Jim Simons, the founder of Renaissance Technologies, gave in 2010 a fascinating talk at MIT entitled, “Mathematics, Common Sense, and Good Luck: My Life and Careers.”
We transcribed parts of it, and wanted to share it with our readers, since there are some many good nuggets of embedded wisdom that can apply across the business and investing spectrum.
If you’re doing fundamental trading, one morning you come in and you feel like a genius. Your positions are all your way and you think “god, I’m really smart, and look at all the money I made overnight.” The next day you come in and they’re all going against you, and you feel like an idiot…We were pretty good at it, but it just didn’t seem to be a way to live your life.
It really isn’t a way to live your life. Daniel Kahneman, in “Thinking Fast and Slow,” talks about a “hedonimeter total,” which is the sum of the values – your moments of happiness and sadness – of your experiences. Fundamental traders experience a lot of anguish on their bad days, and therefore likely have an adverse impact on their hedonimeter total.
Some investing firms say…they have models, and what they typically mean is…we have a model . It advises the trader what to do, and if he likes the advice he’ll take it and if he doesn’t like the advice he won’t take it. Well that’s…not science. You can’t simulate how you would do. How were you feeling when you got out of bed…thirteen years ago, when you’re looking at historical simulations. Did you like what the model said, or didn’t you like what the model said? It’s a hard thing to back-test. So if you’re going to trade using models you just slavishly use the models. You do whatever the hell it says no matter how smart or dumb you think it is at that moment, and that turned out to be a wonderful decision.
It’s a good point, and begs the question: why use models at all if you’re just going to override them? You may have great models, but how can you be sure you are using them effectively if you apply your discretion? We believe it’s probably the case that you are detracting from the ceiling of the model’s performance, instead of adding to a floor of performance.
People always ask me, “well, what’s the secret?”
The real secret sauce is that we start with great scientists. We start with first class people who’ve done first class work, or we believe…will do first class work.
The second thing is we provide people with a great infrastructure. And I’ve had people come to us from all over, and when they come to work they say…it’s more easy to get to work here than any place else.,,give people good infrastructure.
The most important thing we do is have an open atmosphere. My belief is that the best way to conduct research is on a broad scale…make sure that as much as possible they everybody knows what everybody else is doing, at least as quickly as possible… The sooner the better, start talking to other people about what you’re doing, because that’s what will stimulate things the fastest. No compartmentization …everybody meets once a week. All the researchers meet. Any new idea gets brought up, discussed, vetted, and hopefully put into production…It’s an open atmosphere…and people get paid based on the overall profits…so everyone has an interest in everyone else’s success.
Ok, so maybe not all of us can start with great scientists. But you can work with great “scientists” from your specific domain – great coders, great communicators, great finance brains. Certainly infrastructure seems like a good place to start for any successful venture, so invest in technology, no matter what business you’re in. Also, when you assemble likeminded people with orthogonal skillsets, you can enhance your collective abilities. You create more ideas. You can debate efficiently and effectively. You get a diversity of opinion. And keep everyone aligned on the collective goals. These themes can apply whether you’re creating a quant shop, or an internet startup.
I’ll tell you some guiding principles that I think would work very well.
One thing I’ve always done is do something new. I love to do something new, and I don’t like to run with the pack. For one thing, I’m not such a fast runner. If you’re one of N people working on the same problem…for me, I know I’d be last. I’m not going to win that race. But if you can think of a new problem, or a new way of doing something that other people aren’t all working on at the same time, maybe that will give you a chance. So do something new.
Second, collaborate with the best people you possibly can. When you see a person, get to know a person, who seems like a great guy or a gal to work with on something, try to find a way to do it, because that gives you some reach and some scope. And it’s also fun to work with terrific people.
Be guided by beauty. I really mean that. I think pretty much everything I’ve done has had an aesthetic component, at least to me. Well you might think that “building a company that’s trading bonds, what’s so aesthetic about that?” What’s aesthetic about it is doing it right. Getting the right kind of people, and approaching the problem, and doing it right. And if you feel that you’re the first one to do it right, that’s a terrific feeling, and it’s a beautiful thing to do something right…”be guided by beauty” is not such a bad principle.
Don’t give up. At least, try not to give up. Sometimes it’s appropriate to be trying to do something for a hell of a long time.
Finally, hope for some good luck.