Billionaire Mathematician James Simons Flopped the First Time He Invested

James Simons is an investing legend. He founded a wildly successful hedge fund, Renaissance Technologies LLC, that employs Ph.D. mathematicians to detect subtle predictive patterns in market data. He’s accumulated a net worth of almost $16 billion, according to the Bloomberg Billionaires Index.

In a talk on Oct. 26, Simons revealed that he hasn’t always been so smart about investing. He said he opened his first account, with Merrill Lynch & Co., when he was in his early 20s and needed a place to put about $5,000 in wedding gifts. He bought a few stocks, but they didn’t move, so he asked his broker for something more “exciting.” The broker recommended soybean futures, and luckily enough they went up in price, Simons said in an onstage interview at the IESE Business School in midtown Manhattan.

That’s when Simons made his first mistake as an investor. A colleague told Simons he should sell the soybean futures to lock in the gains but he ignored the advice. The price went right back down. 

Simons, who was working toward a doctorate in mathematics at the University of California at Berkeley at the time, kept trying to make money on soybeans but eventually realized that uninformed speculation was not going to get him anywhere. “I’m either going to trade soybeans or write my thesis,” he recalled saying to himself. He earned his doctorate at age 23.

Pivoting to the Ph.D. was a good choice, because math later became the secret sauce of Renaissance Technologies, which is based in the Long Island village of East Setauket, N.Y., and has more than $50 billion under management. In between, Simons taught at Harvard and the Massachusetts Institute of Technology, worked as a codebreaker in Princeton, N.J., and built a highly ranked mathematics department at the State University of New York at Stony Brook.

Simons doesn’t give a lot of interviews, so there was strong interest in his breakfast talk at the New York City campus of IESE Business School, a branch of the University of Navarra in Spain. His interlocutor was Bill Baker, an IESE professor who is past president of WNET-Thirteen, New York’s public television station. Here are some of the highlights:

SECRETS OF RENAISSANCE

Renaissance’s mathematicians and scientists sift through terabytes of data daily looking for anomalies—movements in prices that, if they persist, could become money-makers. The signals are faint. If they weren’t, someone would have found them already. To make money, Simons said, “You have to put together a lot of signals and just keep working at it, working at it.” Other firms took note of Renaissance’s success. At times, he said, “It felt like we were running in front of a pack of wolves that were trying to catch up and devour us.”

DONALD TRUMP

Robert Mercer, a co-chief executive officer of Renaissance, helped get Trump elected president and is a financial backer of Breitbart News, the right-wing website led by former presidential counselor Steve Bannon. Simons made no mention of Mercer but was clear that he’s no Trump supporter. “We’ve never had a president remotely like our current president,” Simons said. “We’ve had some doozies but never like that caliber.” Simons says he believes the U.S. is resilient and will bounce back from a Trump administration without lasting damage “if we can just get through these four years without an atomic bomb dropped.”

MANAGEMENT

Simons, flouting the convention that mathematicians are antisocial, said one of his favorite tasks at Stony Brook and Renaissance was recruitment. His philosophy: “Hire the greatest people you can and then give them a lot of authority.”

PHILANTHROPY

The New York City-based Simons Foundation will give away about $400 million this year. It gives grants for basic research in math, physics, biology, the origins of life, and autism. The Flatiron Institute, founded last year in Manhattan, does in-house research in the hard sciences using computers—computational biology, etc. It’s helping build a complex of telescopes at high altitude in Chile’s Atacama Desert to search for primordial gravitational waves—a clue to how the universe was born in the Big Bang. When hedge fund founders talk about inflation, they generally mean rising prices. Simons is as likely to be referring to the theory that the universe expanded rapidly in the first tiny fraction of a second of its existence. Said Simons: “I’m not a fan of inflation.”

MATH EDUCATION

The Simons Foundation also funds Math for America, which seeks to improve science, technology, engineering, and math education in secondary schools. Simons said he was originally impressed by the idea of rewarding teachers based on the performance of their students on standardized tests until he realized that the scores were a poor indicator of teachers’ ability. The correlation of a teacher’s performance by that measure from one year to the next is almost random, he said. He also doesn’t like the project of PayPal co-founder Peter Thiel to pay people who drop out of college to start companies. “I think it’s the dumbest thing I ever heard.”

SOCKS

Simons didn’t say anything about his socks. He wasn’t wearing any, as is his custom. And not because he can’t afford them.

 

    Peter Coy
    Bloomberg Businessweek Columnist

    Peter Coy is the economics editor for Bloomberg Businessweek and covers a wide range of economic issues. He also holds the position of senior writer. Coy joined the magazine in December 1989 as telecommunications editor, then became technology editor in October 1992 and held that position until joining the economics staff. He came to BusinessWeek from the Associated Press in New York, where he had served as a business news writer since 1985.

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