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Three lives and three deaths

Jim Simons was a great investor, but one utterly unlike any other

Jim Simons: A great investor but unlike any other

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Charlie Munger, Daniel Kahneman and Jim Simons. The last few months have seen the deaths of three people whose lives and work are of interest to investors, among others. Of the three, Munger and Kahneman have often been the subject of my writings over the years. However, I have hardly ever mentioned Jim Simons, even though his life has been the most interesting in some ways.

By all accounts, Simons, who passed away last week at 86, was an extraordinary genius. During the first half of his life, he was an academic mathematician, or, to be precise, a geometer. Then, around the time he was 40, he decided that the equity markets could be understood and predicted using purely statistical techniques. He set up an investment firm and hired people from various maths and maths-adjacent fields. They struggled for about a decade, but then, around 1987, the techniques they had worked on were developed to a point that they started succeeding.

From 1988 to 2018, the Medallion Fund, run by his investment firm, had annual gross returns of 66 per cent. After enormous fees, the average annual returns were 39 per cent. In all this while, the only negative year was 1989, when the fund lost just 3 per cent. These numbers sound completely insane, and they are. I know what most of my readers are thinking. These returns should have compounded to trillions of dollars over these years. Well, if they had compounded, then they would have, but here's the most interesting thing about the fund: it was not allowed to accumulate the assets. Jim Simons capped the size of the Medallion Fund at 10 billion dollars, which meant that after a point, most returns were paid out to investors every year. He did that because the statistical techniques that Medallion was using could only work to a certain scale. To help limit the size, the fund was closed to fresh investors in 1995 and has never been opened again. In fact, by 2005, all outside investors were bought out by the firm, and since then, the fund only has investments by employees and former employees.

In almost every way, this whole tale is the strangest story in the world of investments. This is also why I have never written about Jim Simons as an investment writer and educator. Jim Simons and his team's success holds no real lessons for you and me in our investing lives. Unlike Buffett, Munger, or so many other successful investors, there is nothing we can emulate here.

Jim Simons' story is of extraordinary intellect and unconventional methods, setting him apart in the investment world. While Buffett, Munger, and Kahneman offered insights and knowledge that the average investor could adapt, Simons' approach was a different beast altogether. His reliance on advanced mathematical models and statistical analysis was not just innovative but almost exclusive to his firm's unique skill set. This is why, despite his phenomenal success, his methods remain largely unapproachable for everyday investors. Of course, one should be aware of some of the basic principles he followed, like looking at investments from the perspective of diverse fields, as well as formulating a system of investing. So for anyone who likes to learn about the stranger nooks of the financial world, buying and reading the book 'The Man Who Solved the Markets' could be quite interesting. Beyond that, despite the recent hype, we should basically ignore him in terms of any personal relevance to our investments.

Except in one matter-Simons' style of philanthropy. Unlike the 'I'm going to save the world from itself' obsession of some other well-known billionaires, Simons poured an enormous amount of his wealth into scientific and mathematical research. His contributions to academia were vast, funding research that bridged theoretical and practical applications. Simons' philanthropic legacy is a testament to his belief in the power of knowledge and innovation, as is his own life.

Also read: The mysterious mind of the investor

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