A Dozen Things I’ve Learned from Jim Simons

There was so much interest in yesterday’s NYT article on Jim Simons, I thought I would do a special “Dozen Things” on Jim Simons with no commentary.

1. “Models can lower your risk. It reduces the daily aggravation.”

2. “Certain price patterns are nonrandom and will lead to a predictive effect.”

3. “Efficient market theory is correct in that there are no gross inefficiencies, but we look at anomalies that may be small in size and brief in time.”

4. “Great people. Great infrastructure. Open environment. Get everyone compensated roughly based on the overall performance… That made a lot of money.”

5. “Luck, is largely responsible for my reputation for genius. I don’t walk into the office in the morning and say, ‘Am I smart today?’ I walk in and wonder, ‘Am I lucky today?’”

6. “We have three criteria. If it’s publicly traded, liquid and amenable to modeling, we trade it.”

7. “We search through historical data looking for anomalous patterns that we would not expect to occur at random. Our scheme is to analyze data and markets to test for statistical significance and consistency over time. Once we find one, we test it for statistical significance and consistency over time. After we determine its validity, we ask, ‘Does this correspond to some aspect of behavior that seems reasonable?’”

8. “Trend-following is not such a good model. It’s simply eroded.” Things change and being able to adjust is what made Mr. Simons so successful. “Statistic predictor signals erode over the next several years; it can be five years or 10 years. You have to keep coming up with new things because the market is against us. If you don’t keep getting better, you’re going to do worse.”

9. “We don’t start with models. We start with data. We don’t have any preconceived notions. We look for things that can be replicated thousands of times. A trouble with convergence trading is that you don’t have a time scale. You say that eventually things will come together. Well, when is eventually?”

10. “Once in a while the phenomena we exploit are particularly present. We like a reasonable amount of volatility. In our business we want some action.” “Tumult is usually good for us. We don’t have credit lines of any significance. We don’t do a lot of leveraged-type financing.”

11. “How we do it isn’t any more mysterious than how a great fundamental investor does it. In some ways it is less mysterious because what we do can be programmed.”

12. “Academics has its charms, but it doesn’t have enough charms that I regret leaving that field.” “Be guided by beauty. Everything I’ve done has had an aesthetic component to me. Building a company trading bonds, what’s aesthetic? … If you’re the first one to do it right, it’s a terrific feeling and a beautiful thing to do something right, like solving a math problem.”

Notes:

MIT – Mathematics, common sense and good luck

Institutional Investor – The Secret World of Jim Simons

Seed Magazine – Interview with James Simons