Book Review # 1: “The Man Who Solved the Market.. How Jim Simons Launched the Quant Revolution”
It’s fairly reasonable to make two sweeping statements about Renaissance Technologies…
- With a CAGR of 66% since 1988 (yes, you read that correctly) and annual Sharpe Ratio sometimes hovering around 6.5 (no typos here as well), Renaissance Technologies has been arguably the most successful quant hedge fund in the world till date.
- It is also the most secretive one. The first time I had heard about it from Professor Ignacio, I tried — unsuccessfully — to learn more about the fund and its strategy, through the all-knowing-God better known as Google. But got little, today’s hyper-connected world notwithstanding. There must be someone on LinkedIn who had worked there, right? Well, try it out.
It is slightly less secretive now, thanks to this new and fascinating book by Gregory Zuckerman, a WSJ writer. It is an interesting story of Renaissance, its initial struggle, personal and professional partnerships broken over the years, strong dislike for being in the limelight and how strong political affiliation during the Trump election campaign for POTUS led to one of its biggest crises. Without spilling the beans, here is my summary of what makes it such an interesting read..
The book is littered with interesting observations. Among other things, what makes Renaissance Technologies unique, is that they usually hire only those having a certain pedigree: mostly Mathematics, Physics and quantitative background. Needless to say, you better have very strong credentials if you are interested. At the time of writing this blog, even a quick glance at their current job openings, suggests that they have little (or no) place for the usual finance and investment domain-experts.
Another refreshing highlight of the book, is that it is certainly not one of those biographies which quickly turn into a one-sided praise-all hagiography. In fact, this one even alludes to some eccentricities of the protagonist. A couple of incidents mentioned in the book about his chain-smoking habit, are rather hilarious. It also brings attention to the “hypocrisy” of Simons: donating to America-for-Math foundation on the one hand, and cornering some of the best mathematical brains to work for Renaissance on the other.
A rather moving part of the Simons’ story, is the incredible and somewhat inscrutable dichotomy between his personal and professional life. Someone who clearly was a mathematical genius, had the good fortune of studying in an Ivy League, was given a free hand to build the Department of Mathematics (for Stony Brook University) while on the verge of turning 30 and probably led to more wealth creation than by those much more famous than him (including Buffet and Soros), also had the terrible misfortune of bearing with the untimely demise of his two sons, one followed by another unrelated incident just a few years later.
If you come from the world of investing, you might find the book unputdownable. Even when the best mathematicians could figure out how to make money on other asset classes (fixed income, currency and commodities), stock market turned out to be a different beast altogether and it took them almost another decade to “tame” it.
For those of us who are practitioners of Machine Learning, what is intriguing is the fact that Renaissance was exploring and using quite a few of the techniques (Hidden Markov Models, finding hidden patterns and anomalies, slippage effect, behaviouralism) way back in the 1990s, well before most of the rest of the world caught up. Their internal debates about spending billions to get more data, using alternative data, lack of explainability and whether to trust the models even when they seem to be losing money, are pretty much the issues the ML community is dealing with even today. I just can’t help wondering what Renaissance guys must be up to, in 2020.
Perhaps, for that, we’ll have to wait for the sequel to this book. Until then, Happy reading this one.. :)
