James Simons is an American academic and businessman who in 1982 founded Renaissance Technologies, which today is among the best known quantitative investment management funds in the world. We are always curious about how Simons thinks about the world, so we were especially interested when we came across a recent interview with him (a copy is here). h.t. Steve Hsu.
Below is a transcript of part of the interview that we found particularly interesting, as it highlights aspects of Simon’s investing background, and approach to building a firm. Enjoy.
...Simons: My father had made a little bit of money, and I had the opportunity to try investing it. And that was interesting. And I thought, you know, I’m going to try another career altogether, and so I went into the money management business, so to speak.
Interviewer: So you started with some of your dad’s money and that got you a taste for, an interest in it?Simons: Yes, some family money, and then some other people put up some money. And I did that. No models. No models for the first two years.
Interviewer: So what were you doing then? You were just using cunning and, you know, just like normal people do?Simons: Like normal people do. And I brought in a couple people to work with me, and we were extremely successful. I think it was just plain good luck, but nonetheless we were very successful. But I could see this was a very gut-wrenching business. You know you come in one morning, you think you’re a genius. The markets are for you. We were trading currencies and commodities and financial instruments and so on, not stocks, but those kinds of things. And the next morning you come in, you feel like a jerk. The markets are against you. It was very gut-wrenching. And in looking at the patterns of prices, I could see that there was something you could study here, that there were maybe some ways to predict prices, mathematically and statistically. And I started working on that, and then brought in some other people. And gradually, we built models. And the models got better and better and finally the models replaced the fundamental stuff. So it took awhile.
Interviewer: I would have thought with your background as a mathematician, this would have almost occurred to you immediately. Like you would have straightaway seen this. What was the two year delay?...
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