The Man Who Solved the Market by Gregory Zuckerman [Book Summary]

Jim Simons enjoys observing the trends in the financial markets. He considers them as good-looking, strange shapes, as great shoals of fish or the nebulae in the night sky. He understands that behind these trends–just like every other thing in the universe – is mathematics. And by making use of mathematics, he understands that he can forecast alterations in these trends. Therefore, doing that can make him earn a lot of money.

In current history, Jim Simons is the greatest successful investor. Renaissance Technologies, his hedge fund company, is talked about respectfully in the business industry– it lays the gold standard worldwide, with financial analysts attempting to know its secretive, ground-breaking techniques. 

However, Jim Simons is beyond a Wall Street money man: an award-winning geometer, code-breaker, and philanthropist, he’s had a profession that should be the duration of numerous lifetimes. To know a bit of his unique life, begin with these chapters.

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Chapter 1 – From a really tender age, Jim Simons was obsessed with math.

Jim Simons like numbers from the instant he knew what they were.

Jim Simons was born in the year 1938 in Brookline, Massachusetts to a middle-class American Jewish family, Jim was the only child Matthew and Marcia Simons had.

Just like a lot of people with a rare ability for numbers, he started to display an interest in them really early. At the age of three, he learned to solve difficult problems. One day, his parents found him dividing numbers by two, from 1024 downwards. This was a surprising accomplishment for a toddler

One time again, when they were out on a family drive, four-year-old Jim was perplexed when his father had to halt to put gas in the car. Jim couldn’t understand the reason why this was important, as he thought that the tank wouldn’t ever finish. He thought that if they consumed half of what was in the tank, another half would be remaining; then they could use half of the remaining half, leaving another, smaller half to be utilized, and so forth.

Without realizing it, the four-year-old had begun on a classic mathematical issue– one of the issues the Greek philosopher Zeno had talked about in his group of paradoxes. If you continuously need to travel half the remaining distance before getting to your destination, regardless of how small, how can you ever get to your destination? 

After finishing school, he was motivated to study medicine by the family doctor, who believed it was a good profession for “a clever Jewish boy.” Definitely, Jim had other thoughts.

He registered at MIT for a bachelor’s degree in mathematics. After struggling firstly and failing some tests; one summer, he took time to actually deal with the more difficult theorems. After that time, he started to flourish. He loved how difficult formulae appeared to link with other formulae in mathematics, appearing to drive at a universal system. He deliberated if he was observing the type of code that could clarify the world’s mystery. He was regularly seen on campus lying on his back, with his eyes closed, thinking of an equation.

On one occasion he witnessed two of his professors, well-known mathematicians, Warren Ambrose and Isadore Singer, deep in conversation at midnight in a local café. At that instant, he chose that he wanted that type of life: cigarettes, coffee, and mathematics at every hour.

Chapter 2 – Immediately after his studies, Simons got into academia; however, he left all of a sudden to crack Soviet codes for an intelligence agency.

After impressive academic results at MIT and Berkeley, Simons searched for a lecturing position.

He’d finished his Ph.D. at Berkeley in two years. It tackled the geometry of multidimensional curved spaces. Its intelligence was sufficient to guarantee him a teaching post at Harvard University.

There, he was a famous professor, with an informal, enthusiastic way that fitted with his casual dress (really casual, as a matter of fact, that he didn’t even wear socks sometimes). He dealt with teaching with a starter’s freshness, acknowledging, in specific situations, that he understood little more than his students about mainly difficult parts of algebra.

But, at a particular time, he got exhausted with teaching. His life had started to follow a predictable routine, with a series of lectures and polite academic socializing, and he was critically bored. He wanted another encounter.

Therefore, soon, in 1964, Simons quit his work at Harvard to work for an intelligence group assisting to fight the Cold War. This was the Institute for Defence Analysis, a top research organization that employed mathematicians to assist crack Soviet codes. 

As at then, the IDA was struggling. They hadn’t really cracked Soviet codes often for more than a decade. Due to this lack of success, they chose to hire people such as Simons, without code-breaking skills, for their pure intelligence. This signified that the place was filled with people like Simons: people who love obscure theorems and long arguments about math. The IDA motto was “bad notions are good, good notions are terrific, no notions are bad.” This was where Simons learned how to create mathematical models to explain patterns in seemingly meaningless data. Also, this was where Simons created an ultrafast code-breaking algorithm.

Immediately after Simons’ revolution, intelligence experts in Washington found that a coded message with a wrong setting had been sent by the Soviets. Simons and his colleagues interested in this bug and utilized their code-breaking model to further understand and take advantage of the opponent’s internal messaging system. This made Simons turn to something of a star at IDA and in the code-breaking community largely.

But, even this accomplishment wasn’t adequate for Jim’s restless mind. He craved for more mathematical problems, more cryptic codes to unlock.

Chapter 3 – Simons had a huge achievement in geometry and created a new stock-trading system.

While attempting to crack codes at IDA, workers had a lot of time on their hands. Simons utilized it effectively – to research and to think about the world of global finance.

Meanwhile, while he was still at IDA, his research into geometry started to pay dividends. He concentrated on theoretical questions, instead of those with fast practical utility. This was what might be known as pure math, engrossing him for several days in abstract reflection. His field of research was on something known as “minimal varieties” – a very complex subject that tackled the question of surface area.

A classic example relates to the surface created by a soap film extended across a wireframe that has been immersed in a soapy solution. The soap film has the smallest imaginable surface area compared with any other type of surface extended between the same wireframe. Since such a kind of surface is really smooth, regardless of how complex or twisted the wireframe is, every point on this “minimal area” appears the same. Simons needed to understand if the same would be correct of minimal surfaces in higher dimensions, instead of just the two-dimensional wireframe.

He published his research in “Minimal Varieties in Riemannian Manifolds” in 1968, which assisted make him one of the world’s leading geometers. 

However, this wasn’t sufficient to keep Simons engaged. Keen to make more money, he started pondering of means to utilize his ability for numbers to measure the stock market.

Instead of the tried-and-tested investment approaches, which considered earnings and corporate news, Simons started to deal with the market in the same manner that he viewed math: as an abstract intellectual system. He created a model that basically thought of “moves” in the stocks themselves, instead of looking at the outside context. 

He suggested that the market had eight fundamental “states”, like the “high variance,” when stocks moved unsteadily, or “good,” when they increased generally, for instance. It was a system that wasn’t attracted to “why” the market got to particular conditions, but basically watched the various conditions and let investors make bets accordingly.

Although his work was basic compared with present market thinking, he was something of a pioneer in his time. Ultimately, predictive theory across various industries would look like his approach.

Chapter 4 – After a second time in academia, Simons created the hedge fund management business, Monemetrics.

After disclosing to coworkers that he was against the Vietnam War, Jim was sacked from his code-breaking duty at IDA in 1968.

Dumbfounded, he searched for another work and immediately went back to academia. At Stony Brook University, New York he was made the chairman of the math department. Yet, the world outside the lecture hall beckoned. To the perplexity of a lot of his academic coworkers, at the age of forty, he quitted and established Monemetrics, a hedge fund management firm. He desired to look for the hidden pattern in the markets. Furthermore, he had to acknowledge to himself, he desired to be really rich. Different from his academic coworkers, he was enticed to money.

His initial step was to call an old friend from IDA, Leonard Baum, to partner with him. Baum was the co-author of the Baum-Welch algorithm – something that would develop to a huge aspect of Monemetrics. It operated by forecasting results from a series of occurrences, without understanding the fundamental parameters or variables. These unpredictable series of occurrences are known as hidden Markov chains. 

Baum-Welch’s algorithm functioned by making educated estimates – analyzing a series of occurrences and guessing odds. For instance, without understanding the guidelines of baseball, it could guess what would occur next by basically analyzing patterns in the play. It would develop to be extremely significant for the future, in speech-recognition technology and also for Google’s search engine as well.

Simons and Baum thought that a predictive model such as that would be really beneficial for observing movements in the markets. This was 1979, prior to the times of digitized trading; therefore, in order to measure data, they stuck a lot of graphs and charts over the walls of their HQ – a small office in a Long Island strip mall.

Trading with just in currencies initially, they started to get a lot of money. In one unforgettable occurrence, Baum was chilling on the beach when he had an epiphany. He understood that they need to buy plenty of British pounds. The new British Prime Minister, Margaret Thatcher was making the pound abnormally low. From Baum’s guesses, it would increase soon; therefore, he hurried from the beach straight into the Long Island office and told Simons to buy while it was still low. Unexpectedly, as he thought, the pound started to increase quickly.

Just like the sea rushing into a hollow, Monemetric’s fund increased by tens of millions of dollars.

Chapter 5 – Simons Monemetrics fund was given a name from a character in a Joseph Conrad novel – and this was revealing.

Simons’ first actual venture into the industry of finance was Monemetrics. He started gathering a team of mathematicians around him and Baum, as well as old friends from college. After he’d persuaded others to become part of this work, he created a hedge fund, where they’d manage their investments.

He called it “Nimroy.” This was an anagram of the Joseph Conrad novel Lord Jim and the Royal Bank of Bermuda, which ran the company’s money transfers for tax purposes (that is, avoiding them).

The name mixed high finance with a character who struggles with principles of honor and morality. In Lord Jim a talented young seaman panics and leaves a sinking ship, abandoning the passengers in the hands the waves. The remaining of the books follows the story of the shamed seaman, as he struggles with his conscience and past.

According to a young employee at Monemetrics, Greg Hullender, Simons related himself with the seaman in the novel. As Jim had abandoned his more “noble” profession as an academic for the enticement of huge riches, the seaman’s moral wrestle resonated. Leaving a ship was an awful record against a seaman’s honor, and Jim had started to consider that he’d done a similar thing by moving to the world of finance.

Just like in Conrad’s novel, there would be a difficult time for Monemetrics in its primary stages. Although they were purchasing low, they weren’t selling high. In a case, they had bought into gold, and gold had increased rapidly to $865 per ounce. Monemetrics didn’t sell very fast and gold dropped immediately afterward to $500 per ounce. They started to experience continuous losses such as that, getting to a point where the fund was losing millions of dollars every day.

One day, Greg Hullender went into Simons’ office and saw him lying down on the couch. Hullender asked if he was fine. Jim, while lying down, started to tell his uncertainties: he pondered if he basically didn’t understand what he was doing. One again, he brought up Lord Jim, stating that the character was someone with an extreme belief of himself; however, he had failed woefully. He further stated, darkly, “He had an actual good death, though.”

Chapter 6 – Computers were launched into the world of investment by Simons and this caused huge victory.

Luckily, the initial losses that Monemetrics experienced would immediately be changed. However, firstly, they needed to create a much more precise system to read patterns in the markets.

While other investors were depending on outdated insight and business news for their estimates, Simons chose that he would feed data through computers – a technology that was rare in the early 1980s. Changing Monemetrics to “Renaissance Technologies,” he looked ahead into a courageous new world of investing.

He began by gathering huge quantities of historical data and feeding it straight into his computer. Simons bought tons of books from the World Bank, reels of magnetic tape from commodity exchanges, and records of currency prices going back prior to World War II.

He did this for him to be able to study old market activities for regular patterns that might be used in the present. But, the present was progressively unstable. Although there were a lot of resemblances, it was really hard to deduce patterns that would be applicable to the current from this historical data. Therefore, the aim had to be observing the present as quickly as possible.

In order to do this, they purchased a lot of expensive computers, huge quantities of data storage, and high-speed connections to market data. This gave them live market prices that nobody else in the investment world had access to.  

They mixed this surge of data with Baum’s predictive mathematics, enhanced by another of the team Simons had gathered, prize-winning algebraist James Ax. Refining Baum’s approach in order for it to be able to better predict more “dynamic” series, such as the wildly unstable markets of the 1980s, Ax’s tweaks made their returns better. Furthermore, when they’d refined their model, very powerful computers were now available, enhancing their ability to watch new data.

After that moment, Simons and Ax called the Renaissance hedge fund “Medallion” to show the mathematics successes they’d both had in previous times. And using their joint brainpower, the Medallion fund turned out to be Renaissance’s greatest profitable portfolio. 

After, it would become well-known for having the greatest record in the history of investing, returning above 66% in annual returns and trading profits of above $100 billion. They hadn’t “solved” the markets; however, they’d gotten a means to monitor their subtlest tremors and changes.

Chapter 7 – Simons’ career took him into the field of an intelligent man who would go on to court great debate.

As the investment activities of the Renaissance grew, it looked for more brainpower. One of these new employees was a man called Robert Mercer, who’d been working for the computer enormous IBM. He’d had huge achievement at IBM, setting the groundwork for developments in speech-recognition technology.

An intelligent coder, he was precisely the type of person that the Renaissance was searching for. During the 1960s and 70s Mercer used his childhood and teenage years at a computer keyboard – or at least as much as he could during that time. As a young man, he’d been predominantly motivated by an encounter with Neil Armstrong, who’d come to deliver a speech to budding computer scientists at a youth science camp in the mountains of West Virginia.

After finish from college, Mercer had proceeded to work as a computer programmer in a weapons laboratory. There, after doing some remarkable developments to the speed of lab computers, his bosses who had little concern about his accomplishments told him not to disturb anyone. According to Mercer, they were more concerned about successfully ticking boxes as they spent the government’s research funds. This made Mercer become an enemy of the government. After he would take the outlook that people have to be self-sufficient and evade state benefit.    

At Renaissance, his gift for coding assisted to detect errors and malfunctions in the system, enhancing the firm’s great success all through the 1990s. However, it was his political connections that would later shape him.  

Quiet and with a concise sense of humor, he didn’t instantly look like the type to have deep ideological opinions. However he did and they caused him to fund right-wing political movements and publications, as well as the website Breitbart, and, afterward, the campaign to elect Donald Trump as US president.

This contrasted with Jim Simons, who was a Democrat, giving millions to their campaigns over the years. While collaborating in the rough-and-tumble of finance, these differences weren’t really crucial. However, later, when Mercer funded Donald Trump’s contesting at the presidency in 2016, he was enforced to resign from his position at Renaissance – a co-CEO at that time– after intense criticism from investors. Jim Simons is assumed to have made the last decision.

Simons and Mercer – two peculiar geniuses, one in math and the other in computing. The duo would continue to have a huge influence on the world in their different methods, upsetting lives for bad or good, as they quietly hit their keyboards.

Chapter 8 – When everything is settled, Jim Simons’ CV is an amazing document.  

The Medicis were a strong banking family that decided on the progress of politics, art, and royal power in medieval Italy and beyond. It might be mentioned, not without truthfulness, that Jim Simons is somewhat like a recent-day equivalent of a member of that dynasty. His accomplishments, when everything is added together are really awe-inspiring.

Firstly, he’s the greatest successful trader in the history of present finance.

Not a single person in the investment industry even comes near to his revenues at Renaissance. Those trading legends, such as Warren Buffett, George Soros, Peter Lynch, Steve Cohen, and Ray Dalio are not up to his standard. As previously stated, the Medallion fund’s entire profits are estimated to be about £100 billion.

And yet, in current years, Renaissance has been getting $7 billion in trading gains every year. That’s above the annual profits of huge brand-names, as well as Levi Strauss, Hyatt Hotels, and Hasbro. Currently, Simon’s worth is about $23 billion, making him richer than even Elon Musk, Rupert Murdoch, and Laurene Powell Jobs – Steve Jobs’s widow.

And the innovative trading approaches that Renaissance utilized went further to form industries far above the world of finance.

Certainly, they’ve been accepted by nearly all fields. Consider the mass statistic crunching that Renaissance and Monemetrics did – there is no skilled sports team in the world that doesn’t do that same thing now. Also, there’s giving duties to machines –consider the military’s increasing dependence on robots, or health specialists making use of computers to diagnose illnesses. Or the use of algorithms in very much all fields where forecasting is needed.

However, Simons’ impact doesn’t end in the industry. Afterward, after he had succeeded to make a lot of money, he turned into a great benefactor.

Similar to the Medicis, who were patrons of great Renaissance painters and scholars, Simons has funded organizations and people everywhere around the world. Just to mention a few of them: he founded the Simons Foundation for education and health, created the Math for America initiative, helped the growth of Nepalese healthcare, and contributed huge amounts of money to Stony Brook University.

Presently, Simons is extremely hard to contact. Present and past workers are sworn to secrecy concerning the Renaissance’s trading secrets.  

From a boy that enjoyed shutting his eyes and dreaming of numbers, Jim Simons has become one of the greatest powerful and enigmatic people around the globe.

The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution by Gregory Zuckerman Book Review

After a prosperous early profession as a talented mathematician, Jim Simons continued to crack Soviet codes, before transforming the world of investment with Renaissance Technologies. With the use of mass data, algorithms, and computing, he transformed the manner in which global finance operates. After acquiring huge wealth, he now serves as a powerful benefactor to a huge group of organizations and progressive initiatives.

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