Undoubtedly, Jim Simons is one of the most prominent and successful investors of our time. There is no denying the brilliant results of Renaissance Technologies – the company he founded recorded 66% of net annual profits since 1988 and operates with more than $ 100 billion in surplus profits. Especially considering the extremely low beta (volatility relative to market), the picture is even more impressive. He achieved this by introducing a new approach to quantitative trading in different asset classes.
Lesson 1: Discover trends, bet early even if it’s controversial, and tirelessly improve your approach
Today, this advice doesn’t seem so contraindicated, but when Jim started, his approach was considered very controversial. At the time, those who chose the shares ran Wall Street, not the developers, and the very idea of giving computer control to execute deals was considered insane.
However, Jim saw the inevitable shift to computer solutions in finance from an early age, long before most investors … and he held that this new approach would be revolutionary for the world of finance. As Gregory Zuckerman put it: “Jim used machine learning even before Mark Zuckerberg celebrated his bar mitzvah!”
However, this approach did not pay off as soon as it was proven. Renaissance has long invested in modern technology and collected historical data before it even knew how it could be useful. Most importantly, they developed a unified algorithm instead of separate trading strategies, which, although much more complex, was much more efficient and performed better.
The system has never been final and complete, but has always been improved and changed for a long-term “journey”.
Fintechs are also part of the wider financial arch. Their CEOs need to maintain a long-term vision and perspective on what they are doing, keep repeating themselves and improve quickly so that they are always one step ahead of the rest.
Lesson 2: Trust the system, but do not obey it blindly
Renaissance was building an automated trading platform that was right most of the time and was wrong in less than half the time. The good thing is that if you trust the system with an extremely large number of transactions, it will generate incredible profits – which it does.
The strength of the model is generally to have faith in it. By giving it enough time and constantly improving it, you can create an irresistible machine. At the same time, it is important not to blindly obey the system. In 2007, during the financial crisis, facing three days of unprecedented losses, Simons abolished the algorithms and began selling positions instead of buying as the system offers. These are extraordinary circumstances, and the goal of investors is to survive, and even if we are wrong, we can add positions later. Entrepreneurship is about building a system that works in the long run, but also survives over time.
Fintechs in almost every category be it savings, loans, insurance, investments or embedded in finance, seek to automate. Entrepreneurs must build a system in which they have full faith, but at the same time they must maintain constant skepticism about their model, especially during major disturbances such as Covid-19 and market crashes to keep their sanity.
After all, long-term survival – not just sticking to a model – is key to investing.
Lesson 3: Build your team based on his talent and cultivate a culture to make them successful
Gregory Zuckerman: “Perhaps one of Jim Simons’ strengths is not as an investor, but as a manager. People see him as the most successful trader in modern history, but he is also a very good role model and in some ways more impressive as a manager. ”
His approach carries a lot of thought and a final idea. Philosophically, his team is hired because of their individual qualities, not because of internal needs. Jim then created a culture that sustained them in an academic, collegial, and cooperative way, along with great transparency.
So his people had tailored incentives. One, of course, is the financial ones, with which the compensation from the fund’s results is connected … but Renaissance has also created social incentives, where it “throws” its workers into an environment where they can feel the pressure and pressure to prove themselves with their work. and want to do it.
This culture encourages external perspective- they hired the smartest people they could find, mainly in areas outside of finance. Creating teams at Fintech is a well-researched topic, but it’s worth thinking about the importance of hiring people for their talent and knowledge, rather than the company’s internal needs. This helps to create a culture for their prosperity, improving the right incentives for success. These are the characteristics of many of Fintech’s leaders today.
Lesson 4: Build a long-term plan.
Looking back, it’s easy to say that Renaissance was a success overnight. But this is far from the truth, because from 1978 to 1990 Jim tirelessly sought the right approach and when he found it, the Renaissance erupted in the field of commodities and 6 years later in stock.
It’s been almost 2 decades.
Solving major problems takes time, and it also requires the creation of an ecosystem that favors it. Jim was resilient and patient for a long time when different partners and leaders in the organization changed. He was not only resilient, but also maintained the vision of the company. This is perhaps the most impressive thing about his personality – his personal resilience – although very professionally successful, Jim faced the heavy loss of his two children, who died young.
Sustainability is crucial for entrepreneurs and a similar approach is required for fintechs. This means finding the right team, market and time – nothing happens in one night, but perseverance and resilience are important.
Lesson 5: It’s never too late to start
The Silicon Valley stereotype is the typical 22-year-old hooded warrior entrepreneur.
The best entrepreneurs today are “cross-pollinators”, using experience in different sectors, countries and years of experience, and the practice takes time.
Jim began the Renaissance after a glorious career as a code hacker for the NSA and later as dean of the top-rated math departments at Stony Brook University. He rediscovered himself for the third time as an investor and entrepreneur at the age of 50.
Fintech entrepreneurs are everywhere and it’s never too late to get started. Your experience in various fields can be an extremely valuable asset.
Jim Simons’ story is a great example of leadership, vision and perseverance in redefining an entire industry. Renaissance was a pioneer in the quantitative trading space and helped create the category. Fintechs usually create categories and many of these same lessons are passed on over time.
Junior Trader Kameliya Ivanova