#387 Jim Simons Built The World’s Greatest Money-Making Machine

**David Senra** (0:00)
Jim Simons published a list of five guiding principles that he used throughout his career. The second principle that he listed was, surround yourself with the smartest people you can find. When you see such a person, do all you can to get them on board. That extends your reach, and terrific people are usually fun to work with. It's actually reminded me of Jeff Bezos. From day one, in his very first shareholder letter, Jeff Bezos emphasized the importance of having the very best team, and he wrote, Setting the bar high in our approach to hiring has been, and will continue to be, the single most important element of Amazon's success. Bezos' focus on talent is just like this quote from Steve Jobs that happened in an interview that Steve gave that very same year in 1997 Steve said, I think that I've consistently figured out who the really smart people were to hang around with. You must find extraordinary people. The key observation is that in most things in life, the dynamic range between average quality and the best quality is at most 2 to 1 But in the field that I was interested in, I noticed that the dynamic range between what an average person could accomplish and what the best person could accomplish was 50 or 100 to 1 Given that, you're well advised to go after the cream of the cream and build a team that pursues the A plus players. That is exactly what Ramp did. Ramp is now the presenting sponsor of this podcast, and Ramp has the most talented technical team in their industry. Becoming an engineer at Ramp is nearly impossible. In the last 12 months, they hired only 0.23% of the people that applied. This means that when you use Ramp, you now have top tier technical talent and some of the best AI engineers working on your behalf 24-7 to automate and improve all of your business' financial operations and they do this all on a single platform. Ramp gives your business easy to use corporate cards for your entire team, automated expense reporting and cost control. Ramp's corporate cards are fully programmable. The longer that you use Ramp, the more efficient your company becomes. This is very important because as Sam Walton wrote in his autobiography, you can make a lot of different mistakes and still recover if you run an efficient operation or you can be brilliant and still go out of business if you're too inefficient. Ramp helps you run an efficient organization. In the end of that interview, Steve Jobs added one thing. He said a small team of A-plus players can run circles or run a giant team of B and C players. Jim Simons and the team that he builds is a great example of this. They outperform everyone else in their industry and they do it with a small group of A players. From a customer's perspective, what does a team of A-plus players sound like? It sounds like this customer review which I read, which said, ramp is like having a teammate who you never need to check in on because they have it handled. Make history's greatest entrepreneurs proud by going to ramp.com to learn how they can help your business today. That is ramp.com. Jim Simons created the world's greatest money-making machine. To do so, Simons shows a different approach. A world-class mathematician and former code breaker, Simons had a hunch that financial markets moved in orderly ways, just not in ways that could be detected with human intuition and insight. Simons believed that collecting and analyzing data could provide an advantage and that automated trading was possible. Working from a ramshackle office in a Long Island strip mall, Simons hired mathematicians, physicists, and computer scientists to amass reams of historic records and develop algorithms to process it all. His team hunted for patterns hidden deep in the numbers that might reveal long-sought rules governing markets. After decades of struggle, his data-driven approach paid off. Since 1988, Renaissance Signature Medallion Fund has generated average annual returns of 66%.
They have made more than $100 billion, and Simons is worth more than $23 billion. That was an excerpt from the book that I'm going to talk to you about today, which is The Man Who Solved the Market, How Jim Simons Launched the Quant Revolution, and is written by Gregory Zuckerman. So in addition to reading the book, I also read every single long-form piece that I could find on Jim, and I listened to every single interview that he gave when he was alive. He just passed away recently. I want to jump right into his early life, and we see right away this reoccurring theme that you and I talk about over and over again. It's in all these biographies, the fact that belief comes before ability. By the time Jim is 14, he starts to say out loud to other people that he's just really in love with math, and his idea was that I want to go study math at MIT. And when he told people this, the people around him, some of the people around him actually laughed at him. And that didn't seem to bother Simons at all. Says he was filled with exceptional confidence and an unusual determination to accomplish something special. He was like that when he was a kid. He's like that his entire life. That is gonna be another main theme that's a really important thing that runs throughout his entire life and his entire career. This is what he was saying later on in life about the self-belief that he had when he was a young man. He says, I realized I might not be spectacular or the best, but I could do something good. I just had that confidence. One of the most important things that he learned from his dad. One of the last interviews he gave a few years before he died, talked about what a lovely man that his dad was and how much he learned from him and he admired him. And one of the things that Jim learned from his dad was what not to do. And his dad actually had a job that he loved. And he was a salesman at a movie studio. He loved the work, but then he left that because he went to go work in his father-in-law's shoe factory. And he did that because he said he felt obligated to join the family business. Later in life, the book says, he told his son he wished he hadn't foregone a promising and exciting career to do what was expected of him. This is what Jim said. The lesson was, do what you like in life, not what you feel you should do. It's something I never forgot. And so what Jim liked to do most was think. And most of the time, he was thinking about math. And you also see that he has a very strong personality. He had this when he was a kid, and we'll also see that, wait till we get to what his future mother-in-law observed about Jim when Jim was like 19 years old, 20 years old. So what Jim would like to do, says he sat with his thoughts for long stretches of time. When he was a kid, he would climb into a tree and sit there and think. His mom would have to get him down from the tree and encourage him to play with the other kids. Unlike his parents, specifically his dad, Jim was determined to focus on his own passions. So he does indeed go and study math at MIT. He graduates in three years. He gets a degree in math from MIT, and then he goes to the University of California Berkeley to get his PhD in mathematics. And while he's working on his dissertation, while he's working on his PhD, this is when he starts getting interested in markets. And he was obsessed with math. He knew he was going to be a mathematician, but he also had another obsession from early age. And that was an intense and persistent desire to get wealthy. And that's what spawns this interest in markets. So while he's in grad school, he actually starts getting up. He says he began getting up early to drive to San Francisco. So he could be at the Merrill Lynch offices by 7:30 a.m. in time for the opening of trading in Chicago. So he is interested first in commodity markets. For hours, he would stand and watch prices flash on the big board, making trades while trying to keep up with the action. It was a rush, he said. His wife gets pregnant, he's working on his dissertation, and eventually he has to reluctantly stop trading. But there's a great line in the book. It says, but a seed had been planted. And then when I got to this section of the book, I left this note to myself. It's like, there's no way that this guy was going to stay in academia. He has this persistent and burning desire to be wealthy. And as it becomes obvious later, to be the best at what he is doing. But what I found so interesting about this, he's around 23 years old at the time. It's over 17 years from this point in his life that he starts, he actually leaves academia and starts trading full time. So I want to go back to this idea, I've already mentioned a few times that Simons had a persistent and burning desire to be wealthy. There is a bunch of quotes in the book, in these interviews, in these long New Yorker pieces, stuff he says when he's younger, stuff when he says he's older, this is ever present. So I arranged all these different quotes from all these different sources to just give you an idea. He says, it's nice to be very rich, I observe that. I had no interest in business, which is not to say I had no interest in money. In fact, it's really funny, he gave this interview when he was about 84 years old. And he says, I enjoy being wealthy, I enjoy having my boat and my airplane and two houses. This was also stated by him, but also people around him from his early age, they said he hungered for true wealth. His first wife, he gets married really young. I think his wife is 18 at the time, I think Jim's like 19 or 20 when they get married. And this is what she said about Jim. She said, Jim understood in an early age that money is power. He did not want people to have power over him. Another person, this is again repeated across several people about Jim through the decades. Jim had this insatiable urge to make money. He likes action. And so we see very early on in his life, this was not a person that was gonna stay on a track. When they said, he wants action, he has this insatiable urge to make money. When he doesn't see a path that way, he kind of freaks out. In fact, the book says that in his early 20s, he actually experiences an existential crisis. So he's teaching at MIT, he's also teaching at Harvard. And it says, Simons began questioning his future. The next few decades seem laid out for him all too neatly. Research, teaching, more research, more teaching. Simons loved math, but he also needed adventure. He seemed to thrive on overcoming odds and defying skepticism. Remember that part for when he starts trading. And he did not see any obstacles on the horizon. Is this it? Am I going to do this in my whole life? There has to be more. Again, we see that this persistent and burning desire to be wealthy, it's already pulling on him, realizing, if I stay on this path, I'm not going to also achieve the other goal. Now there is a hint, here's this hint I mentioned earlier, that Jim had a very strong personality. I think this is also important because one of the main lessons of the book is that, and this is something that he repeats over and over again, that you must, you absolutely must work with the smartest and high, world-class, smartest, best and world-class people that you possibly can. And he's able to manage, really, maybe better than almost anybody else in the world, all of these world-class, very strong personalities. I don't think you could do that without having a strong personality yourself. And we see that he had a strong personality, again, when people were laughing at what he wanted to do in life when he was 14 And then we also see it's noticed by his mother-in-law. So he gets married early. His first wife, her name is Barbara. Like I said, I think she's 18 when they get married. Barbara was too young to wed, her mother insisted. She also worried about a potential power imbalance between Barbara and her self-assured fiance. So let's say, listen to what his mother-in-law, the advice that his mother-in-law gives to her daughter. Years later, he's going to wipe the floor with you. Later on in the book, Barbara says that her mother was right. They're married for 13, 14 years, they wind up getting divorced. So at 26, he decides to quit teaching and he joins an elite research organization called the Institute of Defense Analysis. It's also referred to throughout the book as the IDA. So he's going to talk about this over and over again. This is a very important part of his life. One, he said what was appealing about them, they paid him a lot more money than he was making teaching. Two, you could spend half your time pursuing your own interests. So the IDA, what they would do is they were hiring top mathematicians all across the country to assist the National Security Agency, so the NSA. What the NSA wanted the IDA to do is they wanted to break the Russian codes. So this is during the Cold War. This is why they reference, anytime you read anything about Jim, they'll reference him as a mathematician and a code breaker. They're talking about this part of his life. Now the reason I wanted to include this and tell you about this because this is actually, there's a lot of valuable lessons that you see that Jim learns here when he's in his mid-twenties that he'll use later in life. Now this is the second time I read the book. I think the first time I did it was episode 108 or something like that, so maybe like five years ago. But there's ideas from the book that have stuck with me the entire time and this is actually idea that I lifted from the book that I used and it's remarkable how well it works. So people would come into like Jim's office at the IDA and they would think that he'd be like laying in the dark on a couch and they thought he was asleep and they didn't realize this is the way he would think. He says, Simons realized he had a unique approach, mulling problems over in his mind until he arrived at original solutions. Friends noticed him lying down, eyes closed for hours at a time. He was not asleep.