And the title of the world’s smartest billionaire and most successful hedge fund manager goes to James (Jim) Simmons. He’s a mathematician and a Forex trading strategist. James-Harris James Simmons is the celebrated founder of Renaissance Technologies, one of the world’s most successful investment funds.
From one story told to the Massachusetts Institute of Technology students during his address, he always pondered as a child to study math. His expectations were exceeded.
Early life and education
He was born in 1938 in Massachusetts, the son of the director of a shoe factory. He has been retired for the last couple of years and oversees the James (Jim) Simmons Foundation. The foundation invests millions of dollars in science research encompassing groundbreaking research in autism.
But his story starts working many short-lived jobs, such as a floor sweeper at a garden supply store. While working many awkward jobs, he decided to study math when he was 17 years old. He managed to finish a four-year program in three years. Then, he got his PhD in math at the age of 23 at the University of California Berkeley.
Not long after that, he was hired and then fired as a code breaker in the Pentagon Secretive Institute of Defense. He was a strong opponent of the Vietnam war during the early years of his career. It overlapped with the time he was working for the US Secretive Department.
However, by 1968 he became the chair of the math department at Stony Brook University. There he created one of the most prominent geometry centres in the world. With his colleague Chiing Shen Chern, he published Chern James (Jim) Simmons invariant, now used in theoretical physics.
In 1878 he left academic life and started Renaissance Technologies. It’s a New York-based hedge fund, amounting to $60 billion in assets at the start of 2021. Renaissance Technologies is a pioneer regarding model-based, quantitative trading focused on commodities and currencies. He created the Medallion Fund within Renaissance Technologies. Today it’s one of the most successful and prominent hedge funds. Now he is listed as one of the 100 richest people globally and wins the title of the smartest billionaire.
The most profitable hedge fund in history
When he resigned from his academic position as chairman, Jim James (Jim) Simmons began to have an interest in finance and, more specifically, in trading, despite having little knowledge of the subject.
This is how he began to trade the money he got from his marriage with his wife Marylin before setting up the Monometrics fund in 1978. He then played on his macroeconomic analysis and his expectations, without much success, however.
It was then that an idea came to him. In the 80s, large investors were still able to beat the market based on their intuitions and powers.
Among them, we can note Warren Buffet, George Soros or Peter Lynch. However, James Simmons has no financial knowledge. Zuckerman tells in his book, The Man Who Solved the Market: How Jim James (Jim) Simmons Launched the Quant Revolution, that one day, during a meeting to present a model, James (Jim) Simmons takes as an example the action of Chrysler, an action which no longer existed at the time of the meeting.
James (Jim) Simmons then decided to create Renaissance Technologies in 1982. It was based on an idea that was not widely used at the time – trusting algorithms and big data to perceive the flaws in the market rather than human analysis. This is the start of quantitative trading.
James (Jim) Simmons, Renaissance Technologies and the Medallion fund
Paradoxically, James (Jim) Simmons’ success will not depend on his math skills. On the contrary, his ability to build and manage a team will enable Renaissance Technologies to succeed.
First, while traders are popular on Wall Street, he makes the daring choice to do without because he does not know the industry and can hardly assess their skills.
Rather, he will trust science, gathering a team of mathematicians, physicists, astronomers, and even cryptographers around him.
The goal is to amass a lot of economic and extra-economic data at a time when it was impossible to find it on a computer so that we can analyze market flaws that a human could not see through algorithms. He will even go so far as to ask for an analysis of the influence of the phases of the moon on financial markets.
In 1988, James (Jim) Simmons implemented the Medallion fund based solely on the data collected. It is still currently the most profitable portfolio in the history of finance. It is so profitable that only five years later, it will be closed permanently to outside investors. Today, the fund manages approximately $ 10 billion, coming solely from Renaissance Technologies employees (since 2005).
The returns of this fund are extraordinary: around 66% on average since inception. It is on this basis that Jim Simmons will build his fortune: while an average fund asks for 2% fixed costs and 20% on portfolio returns, it will ask 5% on fixed costs and 40% on returns, which will make him the highest-paid hedge fund manager on Wall Street in 2005 ($ 1.5 billion).
Forex trading strategies and forex trading style
Within Renaissance Technologies, Jim Simmons has been doing trading worldwide, using mathematical models to make transactions, execute orders, and make analyses. Most of these are made part of an automated process. James (Jim) Simmons applies informational models to predict variations in prices of financial assets.
These models are based on the maximum amount of publicly accessible data, which in his opinion, can have an impact on the price fluctuations. This data could come from news articles, analyst reports, reports on energetic consumption, seasonal harvest reports, meteorological reports, regulations data, etc.
James (Jim) Simmons and his team research the nonrandom market movements to make predictions. Moreover, this method requires the usage of the leverage effect since without it the return of investment is very low.
However, volatility being much more inferior to the returns expected, there is no limit on potential debt without increasing the probability of loss, at least according to these models. James (Jim) Simmons has no preference for the pairs or stocks he invests in.
He disposes of a very wide range of assets for investment with the proportions many other hedge fund managers find impossible. He manages 3,170 different assets. However, it is possible to manage such a diversified portfolio having in mind the algorithmic method of trading he applies.