, Simons’ secret and winning strategy has always been to remove emotion and focus on pure, hard data.

“The importance of models as opposed to sort of intuition,” Zuckerman said Tuesday on CNBC’s “Squawk Box” when asked about Simons’ trick. “Too often we get caught up in stories when it comes to stocks. We get caught up in things like Uber and WeWork … you look at the best companies today, Amazon, Netflix, Tencent, it’s all models. And that’s the Simons solution. By deferring to models and the scientific method you don’t fall for things like behavioral biases.”

Using his mathematical background and large sets of data, Simons set out to build computer models that he believed could identify and profit from patterns in the market. His algorithms are based on data from as far back as the 1700s, according to Zuckerman, and they take advantage of even the smallest and shortest fluctuations in prices. The average holding period is two days. Simons’ unconventional background has proliferated throughout the firm, which is known for hiring people with PhDs in math and physics rather than traditional Wall Street players.

His years of success and outsized returns have placed him in a class of his own, even ahead of legendary investors like Ray Dalio, Warren Buffett and George Soros to name a few. Since 1998 Renaissance’s flagship Medallion Fund has returned 66% annually, or 39% after fees, Zuckerman found. While Simons no longer oversees the fund, which exclusively manages employee money, he remains active at the firm.