“We can’t create our own data … You just have to play the data as it plays.”

Jim Simons

Career and studies

The genius of mathematics applied to finance was born in the state of Massachusetts, in the town of Newton, in 1938. Twenty years later, in anticipation, he was graduating from the Massachusetts Institute of Technology (MIT) and, three years later, he was receiving his doctorate.

Right in the middle of the Cold War, Simons is recruited by the U.S. National Security Agency for the purpose of decrypting Russian communications.

Years later, he would return to academia, but now split his time between Harvard and MIT. This effort earned him the head of the Mathematics Department at Stony Brook University, Long Island, New York.

Before the age of 40, he had already won several awards around mathematics, and even developed a quantum model that bears his name and is associated with string theory, Chern-Simons.

Mathematics and finance

In 1988, another mathematician by the name of Leonard Esau Baum invited Simons to develop a model for predicting stock prices, as he was convinced that stocks moved based on patterns that, if detected, could be used to predict their prices in order to obtain large profits.

After several failed attempts that caused Baum to resign, Simons continued trying, but now with the help of a group of expert mathematicians, physicists and programmers, among them James Ax, with whom he would end up founding the investment firm Renaissance Technologies, with its first fund called Medallion.

The success of his model is such and its accuracy so astonishing that it has no comparison, not even with other great investors such as Buffett or Soros, who in their respective firms have earned an annual average of around 29% and 32% respectively in considerable periods of time.

Simons and his model have averaged 66% annual returns over three decades. This is across his three funds that collectively manage over $130 billion in institutional client assets and have a minimum investment ticket of $5 million.

What is your investment style?

Using applied mathematics, in Simons and Ax’s first model, they compiled data from the World Bank and Federal Reserve since the 1700s to identify patterns of financial trading movements that repeat over time.

By identifying possible patterns that indicate a possible cycle, it is possible to predict price movements and profit from them. Of course, the model is dynamic and adjustable to the changing parameters of the times, so the model is effective every time.

Jim Simons knew how to use science and logically detect the capricious movements of the market. After him, several firms have used various mathematical models, but so far, the most successful one is still Simons’.