The Making of the World’s Greatest Investor

By Gregory Zuckerman of The Wall Street Journal. He has written a book about mathematician Jim Simons. Excerpts: 

"Mr. Simons is considered the most successful money maker in the history of modern finance. Since 1988, his flagship Medallion fund has generated average annual returns of 66% before charging hefty investor fees—39% after fees—racking up trading gains of more than $100 billion. No one in the investment world comes close. Warren Buffett, George Soros, Peter Lynch, Steve Cohen, and Ray Dalio all fall short."

"Mr. Simons amassed a $23 billion fortune"

"Mr. Simons both anticipated and inspired a revolution. Today, investors have embraced his mathematical, computer-oriented approach. Quantitative investors are the market’s largest players, controlling 31% of stock trading"

"During the Cold War, he broke Russian code working for an organization aiding the National Security Agency. At 37, while running Stony Brook University’s math department, he won geometry’s highest honor, cementing his reputation in mathematics."

"Mr. Simons concluded that financial prices featured defined patterns, much as the apparent randomness of weather patterns can mask identifiable trends."

"Mr. Simons convinced a reserved Stony Brook mathematician named Lenny Baum, whose work helped pave the way for weather prediction, speech-recognition systems and Google’s search engine, to join the firm."

"they gathered data going back to the 1700s—ancient stuff that almost no one cared about but Mr. Simons.

“There’s a pattern here; there has to be a pattern,” he insisted."

"Mr. Simons hired a Parisian to read an obscure French financial newsletter and translate it before others had a chance to act. He consulted an economist named Alan Greenspan who later would become Federal Reserve chair. Mr. Simons set up a red phone that rang whenever urgent financial news broke, so he could be the first to trade."

"Relying on intellect and instinct didn’t seem to work. Mr. Simons refocused on building a computer trading system reliant on mathematical models and algorithms, an approach that might allow him to avoid the emotional ups and downs of traditional investing."

"This effort was led by another acclaimed former Stony Brook mathematician, James Ax. The firm’s data trove was riddled with faulty prices, however. They found another former professor named Sandor Straus to scour the data and ensure it was ‘clean,’"

"The doubts piled up in the 1980s. By the end of the decade Mr. Simons was on his second marriage and third business partner. Returns at his Medallion hedge fund were so awful he halted its trading and Mr. Ax quit"

"A new team that included Elwyn Berlekamp, a computer scientist who taught part-time at the University of California, Berkeley, began identifying reliable and repeatable short-term patterns in the market. They shifted to concentrate on this kind of trading, holding positions for just a few days. The idea was to resemble a gambling casino, handling so many daily bets they’d only need to profit from a bit more than half of their wagers.

Another mathematician Mr. Simons had recruited from Stony Brook, Henry Laufer, made important discoveries demonstrating the market’s recurring and overlooked trading sequences. Monday’s price action often followed Friday’s, while Tuesday saw reversions to earlier trends. Medallion began buying late in the day on a Friday if a clear uptrend existed, and sold early Monday, taking advantage of what they called the “weekend effect.”"

"Implementing their new short-term, computer-driven approach, Mr. Simons’s team saw big gains. Outsiders scoffed."

"Then, Medallion scored a gain of 55.9% in 1990, a dramatic improvement on its 4% loss the previous year. The profits were over and above Medallion’s hefty fees—5% of all assets managed and 20 percent of all gains."