What Jim Simons – One Of The World’s Most Successful Investors – Can Teach Us About…

Jim Simons is arguably the world’s best investor. Certainly, Renaissance Technologies’ – the firm he founded – track record is enviable: 66% gross annual returns (before fees) since 1988 (and trading gains in excess of $100 billion). Given the particularly low beta (volatility relative to market) the figure is even that much more impressive. This was achieved by pioneering a new approach of quantitative trading across a variety of asset classes.

What is less appreciated however, are the leadership lessons the founding and scaling of Renaissance Technologies offers. I recently read Gregory Zuckerman’s excellent book: The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution, which chronicles Jim Simon’s story.

Five key lessons emerge.

Lesson 1: Spot trends, bet early even if contrarian, and relentlessly improve your approach.

At first blush, this advice doesn’t seem that contrarian. But Jim’s approach was controversial when he started. It was stock pickers not program builders that ruled Wall Street. The idea of giving away control to a computer to effectuate trades was seen as impossible.

Yet, Jim saw the inevitable shift towards computer decision before most in finance. As Gregory Zuckerman explained it to me recently: “Jim was leveraging machine learning before Marc Zuckerberg had his bar mitzvah!” He held a fundamental belief that this approach could be transformative to the world of finance.

Of course, this approach was not defensible in of itself once proven. Renaissance continually invested in cutting edge technology, and aggregated historical data before it knew what to do with it or whether it was useful. Crucially, they developed a unified algorithm (rather than separate trading strategies) which while much more complex was that much more powerful.

The system was never final either. It was continually improved, incrementally. This was a long term journey.

Fintechs are also part of a broader arc in finance. But the advantage is not using technology. Fintech CEOs must keep a long vision for what they are doing, keep iterating and improving rapidly to stay ahead of everyone else.

Lesson 2: Trust the system but don’t have blind obedience.

Renaissance was building an automated trading platform. It is on average right just over half the time. That means that just under half the time it is incorrect. The beauty is that by trusting the system, over an extremely large number of transactions, it would generate incredible profits. Which it did.

The power in the model is to generally have faith in the model. And by giving it enough time and continually improving it, you can build an unstoppable machine.

But at the same time, it is critical not to have blind obedience to the system. In 2007 during the financial crisis, facing three days of unprecedented losses, Jim Simons overruled the algorithms and moved to sell off positions, rather than purchase as the machine suggested. It was extraordinary circumstances and “’Our job is to survive’, Simons said. ‘“If we’re wrong, we can always add [positions] later.”’ as noted in the book. Entrepreneurship is about building a system that works for the long-term but also surviving to see it through.

Fintechs in almost every category, be it savings, lending, insurance, investments or embedded finance, are looking to automate. Entrepreneurs should build a system they have complete faith in. But at the same time, should keep steady skepticism about their model, particularly in times of great disturbances (e.g. Covid or stock market crashes) to keep sanity. Black swan events are hard to train models around.

After all, long term survival — not sycophantic adherence to a model — is key.

Lesson 3: Build the team based on talent – not need – and cultivate a culture to make them successful.

Perhaps one of Jim Simons’ greatest strengths was not as an investor. As Gregory explains it: “People look at Simons as the most successful trader in modern history. But he’s just as much a paragon of management. In some ways, more impressive as a manager.”

His approach bears reflection. Philosophically, the team hired because of the individually, not because of an internal need. And then Jim created a culture to support them which was both academic but at the same time collegial and cooperative. There was also extreme transparency, where everyone could see the code.

People also had aligned incentives. Of course, there are the financial ones, where compensation is tied to the performance of the fund. But Renaissance also created social incentives, by throwing new hires “into an environment where they feel pressure to prove their work. They work with a group of other highly talented people.” The organization was relatively flat with limited silos.

The culture fostered an outsider’s perspective. They hired the smartest people they could find, principally from disciplines outside finance. The location was well outside of Manhattan as well.

Team building in fintechs is a well worn topic. But it is worth reflecting on the importance of hiring for talent rather than for immediate needs, creating a culture for them to thrive, keeping an outsiders perspective to think differently and supporting the right incentives for success. These are the characteristics of many of the fintech leaders today.

Lesson 4: Build for the long term.

Looking back, it is easy to think of Renaissance as an overnight success. But it’s “far from it, from 1978 to 1990 Jim was figuring out the right approach,” as Gregory explains. It wasn’t until the 1990s that Renaissance cracked commodities, and 1996 until it started solving equities.

That’s nearly two decades.

Solving massive problems takes time. It also requires setting up an ecosystem that will be conducive to that. Jim had investors that gave him breathing room (and eventually bought them out entirely of the medallion fund to only invest the principal’s own capital).

It doesn’t mean Jim wasn’t impatient. A lot of experiments were continually tried. The team was also recalibrated over time, with different partners and leaders in the organization.

In short, Jim was resilient over time and kept the vision going. What perhaps struck me most was his personal resiliency as well – while Jim is incredibly professionally successful he faced the tragic loss of both of his children passing away young.

Resilience is crucial for entrepreneurs everywhere. For fintechs, a similar long-term approach (though perhaps not two decades to get product market fit) is required. This means finding the right team and market, and timing, and it doesn’t happen over night. Resilience and tenacity are important.

Lesson 5: It is never too late to start.

Silicon Valley’s stereotype is of a 22-year old hoodied warrior as the quintessential entrepreneur.

Yet, as I explore in my recent book: Out-Innovate: How Global Entrepreneurs – from Delhi to Detroit – Are Rewriting the Rules of Silicon Valley, that couldn’t be farther from the truth. The best entrepreneurs are “cross-pollinators”, leveraging experience across sectors, geographies and years of practice. Experience takes time. Research from the National Bureau of Economic Research suggests the best entrepreneurs found companies older (forty-two year old average), and among the most successful (the top 0.1 percent), the average age is forty-five.

Jim is no exception. Jim started Renaissance after an illustrious career as first a code breaker for the NSA, and then later the Dean of a top rated mathematics department at Stony Brook University. He reinvented himself a third time as an investor and entrepreneur at the age of ~50.

Fintech entrepreneurs out there: it is never too late to start. Your experience, across sectors, geographies and decades is valuable and gives an edge.

Parting thoughts

The story of Jim Simons is a powerful example of leadership, vision and tenacity in redefining an industry. Renaissance was a pioneer in the quantitative trading space and helped create the category. Fintechs are similarly creating a category and many of these same lessons translate powerfully.