Strange tale of Jim Simons: Despite his investing genius, it’s of little use to investors
Daniel Kahneman and Jim Simon. The past few months have seen the passing away of these three people whose lives and work have been of great interest to investors. Of the three, Munger and Kahneman have often been the subjects of my writings over the years. However, I have hardly ever mentioned Jim Simon, even though his life has been the most interesting in some ways.
By all accounts, Simon, 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. 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 maths and maths-adjacent fields. They struggled for about a decade, but around 1987, their techniques had been developed to a point where they started succeeding.
From 1988 to 2018, the Medallion Fund, which was run by his investment firm, delivered annual gross returns of 66%. After considering the enormous fees, the average annual returns came to 39%. During this period, the only negative year was 1989, when the fund lost just 3%. These numbers seem completely incredible, and they are. Most readers must be thinking that these returns should have compounded to trillions of dollars over the years. They would have, but here’s the most interesting fact about this fund: it was not allowed to accumulate assets.
Simon capped the size of the Medallion Fund at US $10 billion, which meant that
