Yes James Simons… I have been referring to him on different occasions. This math lover, who earned his PhD from the University of California, is known for founding and creating Renaissance Technologies Chern-Simons formwith a technical analysis style in its trading activities. Reported revenue reached $18.5 billion in 2018.
Although James Simons was included in Bloomberg’s 2011 list of the 50 most influential people and was named “the world’s smartest billionaire” by the Financial Times magazine, he is a public hating and introverted person.
The performance of Renaissance Technologies’ Medallion fund provides the ultimate counterexample to the hypothesis of market efficiency. Over the period from the start of trading in 1988 to 2018, $100 invested in Medallion would have grown to $398.7 million, representing a compound return of 63.3%. Returns of this magnitude over such an extended period far outstrip anything reported in the academic literature. Furthermore, during the entire 31-year period, Medallion never had a negative return despite the dot.com crash and the financial crisis. Despite this remarkable performance, the fund’s market beta and factor loadings were all negative, so that Medallion’s performance cannot be interpreted as a premium for risk bearing. To date, there is no adequate rational market explanation for this performance.
In his book, The Man Who Solved the Market, Zuckerman (2019) describes how James Simon built his firm, Renaissance Technologies, and its premier fund, Medallion. For investment scholars and practitioners, the most interesting part of the book is Appendix 1 where Zuckerman provides Medallion’s performance data. That data is reproduced as Table 1 here. To say that the performance is extraordinary is to understate by an order of magnitude.
I have attached the excel version of the table above…
Summary:
1- 50% Return annually is a record 🙂
2- Anything above 8% means beating the market…
In light of those facts, I would adjust my systems to trade between 10% to 50% annual returns. I still believe in today’s markets due to usage of large funds and systematic trading houses chasing each other there could be better options for small traders. I know there is a lot of opposing ideas on the subject, but I still feel non-institutional traders have an edge over institutions. If you need a proof point you should read the life of Simons. How he created the fund? What was he good at? why all others could not achive what he was achieving?
I know he was a rare skilled mind, but still there is some proof point on the flow of events.
On one hand you have a ledged like Warren Buffet, who believes during your life all you need is a hand full of meaningful trades to be financially independent. On the other hand you have a trader like James Simons who was just betting on Quants and Algos for trading based on pure math and data crunching.
As of Today, we should not forget three things
1- Access to data had never been easier
2- Access to AI or Compute had never been lower
3- Integrating Algo’s to markets is nearly free of charge
Therefore, I say race is on…