05 Jul James Simons Interview By Numberphile

Money management is a very gut wrenching business. You come in one morning and the market is with you. You feel like a genius. The next day the market is against you and you feel like a fool.

On Efficient Market Hypothesis

Efficient market theory – that’s just not true.
There are anomalies in data. Even price data.

On market trends and market anomalies

Commodities used to trend, not dramatically, but trend. So if you can get the trend right you bet on the trend and you make money more often than you would whether it’s going down or going up. That was an anomaly in the data.

Gradually we found more and more anomalies. None of them were so overwhelming that you gonna clean up on a particular anomaly cos if there were, other people would have seen them. They have to be subtle anomalies. You put together a collection of these subtle anomalies and they begin to predict very well.

On Renaissance Technologies’ Strategies

The system as it is today is extraordinarily elaborate. It’s what’s called machine learning. You find things that are predictive, test it out on long term historical data. Add to system if it works else throw it out. Prediction is not the only part. You have to know what your costs are. You will move the market with bigger size. Have to understand how to minimize the overall volatility. The last part is sophisticated mathematics.

Mostly statistics. Some probability theory.

There’s a sweet spot in AUM. Some capacity constraints.

On company culture

Get smart people, give them freedom, create atmosphere where everyone talks to everyone else, provide best infrastructure, make everyone a Partner.

The important Math in business is subtraction. You have to know Revenue subtract Cost.

On systematic strategies

You cannot simulate the guy walking into the room and wanting to buy more google shares but you can simulate a model based on the past. See how it does.

They are 100% model driven.

The computer is just a tool. Computer does what you tell it to do.

On the role of luck

We underestimate the role of luck. Especially for success.