In 1982, a math genius from the US National Security Agency built a quantitative trading fund that delivered over $100 billion to investors. With a 66%/year return rate, his performance even surpassed Warren Buffett, George Soros, Carl Icahn, or all other famous investors.
None other than Jim Simons, the smartest billionaire in this financial field.
From Harvard professor…
Born into an ordinary Jewish family, billionaire Jim Simons showed intelligence from a very young age. He early demonstrated talent in mathematics and had “bright spots” in his academics. He decided to pursue a teaching career and worked for many years at world-renowned universities like MIT and Harvard.
In 1964, he collaborated at the Institute for Defense Analyses. His main job was analyzing data and helping to decode and track potential military threats for the National Security Agency.
FYI: Before Simon invented code-breaking models, the NSA couldn't decipher Soviet cryptic messages for over a decade.
In 1976, he won the Oswald Veblen Prize - the most prestigious award in geometry from the American Mathematical Society.
… to losing everything when starting a business, then building a massive empire
In 1958, this Jewish billionaire became interested in stock investing. So, he used about $5,000 in wedding gift money to buy stocks.
However, Jim Simons lost all that money in no time.
After that loss, the Jewish billionaire learned valuable lessons for himself. He began to think carefully about his strategy, researching the application of algorithms to this market.
Initially, Jim Simons and his close friends gathered to sell paint to raise capital. After 7 years of business and saving, he established the hedge fund Monemetrics - the predecessor of Renaissance Technologies.
With his math advantage, Jim Simons applied mathematics to his hedge fund to analyze data, then compute to forecast future trends.
How is the Medallion Fund the greatest “money-making machine” in financial history?
Medallion is managed by Renaissance Technologies - the parent company founded by Jim Simons.
If you invested $100 in the Medallion fund in 1988, that money would be worth over $400 million today.
Meanwhile, if you invested $100 in the S&P 500 in 1988, the investor would only get $2,000 by 2022.
Jim Simons' Medallion Fund achieved enormous returns, up to 66%/year over 30 years.
For comparison: Warren Buffett's investment return is about 20%/year.
Many funds can't even reach that number over their lifetime.
Even during the 2008 financial crisis, Medallion still earned a net return of 82.38%.
They made so much money for investors that the management fee reached 44%, while the industry average is only 20%.
The Medallion Fund used mathematics for most of its trades, not following the crowd in the market. It won by finding “order in chaos”.
No one knows how the fund makes so much money, and their algorithms are one of the world's most closely guarded secrets.
Medallion kept its algorithms so secret and exclusive that it stopped accepting new investors in 1993.
This is explained by the fund growing too large and fast, to the point it could swallow Wall Street at that rate. So they had to stop accepting new investors, otherwise the fund would become too large and every trade would impact the market.
Who are the people behind the world's strongest investment fund Medallion?
Surprisingly, behind Medallion's enormous profits are the world's best scientists, not traders or economists.
First, the founder. Jim Simons is the #1 hedge fund manager in history.
Simon's first employees came from his connections at the Institute for Defense Analyses (IDA) and National Security Agency (NSA).
The fund's team is very secretive, with very little information about this small group of scientists. However, one thing we know is that their enormous assets are even larger than the GDP of many countries.
Famous mathematicians behind Medallion include:
Leonard Baum: Most famous for the Baum–Welch algorithm & Baum–Sweet sequence.
James Axe: Made breakthrough contributions in algebraic theory and mathematics using model theory.
Renaissance's senior team includes the elite of the scientific world, and they are also required to sign absolute non-disclosure agreements for internal information.
FYI: In 2017, Simons asked Robert Mercer (then co-CEO) to resign.
The reason is that Simons is a Democrat, and Mercer spent 25 million USD earned from Renaissance — contributing to the Republican Party in the 2016 election campaign to support Trump.
That same year, Simons donated a total of 26 million USD to the election, of which 16 million USD to support Hillary Clinton.
How did Jim Simons and his colleagues change the market?
Simons revolutionized the stock market by applying mathematical prediction models to finance.
Today, predictive theory is the backbone of AI and machine learning. Most trading companies use AI built on this theory.
Simons' team built a massive database of pricing behaviour on the stock market, dating back to World War II.
This was not easy at all in the 1980s, when data was not yet widely stored and organized on computers.
Simons and his colleagues bought hundreds of books from the World Bank (the only place back then that had the financial data they needed) and entered the data into computers manually.
Their goal was very simple: To develop the strongest quantitative algorithm, they needed to study the entire history of the market and find 'anomalies' in the market to predict behavior in places no one expected.
They were the first to create a computerized price database at that time.
This allowed them direct access to market prices that no hedge fund could achieve.
The breakthrough came next: They applied Baum's mathematical prediction model to their massive computer data.
They could predict even the most violent market fluctuations.
Some principles Medallion always follows:
Identify unusual patterns
The more data, the better
Focus on prediction, not explanation.
Their moves control the market. Their plays appear chaotic and overly risky, but they are all carefully calculated by supercomputers, supported by very complex code.
Their success rate is about 50% and the fund traded millions of dollars in very short periods.
To date, no one has successfully decoded their strategy. However, it is known that the fund's source code includes several million lines, working in harmony with each other. They do not follow any market trends and look very 'random'.
In summary
The success from the hedge fund earned Jim Simons the title of the world's smartest billionaire (according to Forbes).
As of March 2023, this billionaire's assets in hand reach over 28 billion USD, ranking 51st in the world in wealth. In addition to getting rich and dedicating himself to business, he is also diligently engaged in philanthropy. He aims for community values and always appreciates what he has, including the early business setbacks.
From a math teacher, Jim Simons applied mathematics to business and achieved tremendous success. In the stock market field, Jim Simons is considered a master admired by all.
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