Jim Simons was the chairman of Renaissance
Technologies LLC, the asset management group that manages the most profitable
fund ever: The Medallion Fund. Simply, Jim is the GOAT(*) of trading!
(*) GOAT = Greatest Of All Time.
Reading Time: 5 minutes Financial activity: Trading Knowledge level: Beginner / Intermediate
Summary
The performance of The Medallion Fund
Jim Simons’ Trading Strategies
Conclusions
The performance of The Medallion Fund
First of all, I will explain to you why this fund is
the most profitable ever.
In Appendix 1 of Gregory Zuckerman’s book: “The Man Who Solved The Market”, he has published the annual returns for the Medallion fund:
|
Year |
Returns
before fees % |
Management
fee % |
Performance
fees % |
Net
returns % |
Size of fund (in millions) |
|
1988 |
16.3 |
5 |
20 |
9 |
20 |
|
1989 |
1 |
5 |
20 |
-4 |
20 |
|
1990 |
77.8 |
5 |
20 |
55 |
30 |
|
1991 |
54.3 |
5 |
20 |
39.4 |
42 |
|
1992 |
47 |
5 |
20 |
33.6 |
74 |
|
1993 |
53.9 |
5 |
20 |
39.1 |
122 |
|
1994 |
93.4 |
5 |
20 |
70.7 |
276 |
|
1995 |
52.9 |
5 |
20 |
38.3 |
462 |
|
1996 |
44.4 |
5 |
20 |
31.5 |
637 |
|
1997 |
31.5 |
5 |
20 |
21.2 |
829 |
|
1998 |
57.1 |
5 |
20 |
41.7 |
1100 |
|
1999 |
35.6 |
5 |
20 |
24.5 |
1540 |
|
2000 |
128.1 |
5 |
20 |
98.5 |
1900 |
|
2001 |
56.6 |
5 |
36 |
33 |
3800 |
|
2002 |
51.1 |
5 |
44 |
25.8 |
5240 |
|
2003 |
44.1 |
5 |
44 |
21.9 |
5090 |
|
2004 |
49.5 |
5 |
44 |
24.9 |
5200 |
|
2005 |
57.7 |
5 |
44 |
29.5 |
5200 |
|
2006 |
84.1 |
5 |
44 |
44.3 |
5200 |
|
2007 |
136.6 |
5 |
44 |
73.7 |
5200 |
|
2008 |
152.1 |
5 |
44 |
82.4 |
5200 |
|
2009 |
74.6 |
5 |
44 |
39 |
5200 |
|
2010 |
57.5 |
5 |
44 |
29.4 |
10000 |
|
2011 |
71.1 |
5 |
44 |
37 |
10000 |
|
2012 |
56.8 |
5 |
44 |
29 |
10000 |
|
2013 |
88.8 |
5 |
44 |
46.9 |
10000 |
|
2014 |
75 |
5 |
44 |
39.2 |
9500 |
|
2015 |
69.3 |
5 |
44 |
36 |
9500 |
|
2016 |
68.6 |
5 |
44 |
35.6 |
9500 |
|
2017 |
85.4 |
5 |
44 |
45 |
10000 |
|
2018 |
76.4 |
5 |
44 |
40 |
10000 |
Table with the performance of The Medallion Fund,
published by Gregory Zuckerman.
So, $1 invested in the Medallion Fund from 1988 to 2021
would have grown to almost $42,000 (net of US fees), while $1 invested in the
S&P 500 would have grown to $40 over the same period.
Jim Simons has gotten a massive 66% return on average
for over 30 years!
By searching the internet, you will easily find a lot
of biographical information about Jim Simons as well as information about the
Medallion Fund.
But all this does not interest me so much. I'm interested in understanding what trading strategies Simons employed to achieve success.
Jim Simons’ Trading Strategies
We have a big surprise: the Simons' core strategy is publicly known!
It can be deduced from the Internet site of
Renaissance (and also from an old statement of Renaissance Technologies for the
Hearing of the USA Senate Permanent Subcommittee on Investigations (July 22,
2014) ).
The superior part of the Renaissance Technologies home
screen (RenTec).
It consists of collecting an enormous amount of data
(prices, quotes, trades, news stories, analysts' reports, energy reports, commodities
reports, weather reports, regulatory findings, accounting data, etc. ) and
analyzing them to find statistical patterns and non-random events in a wide
range of markets. Simply, Simons is the father of “quant” (quantitative)
traders!
None of the people of Renaissance Technologies has
ever told anything about their investment strategies, but the process they use
is clear:
- They collect data.
- They search for a pattern that seems like an anomaly.
- They verify if the pattern is statistically significant.
- They produce a trading system that trades this pattern.
- They execute this trading system with the best available technology and using financial leverage.
All of this is typical of the activity of a
quantitative trader!
Certainly, compared to a single quantitative trader
they have a large organization (made up of 300 people with 90 PhDs in
mathematics, physics, computer science, and related fields), large capital to
invest in research and development, and the technical capacity to perform
high-frequency trading (it seems that they execute more than 100,000 trades per
day).
Renaissance Technologies About screen (RenTec - About).
The most surprising thing is that the success rate of
their trades, according to what Simons declared in an interview, is only open
at 50.75%! But they manage to maintain this percentage very consistently.
Conclusions
The maximum successful trader in history is Jim Simons.
His trading activity is based on mathematical and
statistical methods.
We, today, can classify his trading activity as that of a quantitative trader.
This is wonderful news because quantitative trading is now within the reach of many traders, especially those who engage in the study of platform programming languages.
For this type of trading, I suggest using the Python language, which I will discuss in some of the next articles.
A sincere wish of good work to all!
Written by F. GRAMOLA (*).
(*) Member of S.I.A.T., the Italian Society of
Technical Analysis (member society of I.F.T.A. – International Federation of
Technical Analysts).
Warning
We merely cite our personal opinions for educational
purposes only.
All trademarks are the property of their respective
owners.
Investing and trading are risky. Don't invest or trade
money that you cannot afford to lose.
Initial photo by Gert-Martin Greuel - Cropped version
of the image from Oberwolfach Photo Collection, CC BY-SA 2.0 de, https://commons.wikimedia.org/w/index.php?curid=6092217.
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