Ep. 1413: Motivated by the TurtleTraders Too with Michael Covel on Trend Following Radio

Please enjoy my monologue Motivated by the TurtleTraders Too with Michael Covel on Trend Following Radio. This episode may also include great outside guests from my archive. --- I'm MICHAEL COVEL, the host of TREND FOLLOWING RADIO, and I'm proud to have delivered 10+ million podcast listens since 2012. Investments, economics, psychology, politics, decision-making, human behavior, entrepreneurship and trend following are all passionately explored and debated on my show. To start? I'd like to give you a great piece of advice you can use in your life and trading journey… cut your losses! You will find much more about that philosophy here: https://www.trendfollowing.com/trend/ You can watch a free video here: https://www.trendfollowing.com/video/ Can't get enough of this episode? You can choose from my thousand plus episodes here: https://www.trendfollowing.com/podcast My social media platforms: Twitter: @covel https://twitter.com/covel Facebook: @trendfollowing https://www.facebook.com/trendfollowing/ LinkedIn: @covel https://linkedin.com/in/covel/ Instagram: @mikecovel https://www.instagram.com/mikecovel/ Hope you enjoy my never-ending podcast conversation!

• 0:00Speaker 00

  You know what I love about this story? Perhaps the greatest trader ever to live. A brilliant man, a brilliant mathematician, made untold billions for himself and clients. And how did he get really motivated? The Richard Dennis Turtle Trader Story. That's right. This episode about the trader that I'm talking about was influenced, inspired, perhaps motivated to become great because of the Turtle Trader Richard Dennis Story. That's awesome. I hope you enjoy.

• 0:50Speaker 00

  Quite lucky today to have a really interesting guest. The author of the new international bestseller, The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution. My guest today, Gregory Zuckerman. Longtime Wall Street Journal reporter, decades at it, quite the investigative guy, knows how to get behind the scenes and tell a great story. So Jim Simons, I think Greg has put to bed any thought that there might be a better trader in the history of the planet than Simons. The guy just mints money at his company Renaissance Technologies. The book is great. I highly recommend it.

• 1:35Speaker 00

  Today I take Greg across Mr. Simons' world and try to get to some of those insights that we can all use, we can all learn from, perhaps. You know, this is one of the smartest guys ever. I mean, just a brilliant mathematician. I mean, that was before he even got to investing. Then he got to investing and he's dominated like that, like none other. Without any further delay, without any further rambling from me, let's jump right into my interview with Gregory Zuckerman.

• 2:14Speaker 00

  Listen, back in the day, I think somewhere, and I'm not asking you to recollect, but I think we might have exchanged emails 15 years ago or something because I think you're a guy that has been in kind of this, following these outsider quant traders for a long time. You know all the names, you know all the players.

• 2:32Speaker 01

  I do. I've been following this for a long time. I'm focused very much on the buy side, be it hedge funds, months in a while, Bill Gross and mutual funds, if something interesting, or Jeff Gunlock. But yeah, very buy side oriented. When quant trading is interesting, I'll focus on that. When long short stuff is blowing up, then I'll move to that. But I'm a buy side guy, so yeah, we could have.

• 2:52Speaker 00

  Here's where I want to jump in with you because I think, at least for me, for someone who's written quant books and looked at performance tables, I immediately, in your book, and hopefully I'll be the first person to start with this lovely topic on all the interviews that you're going to be doing. By the way, congratulations, book in the top 50 of all books for sale on Amazon at this moment, so that's pretty damn cool.

• 3:13Speaker 01

  Yeah, so far the reaction's been really strong. A little bit surprising frankly, but it's been great.

• 3:18Speaker 00

  So I'm on page 331 and 332, and there's a performance table on there that I've never seen before. That might not mean anything, but I know a few people here and there, and no one's ever shared it with me. And I would love for you to tell me about that performance table. Was it just something that came along in the natural process? Had you seen it earlier? Because that's a really interesting table. Management fee, performance fee, return, before fees, size of the fund, medallion, trading profits. It's an amazing two pages.

• 3:46Speaker 01

  Yeah, like much in the book, it looks like it came together easily and quickly, but it was a lot of late nights and frustrated days.

• 3:56Speaker 00

  Who did you cajole for those two pages?

• 3:58Speaker 01

  It was many people, cobbling together information, data, annual reports, early annual reports, some of it was official stuff that they used to share with investors when they had outside investors. That was the easier, I mean, not easy, but it was easier to get that kind of information. Early on, they had some outside LPs. If you track down some of the old timers that are still around, and that was another challenge of the book, that not everyone who's in the know is really around anymore. Even during the course of my reporting, some passed away. These are, we're talking the 70s and 80s are important periods of Jim Simons' life. The earlier periods of medallion's history, there were some people alive who still had some annual reports.

• 4:42Speaker 01

  Then you have to encourage them, cajole them to share them with you. Some were more eager to share than others. The more recent stuff, I had to develop sources within the firm. That was even harder. This is the hardest project I ever did in my life, hardest piece of work I ever did in my life. I'm glad to put it all together because like you said, I had never seen it all on one page or two pages, as it were. I wanted to see it myself.

• 5:05Speaker 00

  Let me take you to the question that then really starts to intrigue me. In my world, looking at a lot of these quote trend following guys, I've always found the month by month tables fascinating. You can see so much. For example, if you look at October of 08, you see all this trend following performance that was straight up. That's so interesting. Did you have a chance to see the month by month?

• 5:24Speaker 01

  I saw some of the month by months, not enough to include in the book, not for the entirety of it. I did get people on the inside and outside who invest or invested in medallion, who described the month by month. And like you said, when I talk to people about the performance, almost everybody focuses on the returns, 66% a year, 39% after fees. They are remarkable, but internally, and to sophisticated investors like yourself, just as impressive, or maybe even more so, is the Sharpe ratio, which they've gotten up to seven and a half at this point, and the fact that monthly returns are pretty steady, almost always.

• 6:07Speaker 01

  They've had a few down months, they have, but not many. And that's as impressive as the outright returns, the numbers.

• 6:15Speaker 00

  Is there anything else like this? I mean, behind the scenes, is there some Jim Simons that's even more publicity shy than Jim Simons?

• 6:22Speaker 01

  I don't think so. I think there are some that are even more secretive. There's a group out in Princeton that reportedly has amazing returns. I don't think they're as good as medallion. I don't think they're as big as medallion. Medallion at this point is $10 billion in size, and they leverage that up, obviously. It's not just the returns, not just the Sharpe ratio, but the size at this point is pretty substantial. Earlier on, they capped it at smaller numbers, $5 billion, then even earlier, periods much lower. They give back all the profits each year and they start over again with about $10 billion. There are others who've had ridiculous returns, but they're generally smaller.

• 7:04Speaker 01

  I haven't been able to substantiate anything like this. There could be something somewhat similar. I hear rumors about a smaller groups, and yet still substantial, but not as big as medallion.

• 7:17Speaker 00

  You know what's really interesting here too? Staying on these two pages of performance and size of fund, is even though $10 billion is substantial, these days, when you look at groups like Bridgewater, AQR, I mean, this $10 billion looks small. So clearly, just philosophically from the top, they're running a very different shop in the sense that they obviously don't want to have 200 billion under management.

• 7:40Speaker 01

  Yes, they've made a conscious decision, and I write about it in the book. It really contrasts with others, like you said, with Bridgewater, with AQR. AQR is a quant shop, and the returns have been good over the years, nothing remarkable. People criticize them a lot as being a marketing shop, more than a performance shop, probably a little overdone, that criticism, but they are a monster in terms of AUM. You can make a broader statement. So I wrote an earlier book called The Greatest Trade Ever about John Paulson and those who anticipated the financial meltdown and did really well. And Paulson made $20 billion over two years, but then he made that same classic mistake by getting too big.

• 8:25Speaker 01

  His AUM, I think, got up 30, maybe even $40 billion, and then the resulting period was really poor. He's underperformed. Jim Simons and medallion made a decision, they'd rather have performance than AUM. They'd rather focus on the incentive fee than the management fee. They could be managing a lot more. Now they have some outside funds, so they overall do manage about $68 billion, but the key fund is the medallion fund, and they won't let people in, and they've actually offended early investors, even people close to Jim, friends and others, who once were investors in medallion and were pushed out. They made a conscious decision, we want performance to be strong.

• 9:08Speaker 01

  We don't think we can do it above a certain level. Today it's $10 billion. We're going to kick people out and we don't even care about the management fees.

• 9:16Speaker 00

  I've got to take you back in time in a few minutes to get at the nexus of the book, your starting point, but I want to stay here for a second because as we talk about this great performance, the obvious follow-up question that everyone wants to know, and since you are the author of this. Fine international best seller right now. Everyone wants to know, Greg, what does Jim do to make all this money?

• 9:42Speaker 01

  Jim Simons developed a different way to invest or trade or speculate, however one puts it. There are always those who were doing technical analysis. This is a cousin of that, but it's on a much, much more sophisticated level. There are always people using traditional methods such as the Peter Lynch approach. Know what you invest in. Your wife comes home with a nice pair of pantyhose. Hey honey, those are new. Where did you buy them? I'm going to buy legs. The company and he made a lot of money. There were always those like George Soros and Stanley Druckenmiller, sitting back, looking at global trends, economic outlook, estimated interest rates, et cetera, make big bets.

• 10:25Speaker 01

  Jim Simons was the pioneer, not the only one, he was a pioneer in a very different approach. That's using mathematics, developing predictive algorithms. This is way, way, way before Mark Zuckerberg and Silicon Valley embraced that approach. And developing an automated trading system. Early on, they couldn't put on the trades within their system, but their automated system told them what to buy and what to sell. It's all about looking for patterns and looking for short-term patterns.

• 10:54Speaker 00

  What's the definition of short-term? Are we talking light speed, a day, or is it all kinds of short-term time periods?

• 11:01Speaker 01

  For my reporting, I've determined that the average holding period is about two days. Some people confuse them with high-frequency fast traders. They're not that. They've tried that. They haven't really succeeded with that. They kind of don't think that's their niche. That's not their focus. They don't get in and get out in a millisecond ahead of you and I. They try to look for short-term patterns, be it moments to months is the way they describe it. It could be a few days, it could be a few hours, but it's not a second or under a second. They're not about building their computers to that point. Frankly, they've got very, very powerful software and technology and computers, needless

• 11:42Speaker 01

  to say, hardware, but it's not as powerful as some others and they kind of poke fun at themselves to some extent. It's short-term patterns that you and I aren't aware of and they repeat and their thesis is that human behavior repeats and they take advantage of that. They do the best in periods of panic because human behavior seems to repeat itself in those periods.

• 12:05Speaker 00

  They trade everything. They started with futures and went to stocks, but in terms of markets, they're going to go from stocks, bonds, commodities, you name it, metals, ags, everything under the sun is going to be in their portfolio.

• 12:18Speaker 01

  That's exactly true. So until about 1994, they were only making money in commodities, in currencies and bond futures. And they were about $800 million of size at the time. People internally said, hey, we're doing fine, Jim. Let's keep it going. No reason to try to expand into equities, which is really was the area that was frustrating then. They could not figure out stocks and there were a lot of frustrations along the way. And the whole Jim Simons Renaissance story, which is kind of one of the surprises that I found, Jim said, no, I want to be bigger than $800 million of assets. I want to change the world kind of thing. I want to be the one to figure it out. And there was some disagreement within the firm about that.

• 13:02Speaker 01

  Jim is a guy, he's a fascinating guy because he's a mathematician. He can, can talk about that. He's a quant. He's an academic, but he's also a guy who loves money. He's not ashamed of that and he wanted to get really wealthy and the only way to do that is do it in equities because it's just a deeper market. You don't run up into ceilings and limits with things like soybeans and some small currencies and that's what they were trading at the time. They finally figured out how to make money in equities and they were off to the races. But if they hadn't, they really would have been another nice, successful hedge fund, but a narrow one.

• 13:37Speaker 00

  Before I take you back to the start here, I want to take you back to the start of Jim. I can recall probably in the mid 1990s, seeing these old financial world magazines. They weren't old then, but current then. And you could see the top 100 players on Wall Street and he started to sneak into these lists. There wasn't any other information on him, especially when the internet started to kick in, you couldn't find anything. Roll forward about a decade, sometime around 2005, I'm in an office with a fund manager who today has a net worth exceeding a billion. And we were talking about these kinds of topics and he looked at me and he said, what about Jim Simons? What does he do? And I'm like, how the hell do I know? You're the one that's made the bloody fortune. So it's really interesting.

• 14:19Speaker 00

  Where you're going today, I can see why if so many preeminent competitors have been curious about him and then that trickles down to the Twitter world. I mean, all of a sudden you've got the entire world like really curious. What's the backstory? Let's take it to the backstory because Jim is a guy, I want you to start this. I'm going to just kind of give you a lead in, but I mean, he's basically famous for math formulas that most of us mere mortals can't begin to comprehend or understand. That's before he ever got into trading.

• 14:47Speaker 01

  That's exactly right. And it's my view that even if he had never started any trading, he'd still be worthy of a book. He lived a full life even before he changed Wall Street. I'll explain. He grew up in Brookline, Massachusetts, middle-class guy. Father was an executive in a shoe factory, shoe manufacturing factory. He always loved math. He had a passion for math. He kind of learned from his father to follow his passion because his father did it. His father had a thriving career in the motion picture business. Family obligations arose and he felt compelled to go work for the family business, the factory business. And he wasn't happy and his, Jim Simons noted that and said, you know what? I'm going to try to follow my passions and they were mathematics.

• 15:31Speaker 01

  And he did well at MIT, got a PhD at Berkeley, began teaching. He taught, he was a popular teacher at Harvard and at MIT. But he always, as I suggested earlier, also had a passion for money along with mathematics. He got involved with this business. He helps start a business in South America. He needed money. He had some debts at that point and he needed to find a way to make some more money. So he got an offer to go work for an organization called the IDA, which helps the NSA in the United States. And basically it's not an arm of the government, but they help the government. He was code breaking. He was fighting the Russians, the USSR and the Cold War.

• 16:12Speaker 00

  1970s, right?

• 16:14Speaker 01

  Exactly. I was about to say 1970s, yeah. He was very successful as a code worker. He learned how to build algorithms there. He also learnt that he wasn't very good as a programmer. That lasted for a while and he hasn't considered himself a very good programmer, but he knows how to hire them. But he also learnt how to interact with some of the smartest people on the planet and how to recruit them to some extent, or he watched how they were recruited. And he subsequently went to Stony Brook University in the United States in New York. It wasn't a really good school at the time, wasn't good math department. He took it on to build it and he did that. And again, he also honed those skills and recruiting skills. And in some ways, my book, The Man Who Solved The Market, obviously it's an investing book, but it's also a management book, I think, because you can learn from Simons as much there.

• 16:59Speaker 01

  He's got a remarkable ability to find talent, to recruit talent, got a few tricks up his sleeve, getting people to leave their careers to join him. But he also is remarkable in how he gets people to work together. We could talk about that later, but basically here he was in 1978. He had conquered all these different worlds, mathematics. Along the way, he got impressive awards. He was really the top of the field. He's one of the most important geometers of the past century. His work has really impacted all kinds of different areas in physics, others that you wouldn't have necessarily expected. Then he was, like I said, developed this department at Stony Brook. But he also got a little frustrated with mathematics and he likes trading. So he didn't really do much of it.

• 17:43Speaker 01

  He had dabbled here and there with his wedding money and other kind of money, gave up on it, but something about it really spoke to him. He likes that thrill we get when you make a good pick and it goes up. He liked that. He really enjoyed it, even though the people around him were like, why are you wasting your time trading? Or he didn't even know he was trading. These were mathematicians who really didn't trade on their own. He set out and currencies were becoming unshackled at the time. Prices were moving in currencies and he said, you know what? I'm going to try to figure out and trade currencies. And he started in 1978, but it took many, many years for him to figure it out. So he really kind of gave up on his early career. He was an acclaimed mathematician and gave up a lot to try to make it in trading.

• 18:26Speaker 01

  And he found himself in this little strip mall in Long Island, spotty phone service, no one willing to work with him, unable to figure it out. And it took him a while.

• 18:35Speaker 00

  So he started his firm officially trading the late 70s and his first big year was not till the late 80s or first year, 1990? Lay that scenario out.

• 18:47Speaker 01

  Yeah, so 1978, he started trading. He recruited Lenny Baum, Baum Welch. He's famous for that algorithm, if any of your listeners are aware. He's a pretty well-known mathematician in his own right. And again, Simons is really great at recruiting and bringing them on board, getting people to work with him, even if people have no interest and these people didn't have any interest in trading. Lenny Baum, like many others who Jim Simons recruited, really had no interest in investing, which is kind of ironic because they're the ones who conquered the investing world. He started in 1978. They had a lot of ups and downs and it wasn't clear what approach they should take. For early on, they tried modeling the market. It didn't really work.

• 19:29Speaker 01

  He brought on another mathematician named Jim Ax, James Ax, who's also well-known in his own right. Eventually, Simons and Lenny Baum shifted to sort of traditional macro kind of investing where they would look at the news, try to anticipate the news, hire economists. They had this guy, not a well-known economist at the time named Alan Greenspan, who they had consulted with. And they tried to trade like most others and there were a lot of winning days and there were a lot of losing days. They made a lot, they lost a lot. The ups and downs really just left him sick to his stomach, literally, Jim Simons. And he said, I've got to find a different way. I got to find a better way. Got to find a way where the model works on its own and the system works on its own.

• 20:11Speaker 01

  And he believed there was some structure beneath the market that people aren't aware of, some way to pick up these patterns that were repeating. And he was convinced that he could be the one to do that. But again, like you said, it took years of back and forth.

• 20:25Speaker 00

  That notion of structure.

• 20:28Speaker 00

  How close did you get as a guy who's been around interviewing, investigating, doing a lot of homework behind the scenes for a long time? How close did you get to really wrapping your arms around that structure, do you think?

• 20:42Speaker 01

  I got a better sense for the fact that there's more order than we imagine in the markets. It's not as random. I became more convinced of that, that there are repeating patterns and that's what these guys and some women do all day long. They find that, but there isn't any like one secret. I went into the project thinking, okay, Greg, I bet you at Wednesday at 11:48 each week, I don't know, commodity prices, these commodities always go up. It's not like that. Their system, they don't trade like most others. It's all about relationship. People, when I go on these shows and stuff, CNBC, whatever, what does he think about Google, Greg? No, they don't do that.

• 21:26Speaker 00

  You knew I was not going to give that to you today, right?

• 21:28Speaker 01

  Yeah, that I do, yes. That I knew, but the average person is kinda, they'll still do it. They'll ask him at these events, once in a blue moon, when he'll do like a scientific event, they get some average person there. Or when you see even a quant, forget about Jim Simons, when you see a quant interviewed on TV.

• 21:44Speaker 00

  David Harding comes on CNBC and they ask him what's going to happen next, that kind of thing.

• 21:48Speaker 01

  Yeah, you roll your eyes. I'm not saying I came into it thinking there'd be anything like that, but I thought there'd be something a little bit closer to that. And that's not how they invest. What they do is they hold about four or 5,000 stocks long, about four or 5,000 stocks short. They make their money on the relationships among different individual stocks and other investments as well, meaning a group of stocks versus an index, a group of stocks versus a factor, a group of stocks versus a different group of stocks. It's almost an engineering and a technology achievement on their part and they put together this sophisticated system to put all these different factors and other elements together into a system.

• 22:32Speaker 01

  What I came away with, and you asked me what I came away with, is the understanding that there are many more factors, to use the terminology, affecting markets than you and I are aware of. We all focus on things like earnings, revenue, and then you get more sophisticated from there. It's my belief that there are many more and there's some that just worked for a little bit of the time, some in the day, et cetera. The Simons and his group are aware of more of them, but it's also important to remember that they don't get it right. Yeah, they're the greatest investment team ever. They're up 66% a year since 1988, but they're somewhat humble. I don't somewhat, I don't want to go overboard, but they're somewhat humble because they get it right barely more than 50% of the time.

• 23:15Speaker 01

  The point is that they're somewhat akin to a casino where they'll trade a lot. If you trade a lot and you get it right a bit more than 50% of the time, you make a lot of money. It's not like they are superhuman and they get every trade right.

• 23:26Speaker 00

  I caught a clip the other day from my buddy Barry Ritholtz talking to Eugene Fama. On top of that, you just mentioned the random walk. How does a guy like Fama, you mentioned the random walk, and then on the other side of the equation, we have Jim Simons. What are us folks out in the audience supposed to take from that? Because Eugene Fama got a Nobel Prize for, I mean, I don't want to reduce his work to just saying it kinda says that a Jim Simons should not exist, but isn't that kinda what he says?

• 23:55Speaker 01

  Yeah, I guess he would argue that Jim Simons is that monkey writing Shakespeare.

• 24:02Speaker 00

  Hold on, let me get to that performance chart again. How many billions did Simons make?

• 24:07Speaker 01

  You put enough monkeys into a room, you will get one writing Shakespeare by definition. I agree with you. And if you talk to Simons about it.

• 24:17Speaker 00

  Does he believe that too?

• 24:19Speaker 01

  No, he does not. I've talked about it. He believes that there are inefficiencies in the market. There aren't many of them. I really don't want people to come away from the book saying, and some people have kinda suggested as much to me, well, maybe I can be like Jim Simons, I could build something like, no, don't not try this at home. You could do a variation, you could try doing it on a small scale, you can be inspired by him, you can learn lots and lots of lessons, both individual investors and sophisticated ones, but to say that you could create something like this, he may be that monkey. And I don't mean it in a random way. I mean, it's, there are.

• 24:55Speaker 00

  So much more brilliant, so much more brilliant and such an interesting combination of assets and people that he's brought together with resources that the average person just is never going to have access to.

• 25:06Speaker 01

  I think that's right. So people nowadays, now we're jumping around a little bit, but people on Wall Street, financial industry, they say, oh, I've got PhDs working for me, I've hired PhDs. What they do at Renaissance, they're not just PhDs. It's easy to forget or not to understand that these are the people, these are the tops of their fields. They could be at the tops of different departments and they were at different scientific departments around the country. You take like a David Donahue from Stanford, these are just award-winning, top PhDs. They're not just PhDs, they're people, again, in physics, in astronomy, they love to hire astronomers, the tops of their fields. They're not just hiring smart people. Everyone's smart out there, they're competing with smart people.

• 25:50Speaker 01

  These people have just done award-winning stuff and he'll somehow get, and I can explain a little bit how, but he will recruit these people of no interest in investing. They're award winners and they see superstars in different fields, they'll target them. I don't think the David Hardings and the other competitors and the Cliff Astinases are able to track this talent internally within Renaissance. They worry about talent and fighting for talent, but they worry about it versus a Google or a Facebook, not a two sigma.

• 26:22Speaker 00

  As I look at this performance table still, and I see this consistency, you're describing to me an ongoing desire and ability to bring in top talent, but I see this consistency, 2098%, 2001, 33%. That's not consistent return necessarily, but it's consistently positive. And you seem to be describing month by month, that's consistently positive. My thought becomes, what are all the new people for? I mean, if Jim has discovered the structure, is it a structure that is changing in a way so much that all this brain power is required? Because, I mean, this has been going on for a long time. This, this return stream is not new.

• 27:05Speaker 00

  So how much of this is core precepts that they put together with some of the original team? And is any potential new hires with the great pedigrees? Is some of that to throw all of us off to think that all of that is needed?

• 27:20Speaker 01

  Here's the answer. The original precepts are still very important and I write about them in the book. There are principles that they've established. Some of it is breaking the day into bars that others kind of followed and copied afterwards or developed on their own, but still work for them. But it's a constant battle. It's hard to explain, but despite these returns, I know they look like they figured it out. They don't feel that way. The market is changing and they're aware of that. So I've talked to them about ETFs and the shift to passive. So a lot of what they do is they take advantage of the mistakes that we all make, that the average investor makes. I've said to them, what happens when there are no more dentists out there to take advantage of? There are fewer of them.

• 28:04Speaker 01

  As we all know, back in, I don't know, 1999, you go to a barbecue, everyone's talking about pets.com and their shares going up, et cetera. You don't get that anymore. I don't know, people are going to talk about their investments as probably Bitcoin or something like that today. If the nature of the market is changing, and I think it is, active investors are shrinking and passives are rising, the behavior of the market seems to be changing. The behavior is also changing because of the man in the White House, the Twitter-based decisions. That's a constant battle for people internally.

• 28:35Speaker 00

  But Jim's making money regardless of who's in the White House.

• 28:38Speaker 01

  Yes, he hires these superstars and he says, go figure out how to keep up with this market, this ever-changing market. You wouldn't think it, but there's a real sense of urgency within the firm and pressure and it doesn't feel like a university department. The talent is like university department, but then when they get there, there's a feeling of a Wall Street firm and the pressure and they work hard to, unique blend of the two. You're right, from the outside, we look at these returns, they're like, they can phone it in from an island and that's not how they feel. They feel it's a constant battle that to keep bringing in new talent. Like I said, they do have these outside funds, REEF and, and others that are available to institutions. They don't trade exactly like Medallion, but they are important to the firm too in terms

• 29:22Speaker 01

  of talent and hiring, and I talk about within the book. Jim was going through a personal challenge at the time and in some ways I think he needed a distraction. That's why he started these funds. But now that they've gone, they wanted them to be successful. It's a weird thing. Like Jim Simons, the people within the firm are well-established in academics and elsewhere. They join, they don't really need the money. They're not really out to get the money. Once they're there, I really do think they're hooked. And I write about it in the book. You don't want to let your colleagues down. There is some competition involved. You want to show that you're a star. You want to keep making the money. Once you get hooked to the money. For all those reasons, there is an urgency within the firm and the markets, again, are always changing. They have to keep up.

• 30:03Speaker 00

  Let me keep playing devil's advocate and pushing back. You start the book off really diving into, it's quite a challenge. I can really relate to where you had to go with this, but the secrecy element. I will let you go down the path of kind of outlining some of the secrecy that you had to deal with because this wasn't something where initially, I don't think people were really saying, Greg, come on in. We're going to do a biography. Come on in. Everyone's going to talk to you. It wasn't like that. But when you're dealing with that much secrecy, is there a side of you, even though you're a cagey guy with lots of experience, is there a side of you where, did you ever feel at a certain point in time and doing all your homework that people weren't being frank or they were leading you the wrong direction or there was disguises being thrown your way?

• 30:47Speaker 01

  Yeah, you have to worry about that. It's a good point. These guys are cagey and they're secretive and they sign 30-page nondisclosures. Here they are talking to you. Why are they? You wonder. I was wary. That's why you have to check these things with others. But I do feel that good stories in life want to come out. People want to talk. They've just gone through this experience where they've worked at, or they currently work at the greatest investing firm mankind or modern finance has seen. Kind of part of them wants to talk about it. Wants to share this experience. They're going to go to their graves without

• 31:28Speaker 01

  sharing some of the insights or experiences and stories and drama within the firm. And part of it also is, and now we kind of get into sort of the strategy as a writer, they knew I wasn't going away. And I made that very, very clear.

• 31:42Speaker 00

  They knew that you had enough, that you were going to go down a path and that they were better off to make sure some of these things were accurate, completely at least, I'm guessing.

• 31:52Speaker 01

  That's exactly right. I didn't say that overtly, but I, over and over again, left that impression that better that I write it than someone else. Someone was going to write this story, I said to them. Jim Simons' story, be it while he's alive or after he's gone, be it while you guys are alive or after you're gone, someone's going to write it. Better be someone who cares about accuracy. And I do, I can't tell you how hard this project was. There were endless days where I was sending just short paragraphs that you wouldn't even notice as a reader, four paragraphs about mathematics back in the 70s and what Jim was working on, or something, some drama in the 80s at the firm. And I was sending it to people that are familiar with the information and they'd say, and

• 32:36Speaker 01

  at first frustrated me, irritated me. These are mostly mathematicians and they'd say, I'd send them four paragraphs. Greg, this is awful. Greg, how can you write this? This is terrible. You got it all wrong. And then I'm taken aback. You know, I've been doing this for a couple of decades. I didn't think I got it so wrong. And then we'd go through it. I don't know, 10% of it would be wrong. And that's kind of why I sent it to you guys to go through with me and tell me what's wrong. We all are thrilled with errors. They hate errors. Like this mathematician, it's a whole different breed I learnt. Eventually, I stopped taking it personally. I kind of was amused. This is awful, Greg. This is terrible. What did you like? What didn't you like? Look at that second line in the

• 33:17Speaker 01

  fourth paragraph. You cannot describe differential equations that way. Okay, how would you describe it? And they would describe it. And I'm grateful. They spent a lot of time going back and forth with me. So I think, like the outsiders, the people on the inside and people that used to work there, didn't want this to be inaccurate. They figured, all right, Zuckerman's not going away. Zuckerman's going to write this thing. Let's at least help. We're not going to give him the secret sauce, but let's make sure he's accurate about what he's writing. And then frankly, yeah, they're poker players, but sometimes the secret sauce slips out. There were times when people told me things and they regretted it. You can't tell personally who said what, but there were those cases. I believe I got enough. The readers will tell me if I got enough.

• 34:02Speaker 00

  It's a great feeling as a writer though, isn't it? You're in the middle of something and then something slips out and all of a sudden, all the pieces come together in your mind. You're like, ah, yes, thank you.

• 34:11Speaker 01

  Yeah, there were.

• 34:12Speaker 00

  A lot of that.

• 34:13Speaker 01

  There were great moments in the process. There were awful moments, there were frustrating moments. There was a moment when Jim Simons' person says, Greg, Jim decided not to talk to you. I'm sorry. And that was it. I was like, how do I really write this book about Jim Simons if he's not going to talk to me? It's about his firm. It's not really about, it's not a biography. It's a lot of biographical stuff in there. It's really about how this group of colorful characters figure out the markets. So there were awful moments. And as you suggest, the beginning of the book, Nick Patterson, who played a really interesting, important role early in the firm, he said, Greg, no one is going to talk to you. And I remember sitting at that moment, I remember sitting across from him in a restaurant in Cambridge, Massachusetts, saying to myself, how the heck am I going to write this book?

• 34:56Speaker 01

  He's right. Nick is right. They've got zero incentive. These guys got rich by working there. No one wants to piss off Jim Simons. So why will people talk to me? And what am I going to do? So there were a lot of ups and downs, a lot of drama behind the scenes. And hopefully it was worth it for the reader.

• 35:11Speaker 00

  So I'm curious, how many hours did Jim give you? Is there anything you might like to share in terms of personality or manner or just something inspiring that he gives off that other people could take away as a distant lesson from a guy that's as accomplished as he is?

• 35:31Speaker 01

  He spent over 10 hours with me in his office, talking about not Renaissance per se, but his early life, his more recent years, which are interesting in their own right. We talked about mathematics. We talked about life, approaches, things like that. I have to say, I'm a cynical journalist. I look for flaws to some extent. He's got them, like we all do, but he's a pretty impressive individual. I really think he's one of the more remarkable just individuals, personalities of the past 100 years. Again, his accomplishments in mathematics and code breaking, recently in philanthropy. He's a good guy. He's a guy. He's very unique because he can do the math, needless to say, and he's a quant, but he's

• 36:13Speaker 01

  also, you could have a beer with him. He's a funny guy. Some of the humor, I think, comes through in the book. I hope it does.

• 36:20Speaker 00

  You mentioned his math. Not you mentioned his math, obviously his math. But I was thinking of his father. You mentioned his background and did not lead with a father with a high math background or anything like that. But does Jim attribute his math ability? How does he view it? Does he view it as just purely hard work? How does he see himself? Because again, he's got math that us mere mortals, we're just not going to comprehend in our lifetime. So how does he see that he made his way through at least the topic of math?

• 36:53Speaker 01

  I don't know if I have a good answer. He developed this early love for the subject, for the topic. He was encouraged by his parents to pursue it. They were bright people. They weren't math-oriented though. I don't know. It's a good question. Where his passion and his abilities came from? Were they inherent? And he worked. Listen, I know he considers himself to be not the fastest mathematician. And he went to these top schools. He dealt with the top guys. There are people that are faster and quicker, he says. He's just very good. I'll talk about it a little bit in the book. He is really good at mulling a problem and sticking with it and being persistent. And you see that in the firm

• 37:38Speaker 01

  as well. There were ups and downs and they stuck with it. So he has an ability that maybe others don't. He chews on a problem for years sometimes in mathematics. That's one of his gifts and competitive advantages, I would argue. He comes at things also a little bit differently. He's got a different approach to mathematics than some in the field. And once again, that's similar in the world of investing too. I mean, it's ironic. There's a paradox at the heart of my book that it was a guy in a group of people who didn't really know much about investing, who conquered investing. And to some extent, I'm not saying he's an outsider when it comes to mathematics, but he does take different approaches to solving problems. And that's all helped him.

• 38:18Speaker 00

  As we wind down, I got a couple more topics I want to run you through. If I take you back to the summer of 1998, for those that were alive enough to remember, it was a pretty crazy time. It was another one of these times where they said, if you don't trust the men behind the curtains, the government officials and the big banks, the world is about to go to hell in a handbasket because this hedge fund somewhere up in Connecticut basically blew up the world. And we're talking about long-term capital management. How did that affect you? Because that would have been a peer of his at the time. Perhaps, probably much more money under management at the time would have been for LTCM, I'm guessing.

• 38:58Speaker 01

  Yeah, LTCM was bigger, especially with the leverage. They were, I wouldn't call them quants, but they had a lot of similarities with Simons and Renaissance were doing because they hired academics and they hired often mathematicians, sometimes scientists. They hired from Wall Street, which is different from, in addition to the mathematics. So that was different from LTCM. Renaissance and Jim Simons don't hire individuals from Wall Street with any Wall Street backgrounds. But yeah, they were concerned. LTCM had models of their own and they didn't work. And so they'd learnt lessons from that experience. One of them being be humble, don't leverage up so much, don't be stubborn with your models. LTCM was a little bit stubborn. The Renaissance gang and Jim Simons in particular, they do

• 39:43Speaker 01

  not override their models. 98% of the time, 99% of the time. And that's one of their skills. And that's one of their explanations for their success. But once in a while, they do. And it's usually Simons over the protests of his colleagues. And I write about it in the book, where in crises, sometimes he will take risk off, even when the opportunities look great. So if you remember what happened with LTCM, they, because of what was happening in Russia, Mark was flipping out and LTCM stuck with its positions and moved into them a little bit more, added to them. And that's not what Renaissance does. Even when they see real great opportunity, they'll reduce risk in a period of crisis. And then they'll jump right back in when their model's saved too. They learnt lessons from LTCM is where the answer, I would say.

• 40:24Speaker 00

  I have one last question to you, but before I get to that, how would you define their strategy in terms that the average person comprehends? Is this a form of arbitrage? Is it a short-term momentum, kind of a cross-sectional momentum? Was there ever any real definition given to the strategies or the structure that they have?

• 40:50Speaker 00

  Determined and the way they go about it is just different than everyone else.

• 40:54Speaker 01

  Early on, I think, I don't know, until around 2000, maybe a little bit before, maybe after, you could actually see them as cousins of technical traders, technical analysis.

• 41:06Speaker 00

  Using price movement.

• 41:07Speaker 01

  Exactly. All about price as an input. And that's what they focused on, looking at patterns, looking for patterns in the market. So that's not unlike what technical traders do. And I give that analogy and I talk about the history of technical analysis just a little bit in the book. I think it's important. That's what they, people within the firm describe themselves. Maybe you and I would be a little bit surprised by that because I think the general view of technical trading is that it's really unsophisticated and people dismiss those individuals. But there are some really impressive traders on the street, Stanley Drucker Miller and others who use technical analysis, sometimes to confirm a thesis. You got to look at them as a much, much, much more sophisticated version of technical trading.

• 41:49Speaker 01

  That was early on, or that was till 2000 or so. And then they started collecting other kinds of data, everything from the stuff that we call today, alternative data. They are a data machine. They know Bob Mercer, who played a huge, and it still plays a huge role within the firm, controversial politically, but he talks about, there's no data like more data. So they vacuum up, if there's a piece of data you can think of a possible, they bought it before everybody else, and they've been analyzing it before everybody else. Now you can look at them as early machine learning because their models work on their own. They don't even know really why their stuff is doing what it's doing, their trades,

• 42:32Speaker 01

  their signals, why they bought, why they made money, that kind of thing. They can figure it out, and they do figure it out. But now you can look at them as sort of an early version of machine learning.

• 42:41Speaker 00

  By the way, as you just mentioned, Bob Mercer, so you can talk a little bit about him, but I think it's interesting, this very prominent individual inside Renaissance, basically helped to support Trump to get Trump elected. And Jim Simons was a big supporter of Hillary Clinton's. Such an interesting thing that inside the firm, you could have such a diametrically opposed political views inside the same shop, playing at the presidential politics level. It's amazing, huh?

• 43:06Speaker 01

  There are all kinds of lessons, I think, from the Renaissance story. There's the investing, obviously, lessons, management lessons. There's also just lessons on how to work with each other. And this day and age, especially in the United States, when everybody's at each other's throats, you have Jim Simons, a left-leaning guy, I think he was the third-largest financial supporter of Hillary Clinton in 2016, working with the co-CEO at the time, Bob Mercer, who may be the most important reason why Donald Trump's in the office, because Bob Mercer and his daughter Rebecca Mercer helped put Kellyanne Conway, and more importantly, Steve Bannon, in the campaign. They settled it. They turned the tide for Donald Trump. Bob Mercer is a very right-wing guy. The firm is a mix. They

• 43:48Speaker 01

  got libertarians, they got all kinds of individuals. Not what Bob Mercer was doing did eventually hurt morale within the firm. And I paint the scene where, I describe the scene where Simons had to come to Mercer and tell him, he's got to step down as co-CEO. But they did work together for a long time, and despite the political disagreements. They're fascinating just characters within the firm and people who have worked there. That's the one thing that I was just overjoyed with, that they're not just kind of boring mathematicians. There's passion within the story, the Renaissance story. There's intrigue. There's all kinds of twists and turns that I hadn't expected.

• 44:24Speaker 00

  My last one for you, Greg. Typically, this is the kind of question he would start an interview with, but what the heck was the trigger for you exactly? When was the trigger? What was D-Day that said, I'm going this direction?

• 44:37Speaker 01

  Two decades ago. Who doesn't want to write about Jim Simons? I've been thinking about it in the back of my mind. I reached out to them at one point to work with him. This is years ago. I don't know, 10 years ago, maybe longer. It's about 10 decade probably. And they were like, yeah, no, Greg, no, sorry. He's not working with you. He's not working with anybody. No, no, no. We'll let you know if he ever decides to write a book. I've always kind of wanted to. And I remember being at a dinner and there was a quant guy there. And I was thinking to myself, I don't even think we were talking about quant stuff, but I remember looking at him and thinking, geez, that's the one story that hasn't been told on Wall Street. Wouldn't it be great if I could be the one to tell it? So then I started working on it. I got a book contract. I didn't cash the book contract. God knows

• 45:22Speaker 01

  I could have used the money.

• 45:24Speaker 00

  When did you start the project with the publisher?

• 45:26Speaker 01

  Late 2016, maybe early 2017. And then for four months, I'm sitting at my desk right now in my basement in New Jersey, and I had this check on my desk, and I wasn't going to cash it because I wanted the ability to give it back to the publisher. And I knew if I cashed it, I'd start spending it. I wasn't sure if I could do this project. And again, if I cashed it and then decided not to do it, it'd be a mess. I just didn't want it. And eventually, the accounting department, Penguin Random House's accounting department had this discrepancy. They wrote, what author doesn't cash in advance? It's not a lucrative business we're in. We could use the money. I got a kid in college. I was being stubborn. I wanted the ability to give it back. So I spent like four or five months working on

• 46:10Speaker 01

  the book without knowing if I could do it or not. And then I went out to California. I met with Ellen Buerle-Camp, and I met with Sandra Strauss. They worked with Jim early on at the firm. A, they were really fascinating individuals, but B, they were just interesting and colorful, and they had drama in their lives. And I said to myself, you know what? The early part of this firm, I think I could write about. It's just an interesting, fascinating group of people. They described other people who had, Jim Ax, who had died. And I said to myself, okay, I think I can do the early part of this period, even if Simons doesn't talk to me. And then I'm going to make this giant leap. I really felt, and I talked to

• 46:52Speaker 01

  my wife, I just was never 100% sure I could do this thing. But I made a bet that I could fill in the gaps. I could do post 1990, up to 1990. In his early life, I thought I could find enough academics, mathematicians, people who worked with him, even if Simons didn't talk to me. But thankfully, he did talk to me. And thankfully, I was able to get people within the firm. That was my fear. How the heck am I going to get people who actually work there right now to talk to me? But you try hard enough. And this was the hardest thing I ever did. And if you knew the hours I put into this thing and how much I'm getting paid per hour, yeah, it's not a pretty picture.

• 47:27Speaker 00

  Well, now, listen, not to toot my horn or anything like that, but I mean, back in the day, this is over 10 years ago, when I did this book on the turtles, on a smaller scale, I had these similar kinds of things where you're digging, and you're digging, and you're digging, and there's no one talking to you. And then all of a sudden, someone just says, oh, by the way, did you know this? And then you're like, oh, my God, you got to be kidding me. And those kinds of feelings. So look, there's lots of people that have a podcast, but I do relate to so many things that you had to go through in this book. I really, I think it's pretty damn awesome. Really, it's quite an achievement to go dig around in one of the most, perhaps the most secretive fund in the history of mankind, and to go dig around in there and to put a story together. Congratulations.

• 48:06Speaker 01

  Thank you. I'm still stunned I finished. Forget about whether people buy the book or not. And I hope they do. And I hope they enjoy it. And I hope they stay in touch and give me constructive criticism and things they like, things they didn't. I love interacting with readers and listeners. But yeah, I'm still a little bit surprised that I actually finished it.

• 48:24Speaker 00

  The book, The Man Who Solved the Market, how Jim Simons launched the quant revolution, available everywhere. If they can't figure out where to get it, they don't deserve to buy it. Where can we send people? Is there a website or anything you want to direct them to, to reach out to you, give feedback, anything?

• 48:41Speaker 01

  So I'm on Twitter. Feel free to reach out to me there. I think it's at G. Zuckerman. But I'm also at the Wall Street Journal. Feel free to email me privately, [email protected]. I love interacting with people. I get good story ideas, next book idea. Some of my best sources on Wall Street are people that ripped into me. You don't have to rip into me, people. But feel free to send me constructive criticism and things you liked and things you enjoyed in the book.

• 49:08Speaker 00

  But please, after listening to this interview, do not write Greg an email and ask him how Jim Simons trades.

• 49:15Speaker 01

  You can ask, but I'll send you to the book.

• 49:17Speaker 00

  Good deal. Hey, Greg, thank you for coming on. And hopefully, we can catch up for the next book, because a guy like you has always got another one coming.

• 49:23Speaker 01

  That was a lot of fun.

• 49:29Speaker 00

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