Bogleheads® on Investing Podcast 081: Greg Zuckerman, author of "The Man Who Solved the Market"
00:00:00.000 | Welcome, everyone, to the 81st edition of Bogleheads on Investing.
00:00:15.160 | Today, our special guest is Greg Zuckerman. Greg is a special writer for The Wall Street
00:00:20.260 | Journal, where he focuses on financial firms, personalities, and traders, as well as hedge
00:00:26.120 | funds and other business topics. He's a three-time winner of the Gerald Loeb Award, the highest
00:00:32.540 | honor in business journalism. He's also the author of several books and the one that we're
00:00:37.640 | going to be talking about today, The Man Who Solved the Market, How Jim Simons Launched
00:00:42.660 | the Quant Revolution.
00:00:52.940 | Hi, everyone. My name is Rick Ferry, and I am the host of Bogleheads on Investing.
00:00:57.560 | This episode, as with all episodes, is brought to you by the John C. Bogle Center for Financial
00:01:04.180 | Literacy, a nonprofit organization that is building a world of well-informed, capable,
00:01:09.320 | and empowered investors. Visit the Bogle Center at boglecenter.net, where you will find a treasure
00:01:16.480 | drover of information, including transcripts of these podcasts.
00:01:20.300 | I have one announcement today. I'm excited to announce that the tickets for the 2025 Bogleheads
00:01:28.440 | Conference will go on sale in May on boglecenter.net. The conference will be in San Antonio this year,
00:01:37.320 | October 17th through the 19th, at the Hyatt Riverwalk, a beautiful location right across from the Alamo.
00:01:45.700 | And we have some fantastic guests. The agenda will be up on boglecenter.net soon. I'm looking
00:01:52.280 | forward to seeing everyone there. In today's podcast, we're going to look at trading, stock
00:02:00.060 | trading particularly, but also commodities trading, currency trading, and even Bitcoin trading. At this
00:02:08.820 | point, you may be asking yourself, why is the Bogleheads on Investing podcast talking about
00:02:14.440 | trading? I mean, Bogleheads are going to be mostly buy, hold, rebalance using a few good index funds. That's
00:02:24.240 | the concept. That's the philosophy. But many of us have tried to earn an extra buck with trading.
00:02:34.260 | And these investments that we make are short term to intermediate term. They're not
00:02:42.120 | in our minds to be held forever. It's not like buying a total stock market index fund where you're
00:02:48.960 | going to hold it forever. These are investments that you think there's an opportunity to get in
00:02:55.860 | at a particular price point. And then at some time down the road might be a month, might be six months,
00:03:03.140 | might be a year, might be three years. You're going to sell them at a profit. And it all sounds good.
00:03:11.160 | There's lots of books written about this. The big book that came out when I came into the business more
00:03:16.540 | than 35 years ago was one up on Wall Street by Peter Lynch, the iconic Fidelity Magellan manager at
00:03:24.040 | the time, talking about how individual ambassadors can get in and buy stocks and make money by trading
00:03:32.540 | stocks. That's formed a whole industry of investment clubs and people getting together to do it the Peter
00:03:40.800 | Lynch way. Didn't work out well for a lot of folks, particularly a group called the Beardstown Ladies,
00:03:46.640 | which was an investment club out of Illinois, who wrote many books about how they beat the market when
00:03:53.340 | in fact, if you research it, they did not beat the market. It turned out that the club members were
00:03:59.300 | making a mistake in how they were calculating their investment returns. And it was quite an embarrassment
00:04:05.140 | to those people. But the idea of going out and buying stock or buying gold or buying Bitcoin or
00:04:14.660 | whatever you're going to buy and having it go up in value and then selling it is something that many
00:04:21.160 | people believe they can develop the skills to do with success. When in fact, it is extremely difficult.
00:04:31.740 | Why do people believe that? Why did I believe it before I became a passive index fund believer?
00:04:39.340 | Well, the financial press is focused on this. Turn on Bloomberg or CNBC and it's all about the trade.
00:04:49.780 | You know, what traders are doing today, what trade you can make based upon current economic conditions
00:04:57.520 | and an infinite amount of other suggestions that is put forward by the financial press, investment
00:05:07.180 | advisors, brokers. This is trading for the short to intermediate term. What we're going to focus on
00:05:15.800 | today is the other side of the trade, which is when you buy something or sell something, who is on the
00:05:26.120 | other side of that trade and why it is increasingly difficult to make money consistently doing these
00:05:38.740 | trades. Now, we know when you buy something, there's a 50% chance in the short term, it's going to go up
00:05:43.640 | and 50% chance it's going to go down. But it's actually less than 50% because just like going to Las Vegas
00:05:50.740 | and putting your money down on the roulette wheel or putting your money on the slot machines, the house
00:05:56.260 | has the advantage. But how big is that advantage? And that's what we're going to talk about today.
00:06:01.620 | Who are these firms that are out there waiting to trade against you? And how sophisticated are they?
00:06:09.980 | What tools are they using to squeeze money from us and push the odds against us? And to help tell this story,
00:06:20.080 | our guest today is Gregory Zuckerman. Greg is the author of several books, but the book we're going to be
00:06:28.560 | focusing on today is The Man Who Solved the Market, How Jim Simons Launched the Quant Revolution.
00:06:35.660 | Greg is a special writer at the Wall Street Journal. He writes about financial firms, personalities and
00:06:43.620 | trades, as well as hedge funds and other investing and business topics. He's a three-time winner of the
00:06:51.240 | Gerald Loeb Award, the highest honor in business journalism. With no further ado, let me introduce
00:06:57.920 | to Greg Zuckerman. Welcome to Bogleheads on Investing, Greg.
00:07:01.260 | Great to be here.
00:07:02.540 | Greg, the Bogleheads, as you may know, are mostly passive do-it-yourself investors who
00:07:08.420 | use index funds and just a simple portfolio in a long-term buy and hold, rebalance, sort of
00:07:15.300 | John Bogle philosophy of investing. But we're always interesting in what's going on on the other side.
00:07:22.560 | And you're a man who has studied the other side. And I'm speaking about hedge funds who use
00:07:29.100 | black box quantitative investing models and lots of sophisticated mathematics to try to
00:07:37.060 | outmaneuver everyone else out there. And some of these funds make billions of dollars. And you wrote
00:07:43.380 | a book called The Man Who Solved the Market, How Jim Simons Launched the Quant Revolution. And Jim Simons
00:07:50.280 | was the founder of Renaissance Technologies. We'll get into that book in a little bit. But before we do,
00:07:55.980 | could you tell us a little bit about your background and the several books that you've
00:08:00.860 | written and how you came around to writing this book?
00:08:03.660 | Sure. I've been at the Wall Street Journal since 1996, a very long time, covered a bunch of different
00:08:10.180 | beats, credit markets, wrote to her on the street, private equity. But I spent many years writing about
00:08:16.360 | hedge funds. And I've written several books. My first book is called The Greatest Trade Ever,
00:08:21.160 | about the subprime trade, people who anticipated the financial meltdown, 2007 and 2008, and John Paulson
00:08:28.300 | and some others. Then I got really excited about the energy revolution in this country. I wrote a book
00:08:33.400 | called The Frackers about that revolution and who the people were and individuals, unlikely individuals.
00:08:39.880 | And I also wrote a book about the COVID vaccines, how we developed them, the race for the vaccines,
00:08:45.320 | the long race, actually, surprising race. And that's called The Shot to Save the World. And then I've
00:08:50.880 | written some books with my sons. But the book in particular you mentioned is called, yeah,
00:08:56.200 | you had mentioned about Jim Simons, the man who solved the market. And yeah, a lot of what I do at the
00:09:02.560 | Wall Street Journal are write about, I write about home runs and strikeouts. I'm a sports guy. I like
00:09:08.600 | to write about those who do really embarrassing mistakes, make embarrassing mistakes. And those
00:09:16.580 | who do smart, make smart decisions, and it pays off. And those are the home runs. So there's a lot of
00:09:23.620 | drama and a lot of lessons from the home runs and strikeouts. And yeah, that's kind of a passion of
00:09:28.680 | mind, writing about smart decisions and import decisions over time.
00:09:33.080 | A lot of investors out there believe that when they get home from work, they can get on their
00:09:40.980 | laptop computer. They can check a few stocks that they like, look at the technicals, maybe some of the
00:09:49.240 | fundamentals, read some of the articles that are out there, and decide that they're going to buy this
00:09:58.240 | stock. And if the stock does well, they tend to congratulate ourselves on being smart,
00:10:07.380 | sophisticated. But in fact, it was probably just luck. And I say that because after reading
00:10:15.540 | numerous books about hedge funds, your book, I even read Jim Cramer's book, The Confessions of a Street
00:10:23.720 | Addict. And I used to use that in one of my classes that I taught at college. I read Michael Lewis's book,
00:10:29.780 | Flash Boys, about high-frequency trading. Every time I read one of these books, I come away thinking,
00:10:36.960 | how on earth does an individual investor who's plinking around on their home computer compete
00:10:44.860 | against these people? And I always wanted to get your thoughts about that.
00:10:48.740 | So taking a step back, I started writing about the world of finance, early 90s, and I got to the
00:10:56.880 | journal in 1996. And a lot of what I ended up doing are writing about the winners, the success stories,
00:11:03.200 | those who anticipate world events, those who discover underappreciated investments, securities,
00:11:10.700 | be it in the credit markets or inequities. And in some ways, I've done a disservice to mankind,
00:11:18.700 | to humankind, in that, yeah, one can read Greg Zuckerman's work and say, wow, I can beat the market. But
00:11:26.280 | I hope people don't come away with that conclusion. And over time, I've arrived at my own conclusion that
00:11:36.660 | it is, if not impossible, really hard to beat the market. And it's gotten much harder, partly because
00:11:43.580 | you're going up against the quants. So there was a time when there was a possibility of gaining an
00:11:50.560 | information advantage. Even an individual could. It's rare today. So markets are much more efficient.
00:11:59.820 | Information flows much quicker than ever. It's a fair market in a lot of different ways. I can tell
00:12:07.320 | you so many stories of hedge funds and others just having a meeting with the CEO. I remember
00:12:13.420 | the Steinhardt people telling me about how Lou Gerstner at IBM came in the office one day and kind
00:12:20.960 | of outlined what he was going to do. And they were like, look at each other like, wow, we got to back up
00:12:24.660 | the truck here. And they did. And they made a fortune. You can't do that today. That's breaking
00:12:29.120 | Reg FD. So I hope people don't come away from my book saying, I'm going to do this at home.
00:12:34.880 | No, not at all. I mean, that's exactly the opposite of how I come away from these books. Because after I
00:12:39.900 | finish reading the book, I say to myself, these people have access to information and databases that
00:12:47.820 | I couldn't even dream of even getting access to, let alone being able to data mine this information
00:12:53.760 | using the now quantum computers that some of these companies are using. And the people that these
00:13:01.060 | companies hire, they're mathematicians, they're PhDs, physicists, I mean, dozens and dozens in your book
00:13:06.840 | talk about how Jim Simon and his co-CEOs would go out and just literally hire dozens of the smartest
00:13:14.120 | people out there to come in and try to build these algorithms.
00:13:17.060 | Yeah, it's harder than ever. If you're going to do relatively short term investing,
00:13:22.200 | especially then you're going up against Jim Simons, well, not him any longer, but
00:13:26.340 | his colleagues at Renaissance. And it's it's folly. It's just a fool's errand to try to think you're
00:13:34.600 | going to beat them in terms of short or medium term investing. I do have to say that if you're going to
00:13:40.780 | be a longer term investor, that's not where the big guns on Wall Street are focused on. So there is an
00:13:48.060 | opportunity there and you can even take advantage of their short term nature. Sometimes stocks on a
00:13:56.220 | short term basis move in a volatile way and you can take advantage as a calm, patient, longer term
00:14:02.740 | investors. There's still opportunity there, I believe. But generally speaking, you've got to realize that
00:14:08.740 | you're going up against it used to be you'd go up against, let's say, Peter Lynch or Jeff Vinnick and
00:14:15.280 | Fidelity. And that was hard enough. But now about 80 percent of trading on Wall Street is based on some
00:14:23.220 | algorithm of some kind. It's not to say that they've figured out the secret sauce. They don't outperform
00:14:30.160 | necessarily any more than people did in the past, even though it's more automated. So I wouldn't worry about
00:14:36.680 | that so much. There's still the same inefficiencies out there and potential opportunities, but it's just
00:14:42.220 | harder to get an advantage, any kind of information or otherwise. Goldman Sachs just announced their
00:14:50.520 | earnings and they were record-breaking earnings from equity trading. There was a 27 percent increase
00:14:59.760 | year-over-per-year. They made $4.19 billion in equity trading. Now this comes out of the market. I mean,
00:15:07.600 | you know, where there's profits that they received. Now part of that was through proprietary trading, which is Goldman Sachs
00:15:17.520 | engaging in their own trading for their own book, where they're making markets. And in addition to these hedge funds,
00:15:25.680 | you've got JP Morgan, Goldman Sachs, and all these big Wall Street firms that are also involved in this
00:15:33.560 | day-to-day. And they're all generally making a lot of money. I just want to go through some of the
00:15:39.000 | big prop trading companies out there. DRW,
00:15:43.760 | Cintadell,
00:15:45.160 | Jane Street,
00:15:46.280 | Optiver,
00:15:47.520 | Hudson River Trading,
00:15:49.420 | Tower Research.
00:15:51.140 | Then you have Two Sigma,
00:15:52.420 | you have the hedge funds,
00:15:54.140 | the Renaissance Technologies,
00:15:56.940 | and so forth. I mean, there's just dozens of
00:15:59.620 | big companies out there that are trying to
00:16:02.560 | make money
00:16:03.820 | doing algorithmic trading.
00:16:05.720 | And they are. I mean, they're making big money.
00:16:08.600 | And this all comes out of the markets.
00:16:11.040 | So, like you said,
00:16:13.040 | 80 percent of the trading that's going on
00:16:15.120 | is all of this.
00:16:17.800 | And to me,
00:16:19.420 | as an index investor,
00:16:22.020 | should I be concerned about this?
00:16:23.940 | No, I don't think so.
00:16:25.460 | There always have been
00:16:26.700 | big investors on Wall Street and elsewhere
00:16:28.940 | doing prop kind of trading.
00:16:31.460 | If anything,
00:16:32.220 | the prop trading
00:16:33.040 | that big firms,
00:16:35.420 | investment banks,
00:16:36.460 | Goldman Sachs,
00:16:37.500 | and such
00:16:37.960 | do today
00:16:39.160 | pales in comparison
00:16:40.480 | with what they used to do.
00:16:42.860 | like Salomon Brothers
00:16:43.940 | back in the day
00:16:44.760 | was just a prop trading
00:16:46.360 | behemoth.
00:16:48.200 | And today,
00:16:49.220 | because of different regulatory changes,
00:16:52.060 | banks just don't
00:16:53.500 | take those kind of
00:16:54.440 | chances anymore,
00:16:55.380 | Goldman Sachs and others.
00:16:56.480 | So they do some
00:16:57.180 | prop trading,
00:16:57.860 | very little.
00:16:58.320 | But yeah,
00:16:59.660 | it's shifted elsewhere.
00:17:00.680 | And people are making a fortune.
00:17:02.180 | I think the real money comes
00:17:04.000 | out of the pockets
00:17:05.240 | of
00:17:05.740 | the big endowments,
00:17:07.040 | the big institutional funds,
00:17:08.200 | the ones that are clients,
00:17:09.400 | frankly,
00:17:09.840 | of these firms.
00:17:11.020 | I mean,
00:17:11.520 | they pay such high prices
00:17:13.580 | in terms of
00:17:14.960 | management fees,
00:17:16.260 | incentive fees
00:17:17.180 | to the
00:17:17.880 | hedge funds
00:17:19.620 | and trading firms
00:17:20.660 | that they give money to,
00:17:22.220 | their clients of.
00:17:23.280 | And
00:17:24.120 | it's just
00:17:25.460 | a great business
00:17:26.940 | for those
00:17:28.220 | who do the trading
00:17:28.960 | but not
00:17:29.600 | for the clients.
00:17:30.740 | So then you say to yourself,
00:17:31.520 | well,
00:17:31.760 | why are they doing it?
00:17:32.940 | Why are all these
00:17:34.080 | institutions
00:17:34.900 | handing their money over
00:17:36.020 | to these investment firms
00:17:37.160 | that don't necessarily
00:17:38.480 | outperform
00:17:39.180 | the market?
00:17:40.260 | or I don't even like
00:17:40.920 | to say the market
00:17:41.560 | because that's not
00:17:42.280 | really the alternative.
00:17:42.920 | Alternative is just
00:17:43.640 | sort of a 60-40
00:17:45.220 | boring allocation,
00:17:47.480 | which I'm a fan of.
00:17:48.840 | So you're speaking
00:17:50.520 | to the converted.
00:17:51.620 | Why do they do it?
00:17:53.040 | I think it's a function
00:17:54.320 | of keeping your job.
00:17:55.980 | So if you're an allocator
00:17:57.340 | at a big endowment,
00:18:00.000 | sovereign wealth fund,
00:18:01.040 | what have you,
00:18:01.700 | you have a salary,
00:18:02.900 | you have a high salary
00:18:03.740 | of your own.
00:18:04.360 | you can't justify it
00:18:05.660 | by saying,
00:18:06.780 | well,
00:18:07.080 | guys,
00:18:07.580 | we're going to put
00:18:09.140 | all the money
00:18:09.740 | into Vanguard
00:18:10.520 | and we're going
00:18:11.580 | to be allocated
00:18:12.440 | conservatively
00:18:14.480 | and we're going
00:18:16.140 | to have some equities
00:18:16.960 | and exposure
00:18:17.700 | and some fixed income,
00:18:19.560 | et cetera,
00:18:20.060 | I mean,
00:18:20.280 | a little emerging market.
00:18:21.000 | You can't do that.
00:18:21.880 | They're going to be like,
00:18:22.340 | great idea.
00:18:23.560 | We're slashing
00:18:24.640 | your salary in half.
00:18:25.680 | We don't need you
00:18:26.320 | to be doing that.
00:18:27.360 | Instead,
00:18:27.800 | you need to charge
00:18:30.840 | someone a lot of money
00:18:32.240 | to get you into,
00:18:33.480 | like you said,
00:18:34.320 | Citadel or Tower Trading
00:18:35.740 | or one of these places.
00:18:36.520 | So there's incentive there
00:18:39.440 | for the allocators
00:18:41.480 | to allocate
00:18:42.680 | to the really expensive
00:18:45.140 | trading firms
00:18:46.040 | and it hurts.
00:18:47.360 | It hurts pensioners,
00:18:48.400 | pension funds.
00:18:49.080 | It hurts the sovereign wealth,
00:18:51.100 | beneficiaries,
00:18:52.480 | et cetera.
00:18:53.120 | So,
00:18:53.980 | but in terms of you and I,
00:18:56.020 | it shouldn't really affect us.
00:18:57.300 | It makes the market
00:18:58.080 | much more volatile.
00:18:58.800 | So if you could take advantage
00:18:59.920 | of that,
00:19:00.460 | then there's benefit.
00:19:01.940 | Yeah,
00:19:03.320 | I guess the way
00:19:03.860 | that we would take advantage
00:19:04.780 | of a volatile market,
00:19:05.840 | say right now,
00:19:06.900 | as I've been telling folks,
00:19:09.120 | is if the market's down 20%
00:19:12.060 | and you have an allocation
00:19:13.160 | to 60-40,
00:19:15.080 | then your 60 is probably
00:19:17.220 | not at 60 anymore.
00:19:18.280 | It's probably at 50
00:19:19.380 | or at least 55.
00:19:20.740 | So you should probably,
00:19:22.220 | with that 5% difference,
00:19:23.880 | you should probably be buying stocks.
00:19:26.340 | And if the market
00:19:27.880 | gets driven up by this
00:19:29.200 | and you're at 65% equity,
00:19:31.100 | you should probably
00:19:31.800 | be selling stocks.
00:19:32.740 | And that small amount
00:19:33.940 | of rebalancing
00:19:34.960 | just to stay
00:19:36.740 | to a strategic allocation
00:19:38.120 | does seem to equate
00:19:39.840 | to some free lunch
00:19:42.320 | out there,
00:19:42.780 | if there is one,
00:19:43.680 | from just doing that.
00:19:46.560 | I think that's the way
00:19:47.840 | we,
00:19:48.360 | the public,
00:19:49.180 | can maybe take advantage
00:19:50.580 | of some of these
00:19:51.360 | big dips in the market
00:19:53.040 | that seem to occur
00:19:53.820 | every three years or so.
00:19:54.940 | Yeah,
00:19:56.400 | there's an argument there.
00:19:57.580 | The tricky thing,
00:19:58.620 | the challenge nowadays
00:19:59.900 | is that
00:20:00.620 | the fixed income market,
00:20:02.140 | the treasury market,
00:20:03.020 | is having its own problems
00:20:04.820 | just as the equity market
00:20:06.400 | comes under pressure.
00:20:07.900 | So it's not as easy
00:20:08.900 | to shift
00:20:10.300 | due to equity troubles
00:20:14.600 | to fixed income
00:20:15.920 | because you're getting
00:20:16.440 | losses.
00:20:16.860 | But if you're a long-term investor,
00:20:18.480 | then you shouldn't worry
00:20:19.260 | about these blips.
00:20:20.080 | And yeah,
00:20:21.160 | I've got two young sons
00:20:22.300 | and I tell them
00:20:23.180 | dollar cost averaging
00:20:24.160 | and don't worry
00:20:25.320 | about the ups and downs.
00:20:26.580 | But of course,
00:20:27.180 | they ignore me.
00:20:29.160 | How young are they?
00:20:30.480 | Ah,
00:20:31.440 | they're in their 20s.
00:20:32.440 | I often tell people
00:20:34.420 | that when it comes
00:20:35.960 | to stock trading,
00:20:37.320 | people who begin
00:20:39.080 | in their 20s or 30s,
00:20:41.400 | they think they're going
00:20:43.100 | to maybe pick some stocks
00:20:45.060 | that are going to outperform
00:20:46.280 | in the short term,
00:20:46.940 | you know, trading.
00:20:47.520 | And if they happen
00:20:48.800 | to pick a few stocks
00:20:49.880 | that went up,
00:20:50.420 | they think they actually
00:20:52.460 | have skill
00:20:53.300 | rather than luck.
00:20:54.700 | It's almost like
00:20:56.100 | picking up a used set
00:20:57.840 | of golf clubs
00:20:58.600 | and going out
00:20:59.140 | on the golf course
00:20:59.980 | and hitting around
00:21:01.640 | and making a couple
00:21:02.740 | of long putts
00:21:03.760 | and thinking,
00:21:04.220 | oh, now I'm ready
00:21:04.960 | for the Masters.
00:21:05.660 | You might think that,
00:21:08.360 | but you're not going
00:21:09.060 | to make the cut.
00:21:09.660 | Yeah.
00:21:10.060 | And listen,
00:21:11.240 | there are some people
00:21:11.880 | who are great
00:21:12.460 | at trading individuals
00:21:13.580 | and such
00:21:14.220 | and have a touch for it
00:21:16.400 | and good for them.
00:21:17.320 | But generally speaking,
00:21:18.900 | they focus on their winners
00:21:19.940 | and not their losers
00:21:20.680 | and their exceptions
00:21:22.060 | to the rule.
00:21:22.860 | So for every one of those,
00:21:24.620 | there are more
00:21:25.380 | that cannot beat the market.
00:21:26.720 | So I want to get into
00:21:28.340 | your book
00:21:29.840 | because it follows
00:21:32.140 | the life
00:21:34.380 | of one of these
00:21:36.300 | hedge fund managers,
00:21:38.080 | really,
00:21:38.360 | you could call him
00:21:39.560 | the father
00:21:40.540 | of the quantitative
00:21:41.500 | trading movement.
00:21:42.540 | Definitely, definitely.
00:21:44.040 | His name is Jim Simons
00:21:45.660 | and he founded
00:21:47.480 | Renaissance Technology,
00:21:48.820 | which is one of the
00:21:49.560 | very big
00:21:50.580 | quantitative trading firms
00:21:52.480 | and very,
00:21:53.120 | very successful.
00:21:54.740 | why him?
00:21:55.760 | I mean,
00:21:56.100 | there were other people.
00:21:57.000 | There was George Soros.
00:21:58.380 | There was Steve Cohen,
00:22:00.280 | David Shaw,
00:22:01.820 | Ken Griffin from Citadel.
00:22:03.720 | Why Jim Simons?
00:22:06.420 | So I wrote a book
00:22:07.380 | about Jim Simons
00:22:08.540 | and his colleagues
00:22:09.400 | at Renaissance
00:22:10.020 | because they have
00:22:11.380 | the greatest track record
00:22:12.740 | in investing history.
00:22:14.380 | I don't know if you call them
00:22:15.620 | traders or investors.
00:22:18.220 | I just call them money makers.
00:22:20.000 | On average,
00:22:20.920 | their medallion fund,
00:22:22.020 | which is their key hedge fund,
00:22:23.580 | is up about 66%
00:22:25.840 | a year
00:22:27.180 | for decades and decades
00:22:28.940 | since inception.
00:22:30.080 | So there's no one
00:22:30.640 | really close.
00:22:31.460 | That's before fees.
00:22:32.320 | They have enormous fees
00:22:33.220 | but they also
00:22:33.840 | have kicked out
00:22:35.060 | almost every one
00:22:36.400 | of their outside investors
00:22:37.860 | so they charge themselves
00:22:38.940 | these fees.
00:22:39.520 | So I set out
00:22:40.840 | to figure out
00:22:41.480 | how they developed
00:22:42.960 | such a money making machine
00:22:44.760 | and to me
00:22:46.920 | there's a fascinating history.
00:22:48.080 | Jim Simons is unique.
00:22:49.260 | The people there
00:22:50.100 | are unique.
00:22:50.580 | They're not investors.
00:22:51.700 | They're not people
00:22:52.400 | from the world of finance.
00:22:53.440 | They're not people
00:22:54.140 | of MBAs.
00:22:55.000 | You would think,
00:22:55.580 | I mean,
00:22:55.800 | there's a paradox
00:22:57.340 | behind all my books.
00:22:58.840 | All the books
00:22:59.260 | I've written.
00:22:59.640 | After I've kind of
00:23:01.340 | dug into them
00:23:02.040 | and spent time on them
00:23:02.900 | I realized
00:23:03.480 | there's something
00:23:04.260 | propelling me.
00:23:05.000 | There's some reason
00:23:05.700 | why I'm so fascinated
00:23:07.720 | by the story
00:23:08.420 | and it's a paradox.
00:23:09.420 | It shouldn't have been
00:23:10.100 | these people.
00:23:10.820 | It shouldn't have been
00:23:11.280 | Jim Simons
00:23:11.960 | and his colleagues
00:23:13.100 | who mastered the market
00:23:14.460 | who solved the market
00:23:15.440 | as it were.
00:23:16.280 | They're people
00:23:17.520 | who don't necessarily
00:23:19.140 | care about companies
00:23:20.180 | and earnings
00:23:21.140 | and the future
00:23:22.020 | and business even.
00:23:23.360 | Some aren't even
00:23:24.560 | capitalists
00:23:25.240 | within the verb.
00:23:26.240 | I noticed that
00:23:27.720 | in the book,
00:23:28.300 | by the way.
00:23:28.760 | some are not even
00:23:29.400 | capitalists.
00:23:30.040 | Yeah,
00:23:30.320 | it's fascinating.
00:23:30.940 | They're scientists
00:23:31.880 | and they're mathematicians
00:23:33.700 | and Jim recruited
00:23:35.700 | from that world.
00:23:36.800 | He literally
00:23:38.420 | didn't want people
00:23:39.360 | from the world
00:23:39.960 | of finance,
00:23:40.400 | people who knew
00:23:41.320 | something about business
00:23:42.160 | and trading
00:23:42.620 | and investing.
00:23:43.260 | He wanted them
00:23:44.200 | to come fresh
00:23:45.080 | to this challenge
00:23:46.280 | and that's how
00:23:47.120 | they looked at it.
00:23:47.760 | It was a challenge
00:23:48.520 | to figure out markets
00:23:49.980 | like any other
00:23:51.580 | kind of scientific experiment
00:23:53.200 | and they set out
00:23:54.560 | and they set out
00:23:54.560 | to do it
00:23:55.400 | out in Long Island
00:23:56.900 | far from Wall Street
00:23:58.060 | at a time
00:23:59.520 | where there wasn't
00:24:00.700 | any quantitative
00:24:01.320 | trading going on.
00:24:02.480 | They were the pioneers.
00:24:03.320 | They became the pioneers
00:24:04.260 | and they changed everything.
00:24:05.380 | So I set out
00:24:06.480 | to write a book
00:24:07.360 | to explain
00:24:07.840 | how it all happened.
00:24:09.360 | So let's first start
00:24:10.100 | at who Jim Simons is.
00:24:11.680 | Where did he go to school?
00:24:13.560 | What was his education?
00:24:14.800 | And what did he do
00:24:16.140 | prior to deciding
00:24:17.060 | to get into
00:24:17.520 | the investment world?
00:24:18.440 | Sure.
00:24:19.340 | So Jim Simons
00:24:20.180 | grew up outside of Boston
00:24:21.920 | in Newton, Massachusetts.
00:24:23.360 | Went to MIT
00:24:24.540 | and always loved mathematics
00:24:26.640 | and his family
00:24:28.240 | pediatrician
00:24:29.040 | kind of warned him
00:24:30.060 | that don't go
00:24:30.720 | into mathematics.
00:24:31.240 | You can't make any money
00:24:32.300 | on mathematics.
00:24:33.040 | You should be a doctor
00:24:34.660 | like I am.
00:24:35.460 | And he ended up
00:24:36.800 | being worth
00:24:37.480 | at his death
00:24:38.160 | last year,
00:24:39.020 | he was worth
00:24:39.420 | about $27 billion.
00:24:40.380 | So the pediatrician
00:24:41.720 | didn't give great
00:24:42.680 | career advice
00:24:43.780 | and luckily Jim Simons
00:24:44.760 | ignored what his
00:24:45.960 | pediatrician said.
00:24:46.780 | And at first
00:24:48.100 | he went into academia
00:24:49.580 | and he got a PhD
00:24:51.200 | and was a geometer.
00:24:53.520 | Focused on that.
00:24:54.920 | He taught both
00:24:55.720 | at MIT and Harvard.
00:24:56.740 | But he always had
00:24:58.960 | this kind of
00:25:00.020 | wandering eye.
00:25:01.020 | Always had one foot
00:25:02.860 | in the world
00:25:03.760 | of academia
00:25:04.240 | and one foot
00:25:05.020 | in the real world.
00:25:06.040 | He took some time off
00:25:07.020 | to work for a government
00:25:08.680 | government arm
00:25:09.520 | during the Cold War
00:25:10.680 | and did code breaking
00:25:11.840 | against the Russians
00:25:12.780 | and learned there
00:25:14.680 | how to build
00:25:15.680 | predictive algorithms
00:25:16.580 | early on
00:25:17.460 | and also how to work
00:25:18.720 | with just super smart
00:25:20.400 | borderline genius
00:25:21.800 | mathematicians
00:25:23.140 | and how they could
00:25:24.000 | all work together
00:25:24.920 | for a common cause
00:25:25.980 | and that was a real
00:25:26.700 | lesson for him.
00:25:27.460 | He went back
00:25:28.760 | into academia,
00:25:29.420 | led the mathematics
00:25:31.020 | department
00:25:31.580 | at Stony Brook
00:25:33.200 | on Long Island
00:25:34.260 | and there too
00:25:35.520 | learned how to
00:25:36.140 | recruit talent
00:25:37.800 | and get them
00:25:38.420 | to work together
00:25:39.080 | and create incentives
00:25:40.320 | and frankly
00:25:41.640 | about my book
00:25:42.440 | so yeah
00:25:43.100 | it's called
00:25:43.720 | The Man Who Solved
00:25:44.460 | the Market
00:25:44.840 | it's about investing
00:25:45.720 | and trading
00:25:46.220 | I guess
00:25:46.580 | but a lot of it
00:25:47.980 | is just management
00:25:48.800 | and after I finished
00:25:50.560 | the book
00:25:50.820 | I realized
00:25:51.220 | it's as much
00:25:51.780 | a management book
00:25:52.460 | as it is
00:25:52.920 | an investing book
00:25:54.220 | because it's about
00:25:54.840 | how to recruit
00:25:55.840 | talent,
00:25:57.040 | top talent
00:25:57.840 | and get them
00:25:58.260 | to work together
00:25:59.180 | and it's very unique
00:26:00.520 | and Jim had that skill
00:26:01.960 | he was a fascinating
00:26:02.760 | individual
00:26:03.260 | because he was
00:26:04.660 | a quant
00:26:05.620 | he was a mathematician
00:26:06.240 | he goes down
00:26:07.280 | as one of the greatest
00:26:07.920 | geometers
00:26:08.380 | of the last few
00:26:08.940 | hundred years
00:26:09.500 | his work is still
00:26:10.380 | referenced
00:26:10.880 | over and over again
00:26:12.480 | and he led
00:26:13.920 | academic departments
00:26:14.960 | and such
00:26:15.420 | but he also
00:26:17.380 | is really
00:26:18.680 | personable
00:26:19.720 | or he was personable
00:26:20.580 | he passed away
00:26:21.200 | again last year
00:26:21.900 | very personable
00:26:23.360 | funny
00:26:23.880 | and more
00:26:25.440 | than anything
00:26:26.160 | he understands
00:26:27.200 | he understood
00:26:28.060 | people
00:26:28.580 | and how to get
00:26:29.700 | them to work
00:26:30.120 | together
00:26:30.400 | and creating
00:26:30.820 | incentives
00:26:31.380 | to do so
00:26:32.540 | fascinating
00:26:33.720 | background
00:26:34.160 | having been
00:26:35.040 | a military
00:26:35.460 | person
00:26:35.860 | I really like
00:26:36.500 | the code breaking
00:26:37.200 | part of the story
00:26:38.240 | the government
00:26:39.100 | recruited
00:26:40.020 | the smartest
00:26:40.980 | people
00:26:41.400 | they could find
00:26:42.560 | for that job
00:26:43.280 | but then
00:26:44.460 | at some point
00:26:45.380 | he leaves
00:26:46.800 | code breaking
00:26:47.600 | and academia
00:26:48.660 | and decides
00:26:49.820 | to open up
00:26:51.000 | a little
00:26:51.900 | mom and pop
00:26:52.600 | investment shop
00:26:53.420 | it appears
00:26:54.000 | yeah
00:26:54.500 | that's exactly
00:26:55.100 | right
00:26:55.320 | Jim always
00:26:56.100 | traded on the side
00:26:57.040 | he did have
00:26:57.820 | a love
00:26:58.220 | of markets
00:26:59.100 | and a love
00:27:00.040 | of money
00:27:00.640 | and he wasn't
00:27:01.760 | ashamed
00:27:02.440 | in any way
00:27:03.400 | embarrassed
00:27:03.960 | by that
00:27:05.040 | passion
00:27:05.500 | to become
00:27:06.380 | really
00:27:06.720 | wealthy
00:27:07.440 | and rich
00:27:08.420 | he was a
00:27:09.080 | unique academic
00:27:09.680 | in that regard
00:27:10.340 | his colleagues
00:27:10.880 | didn't share
00:27:11.380 | that passion
00:27:11.900 | for money
00:27:12.720 | so he left
00:27:13.480 | to start
00:27:14.820 | a trading firm
00:27:15.520 | and frankly
00:27:16.580 | his instinct
00:27:17.620 | was that
00:27:18.380 | markets
00:27:19.780 | have patterns
00:27:21.500 | that people
00:27:22.940 | aren't
00:27:23.580 | sufficiently
00:27:24.260 | appreciative of
00:27:25.180 | there are
00:27:26.000 | hidden patterns
00:27:27.140 | that he can
00:27:27.820 | identify
00:27:28.340 | that's what
00:27:28.880 | his goal
00:27:29.300 | was
00:27:29.580 | to identify
00:27:30.360 | hidden patterns
00:27:31.840 | be it short term
00:27:32.560 | or long term
00:27:33.180 | but frankly
00:27:34.240 | from 1978
00:27:35.120 | when he started
00:27:35.820 | until about 1992
00:27:36.860 | he went back and forth
00:27:38.880 | he couldn't quite
00:27:39.400 | figure it out
00:27:40.140 | he started as a quant
00:27:41.840 | and then he ended up
00:27:42.640 | just trading
00:27:43.460 | like you and I
00:27:45.040 | with our instincts
00:27:45.940 | and intuition
00:27:46.600 | judgment
00:27:47.380 | he bought gold
00:27:48.360 | and sold gold
00:27:49.220 | and bought silver
00:27:50.200 | and sold silver
00:27:51.460 | and did pretty
00:27:52.740 | well
00:27:53.100 | but he couldn't
00:27:54.480 | handle it
00:27:54.940 | physically
00:27:55.520 | frankly
00:27:56.000 | his stomach
00:27:56.880 | hurt him
00:27:57.860 | and the ups
00:27:58.540 | and downs
00:27:59.080 | were just too much
00:27:59.880 | and then finally
00:28:00.740 | he just turned it
00:28:01.580 | all over to the
00:28:02.180 | machines
00:28:02.620 | and hired enough
00:28:03.920 | talent to be able
00:28:04.840 | to do so
00:28:05.480 | and they figured
00:28:07.340 | out first
00:28:07.900 | with fixed income
00:28:09.180 | and currencies
00:28:09.900 | and commodities
00:28:11.120 | but then finally
00:28:12.280 | turned the corner
00:28:12.960 | and it was people
00:28:13.820 | he recruited
00:28:14.820 | that did it
00:28:15.360 | that figured out
00:28:15.880 | how to make a lot
00:28:16.680 | of money
00:28:16.900 | with equities
00:28:17.480 | the idea
00:28:19.120 | of looking
00:28:19.440 | for patterns
00:28:20.020 | of course
00:28:20.440 | would go back
00:28:21.060 | to his code
00:28:21.600 | breaker days
00:28:22.220 | yes
00:28:22.660 | you said he was
00:28:23.780 | he had brought
00:28:24.860 | in some very
00:28:25.400 | very skilled people
00:28:26.240 | one of the people
00:28:26.940 | he brought in
00:28:27.600 | who was a skilled
00:28:28.460 | mathematician
00:28:29.420 | was Lenny Balm
00:28:30.640 | he also brought in
00:28:32.340 | Jesse Axe
00:28:33.960 | from Stoney
00:28:35.320 | who were these people
00:28:36.840 | these were also
00:28:37.800 | brilliant people
00:28:38.660 | top of their fields
00:28:39.780 | Jim Axe
00:28:40.600 | came from Cornell
00:28:41.820 | and Simons
00:28:44.180 | was able to recruit
00:28:45.140 | him and give him
00:28:46.200 | reason to come
00:28:46.820 | to Stony Brook
00:28:47.500 | which was not
00:28:48.120 | a well respected
00:28:49.200 | math department
00:28:50.320 | at the time
00:28:51.180 | Lenny Balm
00:28:52.120 | was the top
00:28:52.660 | of his field
00:28:53.320 | yeah these were
00:28:54.320 | some of the greatest
00:28:55.820 | mathematicians
00:28:56.540 | of the time
00:28:57.180 | and Jim had a way
00:28:58.420 | he kind of said
00:28:59.480 | oh yeah you don't
00:29:00.480 | care about hedge funds
00:29:01.460 | and trading
00:29:02.520 | or investing
00:29:03.220 | it's beneath you
00:29:04.300 | well come over
00:29:05.440 | spend a day with us
00:29:06.920 | let me give you
00:29:08.600 | some exposure
00:29:09.140 | to what we're doing
00:29:09.920 | over here
00:29:10.500 | and they saw
00:29:11.660 | what we all see
00:29:13.320 | what a challenge
00:29:14.020 | it is to beat
00:29:14.980 | the market
00:29:15.420 | and there's nothing
00:29:16.800 | a great mathematician
00:29:17.840 | or scientist
00:29:18.580 | likes more than
00:29:19.420 | a real challenge
00:29:20.740 | and also they got
00:29:22.640 | to see the talent
00:29:23.480 | so once he got
00:29:24.120 | some of the top
00:29:25.600 | most talented
00:29:26.500 | mathematicians
00:29:27.200 | to come over
00:29:27.640 | and scientists
00:29:28.200 | others wanted to come
00:29:29.680 | and be able to work
00:29:30.600 | with each other
00:29:31.340 | and that kind of
00:29:31.900 | environment
00:29:32.520 | was really appealing
00:29:33.880 | and then
00:29:34.840 | once they were
00:29:35.760 | there
00:29:36.300 | once he got them
00:29:37.020 | to join
00:29:38.060 | spend some time
00:29:39.600 | they started
00:29:40.300 | making money
00:29:40.940 | and you know
00:29:42.300 | as well as I do
00:29:42.980 | once you start
00:29:43.580 | making a lot of money
00:29:44.400 | it's hard to go back
00:29:45.140 | to not making money
00:29:46.640 | what I found
00:29:47.640 | interesting about
00:29:48.380 | the book was
00:29:49.000 | he started out
00:29:49.920 | looking for patterns
00:29:50.680 | but couldn't really
00:29:51.360 | find any
00:29:52.020 | and then he just
00:29:52.480 | kind of reverted
00:29:53.500 | back to kind of
00:29:54.420 | what we all do
00:29:55.060 | you know
00:29:55.300 | intuition
00:29:55.860 | gut
00:29:56.380 | and so forth
00:29:57.180 | they made some
00:29:58.880 | good calls
00:29:59.620 | but some bad
00:30:00.640 | calls as well
00:30:01.620 | and then
00:30:02.340 | the interesting
00:30:03.700 | thing
00:30:04.200 | about this story
00:30:05.560 | is that
00:30:06.580 | Jim Simons
00:30:07.880 | decided
00:30:08.520 | that's not
00:30:09.500 | what we're
00:30:09.800 | going to do
00:30:10.200 | anymore
00:30:10.620 | we're going
00:30:11.360 | to go
00:30:11.700 | to
00:30:12.120 | quantitative
00:30:13.120 | investing
00:30:14.320 | yeah he
00:30:15.540 | never really
00:30:17.240 | wanted to
00:30:18.960 | develop a firm
00:30:20.360 | that was based
00:30:21.400 | on instinct
00:30:22.940 | and intuition
00:30:23.800 | and such
00:30:24.380 | he did want
00:30:25.640 | to be a quant
00:30:26.440 | it just was
00:30:27.400 | very hard
00:30:28.640 | people
00:30:28.940 | don't understand
00:30:30.620 | how hard it is
00:30:31.320 | to turn decisions
00:30:32.400 | over to
00:30:33.060 | machines
00:30:33.800 | even for the
00:30:34.420 | most successful
00:30:35.040 | mathematicians
00:30:36.760 | when I spoke
00:30:37.700 | to him
00:30:38.020 | we spent
00:30:38.420 | time
00:30:38.700 | together
00:30:39.120 | he told
00:30:40.000 | me a story
00:30:40.460 | about how
00:30:41.200 | years later
00:30:42.080 | when he had
00:30:42.900 | taken a real
00:30:43.600 | step back
00:30:44.060 | from the firm
00:30:44.660 | and just was
00:30:45.280 | mostly trading
00:30:46.040 | for himself
00:30:46.540 | and investing
00:30:47.040 | for himself
00:30:47.540 | and he had
00:30:48.660 | a wealth
00:30:48.940 | manager
00:30:49.320 | and such
00:30:49.780 | there was a
00:30:50.520 | downturn
00:30:50.960 | in the market
00:30:51.520 | and Jim
00:30:52.140 | was on vacation
00:30:52.900 | he's in the
00:30:53.540 | hotel
00:30:54.100 | I think it was
00:30:54.480 | the Beverly Hills
00:30:55.180 | Hotel
00:30:55.520 | watching CNBC
00:30:57.780 | on the screen
00:30:58.900 | as the market
00:30:59.440 | collapsed
00:31:00.000 | and he called
00:31:00.900 | his wealth
00:31:01.380 | manager up
00:31:01.860 | and said
00:31:02.160 | hey do we
00:31:02.540 | have shorts
00:31:02.960 | on
00:31:03.140 | should we
00:31:03.340 | put some
00:31:03.660 | shorts
00:31:03.960 | on here
00:31:04.360 | and I said
00:31:05.240 | to Jim
00:31:05.700 | Jim
00:31:06.540 | Jim
00:31:06.800 | you're the
00:31:08.100 | pioneering
00:31:08.920 | quant
00:31:09.500 | you panicked
00:31:11.280 | and called
00:31:12.380 | your broker
00:31:12.840 | like anybody
00:31:13.480 | else
00:31:13.760 | like Joe
00:31:14.560 | Schmo
00:31:14.880 | you know
00:31:15.440 | like a
00:31:15.960 | pediatrician
00:31:17.220 | dentist
00:31:17.560 | you know
00:31:18.000 | calling his
00:31:18.580 | and he
00:31:19.540 | he didn't
00:31:20.780 | see the
00:31:21.080 | humor
00:31:21.340 | in it
00:31:21.720 | as I
00:31:22.480 | did
00:31:22.780 | or
00:31:23.520 | he
00:31:24.100 | wasn't
00:31:24.320 | as
00:31:24.440 | surprised
00:31:24.880 | but
00:31:25.340 | it
00:31:26.220 | shows
00:31:26.560 | to me
00:31:26.820 | it shows
00:31:27.140 | how hard
00:31:27.640 | it is
00:31:27.840 | even for
00:31:28.460 | Jim
00:31:28.640 | Simons
00:31:29.120 | even
00:31:29.720 | the
00:31:30.440 | pioneering
00:31:30.860 | quant
00:31:31.380 | who had
00:31:32.160 | the
00:31:32.260 | breakthrough
00:31:32.640 | that changed
00:31:33.380 | everything
00:31:33.800 | he couldn't
00:31:34.880 | help himself
00:31:35.760 | from calling
00:31:36.580 | his broker
00:31:37.140 | getting a little
00:31:37.940 | worried about
00:31:38.360 | the market
00:31:38.780 | and putting
00:31:39.320 | on some
00:31:39.640 | shorts
00:31:40.040 | using his
00:31:41.080 | intuition
00:31:41.540 | and just
00:31:42.280 | judgment
00:31:42.880 | and reacting
00:31:44.480 | the fear
00:31:45.280 | and greed
00:31:45.760 | man
00:31:46.200 | it's
00:31:46.680 | behavioral
00:31:47.220 | economics
00:31:47.740 | knows what
00:31:48.760 | it's talking
00:31:49.120 | about
00:31:49.420 | so even
00:31:50.040 | Jim
00:31:50.240 | Simons
00:31:50.660 | succumbs
00:31:51.100 | luckily
00:31:51.640 | for his
00:31:52.120 | sake
00:31:52.380 | and for
00:31:52.740 | the firm
00:31:53.080 | they for
00:31:53.680 | the most
00:31:53.940 | part
00:31:54.200 | have turned
00:31:54.780 | almost every
00:31:55.320 | decision
00:31:55.720 | over to
00:31:56.200 | the machines
00:31:56.680 | and especially
00:31:57.720 | today
00:31:58.220 | they really
00:31:59.200 | don't
00:31:59.860 | interfere
00:32:00.300 | too much
00:32:00.700 | I write
00:32:01.240 | in the book
00:32:01.540 | a few
00:32:01.760 | times
00:32:02.040 | where they
00:32:02.300 | step in
00:32:02.800 | and stop
00:32:03.820 | the trading
00:32:04.400 | and interfere
00:32:05.240 | or adjust
00:32:05.880 | the trading
00:32:06.280 | but it's
00:32:06.780 | rare
00:32:07.260 | I thought
00:32:07.960 | the exact
00:32:08.460 | same thing
00:32:08.940 | when I was
00:32:09.320 | reading up
00:32:09.680 | so here's
00:32:10.040 | a guy
00:32:10.560 | who is
00:32:11.000 | the father
00:32:11.460 | of quantitative
00:32:12.100 | analysis
00:32:12.540 | who believes
00:32:13.620 | so heavily
00:32:14.140 | and just
00:32:14.600 | letting the
00:32:15.060 | computer
00:32:15.340 | do all the
00:32:15.800 | work
00:32:16.000 | because humans
00:32:16.540 | can make
00:32:16.880 | so many
00:32:17.260 | mistakes
00:32:17.660 | I just
00:32:18.380 | laughed
00:32:19.300 | when I read
00:32:19.720 | it
00:32:19.820 | I gave
00:32:19.940 | the exact
00:32:20.360 | same
00:32:20.560 | conclusion
00:32:21.060 | that you
00:32:21.420 | came to
00:32:21.800 | your emotions
00:32:23.100 | get the best
00:32:23.800 | of you
00:32:24.020 | it is so
00:32:24.380 | hard to
00:32:25.000 | stay disciplined
00:32:25.820 | yes
00:32:26.420 | even the
00:32:27.320 | pioneering
00:32:27.760 | quantity
00:32:28.200 | yeah
00:32:28.660 | so tell me
00:32:29.900 | a little bit
00:32:30.200 | about the
00:32:30.540 | types of
00:32:30.960 | strategies
00:32:31.720 | you found
00:32:32.360 | that they
00:32:32.760 | ended up
00:32:33.240 | finding
00:32:34.220 | more successful
00:32:34.900 | like pairs
00:32:35.580 | trading
00:32:36.200 | arbitrage
00:32:37.680 | and so forth
00:32:38.440 | what did they
00:32:39.260 | find was
00:32:40.420 | working for
00:32:41.020 | them
00:32:41.260 | it's a lot
00:32:42.740 | of stuff
00:32:43.020 | that's
00:32:43.680 | either
00:32:43.980 | obsolete
00:32:44.780 | today
00:32:45.380 | or isn't
00:32:46.600 | as important
00:32:47.260 | today
00:32:47.840 | yeah
00:32:48.340 | pairs
00:32:48.620 | trading
00:32:49.040 | is
00:32:49.300 | well that was developed
00:32:50.000 | by Morgan Stanley
00:32:51.040 | actually early on
00:32:52.260 | two similar
00:32:53.540 | kinds of
00:32:54.280 | companies
00:32:54.760 | I don't know
00:32:55.200 | Coke and
00:32:55.600 | Pepsi
00:32:55.940 | BP and
00:32:57.360 | Shell
00:32:57.940 | that kind
00:32:58.460 | of thing
00:32:58.980 | and when
00:33:00.340 | their patterns
00:33:01.660 | when those
00:33:02.860 | stocks
00:33:03.220 | don't align
00:33:04.920 | when they move
00:33:05.820 | in different
00:33:06.200 | ways
00:33:06.700 | or unusual
00:33:07.380 | ways
00:33:07.980 | they would
00:33:08.300 | use a lot
00:33:09.120 | historic
00:33:09.540 | information
00:33:10.180 | a lot
00:33:10.760 | of what
00:33:11.060 | Jim
00:33:11.580 | did
00:33:12.000 | was
00:33:12.620 | and
00:33:13.380 | really
00:33:13.720 | frankly
00:33:14.100 | was a
00:33:14.440 | colleague
00:33:14.760 | of his
00:33:15.180 | Sandra
00:33:15.500 | Strauss
00:33:15.960 | who
00:33:16.660 | came up
00:33:17.120 | with the
00:33:17.360 | idea
00:33:17.660 | is to have
00:33:18.140 | better data
00:33:18.800 | than everybody
00:33:19.300 | else
00:33:19.640 | and today
00:33:20.160 | it's much
00:33:20.640 | easier
00:33:21.200 | for the average
00:33:22.180 | investor
00:33:22.720 | be it a
00:33:23.180 | quant or
00:33:23.640 | otherwise
00:33:24.260 | to get their
00:33:25.220 | hands on
00:33:26.400 | almost any
00:33:27.060 | kind of data
00:33:27.440 | you want
00:33:27.800 | back then
00:33:28.180 | it wasn't
00:33:29.080 | and it wasn't
00:33:29.900 | just that Jim
00:33:30.500 | had better
00:33:30.960 | data
00:33:31.400 | more data
00:33:32.580 | than everybody
00:33:32.940 | else
00:33:33.180 | it was better
00:33:33.680 | it was cleaner
00:33:34.520 | they had this
00:33:35.040 | idea of
00:33:35.600 | cleaning the
00:33:36.560 | data which
00:33:37.080 | was unheard
00:33:38.260 | of back
00:33:38.900 | then
00:33:39.460 | meaning
00:33:39.880 | they would
00:33:41.000 | go back
00:33:41.380 | in history
00:33:41.820 | and they would
00:33:42.300 | see let's
00:33:42.800 | say silver
00:33:43.320 | price
00:33:43.820 | moved really
00:33:45.240 | in a weird
00:33:45.840 | way
00:33:46.440 | a hundred
00:33:47.100 | years
00:33:47.700 | ago
00:33:48.420 | they would
00:33:50.020 | look into
00:33:50.580 | why it
00:33:51.080 | happened
00:33:51.520 | maybe
00:33:51.980 | frankly
00:33:52.780 | someone took
00:33:53.960 | it down
00:33:54.320 | incorrectly
00:33:54.880 | there was
00:33:55.280 | some
00:33:55.540 | sometimes
00:33:56.240 | there would
00:33:56.480 | be some
00:33:56.840 | storm
00:33:57.400 | such that
00:33:58.420 | there was
00:33:59.100 | a gap
00:33:59.740 | in a day
00:34:00.300 | or so
00:34:00.760 | in prices
00:34:01.660 | and they
00:34:02.260 | were missing
00:34:02.640 | something
00:34:03.040 | and they
00:34:03.720 | took the
00:34:04.220 | time
00:34:04.640 | to go
00:34:05.480 | through
00:34:05.860 | history
00:34:06.440 | and go
00:34:07.520 | through
00:34:07.680 | the prices
00:34:08.200 | and frankly
00:34:08.980 | it was
00:34:09.300 | painstaking
00:34:09.880 | work
00:34:10.400 | and thankless
00:34:11.080 | work
00:34:11.480 | and it
00:34:12.080 | wasn't clear
00:34:12.520 | what was
00:34:12.740 | going to
00:34:13.280 | lead to
00:34:13.700 | anything
00:34:14.060 | so people
00:34:15.580 | always ask
00:34:15.980 | me
00:34:16.120 | why is he
00:34:17.500 | so good
00:34:17.920 | why is
00:34:18.320 | renaissance
00:34:18.720 | so good
00:34:19.680 | and why
00:34:20.460 | are they
00:34:20.660 | better than
00:34:21.040 | everybody
00:34:21.360 | else
00:34:21.800 | and I
00:34:23.220 | argue
00:34:23.660 | that it's
00:34:24.140 | a series
00:34:24.760 | of advantages
00:34:25.780 | they have
00:34:26.540 | and it's
00:34:27.160 | not always
00:34:27.580 | so persuasive
00:34:28.320 | to people
00:34:28.780 | they want
00:34:29.120 | to know
00:34:29.660 | like these
00:34:30.340 | secret sauce
00:34:31.160 | or some
00:34:31.600 | secret
00:34:32.200 | formula
00:34:33.040 | and there
00:34:33.560 | isn't any
00:34:34.120 | secret formula
00:34:34.600 | they have
00:34:34.880 | certain
00:34:35.220 | approaches
00:34:35.760 | that work
00:34:36.780 | but they
00:34:38.920 | don't work
00:34:39.260 | always
00:34:40.080 | but what
00:34:40.600 | they do
00:34:40.940 | is they
00:34:41.380 | have better
00:34:41.780 | talent
00:34:42.260 | they have
00:34:42.780 | better data
00:34:43.500 | they clean
00:34:44.520 | it
00:34:44.800 | they incentivize
00:34:46.700 | people to work
00:34:47.500 | together
00:34:48.020 | that's a huge
00:34:49.020 | part of it
00:34:49.740 | they don't have
00:34:50.720 | silos
00:34:51.320 | on wall street
00:34:52.020 | you have
00:34:52.420 | different groups
00:34:53.620 | that compete
00:34:54.420 | with each other
00:34:55.060 | even within
00:34:55.600 | their own
00:34:56.000 | firm
00:34:56.580 | and renaissance
00:34:57.640 | has none
00:34:58.420 | of that
00:34:58.880 | everybody's
00:34:59.540 | on the same
00:34:59.960 | page
00:35:00.560 | and they all
00:35:01.020 | get paid
00:35:01.640 | based on
00:35:02.620 | the performance
00:35:03.300 | of the
00:35:03.720 | one
00:35:03.960 | fund
00:35:04.280 | the medallion
00:35:05.120 | fund
00:35:05.560 | so everyone
00:35:06.720 | steps in
00:35:07.680 | together
00:35:08.140 | and it's
00:35:08.660 | very flat
00:35:09.340 | organization
00:35:10.080 | so people
00:35:10.900 | chip in
00:35:11.460 | and maybe
00:35:11.780 | there's a new
00:35:12.220 | data source
00:35:13.640 | that someone
00:35:14.920 | finds
00:35:15.420 | and great
00:35:15.960 | good for you
00:35:16.460 | that's what
00:35:18.000 | you bring
00:35:18.240 | to the table
00:35:18.600 | great
00:35:18.840 | maybe there's
00:35:20.180 | some other
00:35:20.800 | approach
00:35:21.160 | you've got
00:35:21.660 | a way to
00:35:22.380 | contribute
00:35:22.820 | even incrementally
00:35:24.520 | and they just
00:35:25.280 | get the best
00:35:25.880 | talent
00:35:26.360 | they are able
00:35:28.040 | to hire
00:35:28.480 | everybody on
00:35:28.920 | wall street
00:35:29.220 | when I take
00:35:30.440 | a tour
00:35:30.880 | of a trading
00:35:31.520 | floor
00:35:31.720 | they say
00:35:32.060 | Greg over
00:35:32.660 | there are
00:35:33.340 | our PhDs
00:35:34.420 | that's our
00:35:34.840 | corner
00:35:35.140 | with our
00:35:35.460 | renaissance
00:35:36.500 | the whole
00:35:37.600 | firm almost
00:35:38.240 | is PhDs
00:35:39.000 | I'm exaggerating
00:35:39.740 | two thirds
00:35:40.120 | of the firm
00:35:40.460 | are PhDs
00:35:41.120 | and they're
00:35:41.280 | not just
00:35:41.560 | PhDs
00:35:42.140 | they're people
00:35:42.400 | that led
00:35:42.920 | math departments
00:35:43.960 | of Stanford
00:35:44.540 | but aren't all
00:35:45.420 | the hedge funds
00:35:46.000 | and large
00:35:46.740 | wall street firms
00:35:47.420 | competing for
00:35:47.960 | the same people
00:35:48.540 | they don't even
00:35:49.080 | think they're
00:35:49.480 | competing with
00:35:50.100 | Goldman Sachs
00:35:50.740 | and D.E. Shaw
00:35:51.920 | renaissance
00:35:52.320 | sees themselves
00:35:52.980 | competing with
00:35:53.520 | more Google
00:35:54.600 | and such
00:35:55.560 | the tech companies
00:35:56.420 | meta etc
00:35:57.940 | so there are
00:35:58.820 | a lot of
00:35:59.120 | little advantages
00:36:00.400 | they have
00:36:01.020 | that add up
00:36:01.720 | to a big
00:36:02.280 | competitive advantage
00:36:03.340 | and how much
00:36:05.040 | is the firm
00:36:05.440 | currently managing
00:36:06.280 | it's a good
00:36:07.260 | question
00:36:07.720 | the medallion
00:36:08.720 | fund
00:36:09.060 | which is that
00:36:09.560 | key fund
00:36:10.420 | they cap it
00:36:11.240 | so that's another
00:36:11.780 | advantage
00:36:12.300 | they could be
00:36:14.060 | much much bigger
00:36:14.860 | and one of the
00:36:15.800 | biggest mistakes
00:36:16.840 | that I've seen
00:36:17.700 | over and over
00:36:18.400 | in my career
00:36:19.180 | is how a firm
00:36:21.140 | has success
00:36:22.660 | and grows
00:36:23.680 | and grows too big
00:36:24.540 | I mean I read
00:36:24.960 | about John Paulson
00:36:25.980 | and he had the
00:36:26.980 | subprime trade
00:36:28.240 | made $20 billion
00:36:29.260 | over two years
00:36:30.340 | in 2007
00:36:31.080 | and 2008
00:36:31.960 | and then
00:36:33.000 | the hedge fund
00:36:33.900 | started growing
00:36:34.780 | and got to
00:36:35.340 | maybe $30
00:36:36.020 | $40 billion
00:36:37.280 | and you can see
00:36:39.540 | why that happens
00:36:40.300 | you only have
00:36:41.540 | yes men
00:36:42.120 | or yes women
00:36:42.700 | around you
00:36:43.420 | you have people
00:36:44.020 | saying how brilliant
00:36:44.820 | you are
00:36:45.440 | you figure it out
00:36:46.480 | something big
00:36:47.160 | so you figure out
00:36:47.840 | you figure you can do
00:36:48.780 | other kind of investing
00:36:50.580 | and you hire talent
00:36:51.980 | and you've got the money
00:36:52.620 | people throwing money
00:36:53.760 | at you
00:36:54.140 | it's hard not to
00:36:55.240 | accept those
00:36:56.560 | checks in the mail
00:36:57.360 | but Jim Simons
00:36:58.740 | didn't
00:36:59.220 | he said no
00:36:59.720 | we're going to
00:37:00.060 | cap this thing
00:37:00.720 | and the Medallion fund
00:37:01.720 | did grow over time
00:37:02.600 | $10 billion
00:37:03.140 | $15 billion
00:37:03.760 | I think it's about
00:37:04.260 | $15 billion today
00:37:05.100 | I got a check
00:37:05.720 | they have other funds
00:37:07.380 | that are open
00:37:09.200 | to the public
00:37:09.760 | or to institutions
00:37:10.840 | and are bigger
00:37:11.960 | they're a good
00:37:12.920 | $20-$30 billion
00:37:13.820 | each
00:37:14.440 | they don't do as well
00:37:15.760 | though and it's not
00:37:16.380 | quite the emphasis
00:37:17.160 | of the firm
00:37:17.760 | down and still
00:37:18.820 | the engine
00:37:19.360 | that runs that firm
00:37:21.100 | I had a question
00:37:22.740 | about the book
00:37:23.440 | and the history
00:37:24.320 | of all this
00:37:24.980 | because Jim Simons
00:37:26.740 | talked about
00:37:28.120 | making a lot of money
00:37:30.100 | in the currency markets
00:37:31.560 | and the commodity markets
00:37:33.120 | but he was having
00:37:33.620 | a really difficult time
00:37:35.520 | in the equity market
00:37:37.600 | and the big breakthrough
00:37:39.900 | for them
00:37:40.420 | was when they figured out
00:37:41.360 | how to make money
00:37:42.180 | in equity
00:37:42.920 | so you could talk
00:37:43.640 | about that era
00:37:44.900 | of renaissance
00:37:46.200 | yeah sure
00:37:47.120 | so in the early 90s
00:37:49.020 | Jim Simons
00:37:49.920 | was a wealthy man
00:37:50.920 | the firm
00:37:51.340 | was doing
00:37:51.700 | quite well
00:37:52.800 | they were
00:37:53.440 | as you suggest
00:37:54.520 | making a lot of money
00:37:55.340 | with fixed income
00:37:56.560 | currencies
00:37:57.400 | commodities
00:37:58.260 | they could not
00:37:59.440 | figure out equities
00:38:00.400 | a lot of it was
00:38:01.520 | they would come up
00:38:02.400 | with the signals
00:38:03.140 | as they call them
00:38:04.580 | the algorithms
00:38:05.340 | that should
00:38:06.560 | and paper
00:38:07.320 | have made money
00:38:08.180 | for them
00:38:08.680 | and yet
00:38:09.300 | when they tried
00:38:10.680 | to do it
00:38:11.220 | in real life
00:38:12.600 | it didn't work
00:38:13.820 | theoretically
00:38:14.300 | it was working
00:38:15.280 | some of it was
00:38:16.780 | they were impacting
00:38:17.720 | prices themselves
00:38:19.420 | so
00:38:20.320 | they would get
00:38:21.040 | all excited
00:38:21.560 | their systems
00:38:22.340 | would get excited
00:38:23.200 | about buying something
00:38:24.480 | and selling something
00:38:25.200 | or buying a group
00:38:25.960 | of stocks
00:38:26.400 | and selling another group
00:38:27.320 | and then by the time
00:38:28.020 | they would put
00:38:28.980 | the trade on
00:38:29.880 | they would push
00:38:30.920 | the prices around
00:38:31.660 | such that
00:38:32.180 | they didn't make
00:38:32.760 | much money
00:38:33.280 | and they couldn't
00:38:33.760 | figure it out
00:38:34.620 | and frankly
00:38:36.280 | it wasn't even Jim
00:38:37.160 | and you know
00:38:37.760 | people have criticized
00:38:38.440 | my book
00:38:38.980 | and they're like
00:38:39.340 | well Greg
00:38:39.840 | Jim is only
00:38:40.840 | half the book
00:38:41.640 | and you said
00:38:42.460 | it's the man
00:38:42.920 | who sold the market
00:38:43.540 | it should be
00:38:43.960 | the man
00:38:44.540 | who sold the market
00:38:45.160 | and you know
00:38:46.140 | point well taken
00:38:46.820 | there were others
00:38:48.340 | that he hired
00:38:49.140 | that were responsible
00:38:50.720 | for the breakthroughs
00:38:51.480 | and in particular
00:38:52.380 | a few people
00:38:53.480 | from IBM
00:38:54.440 | and their speech
00:38:55.720 | recognition unit
00:38:56.940 | Bob Mercer
00:38:58.440 | Peter Brown
00:38:59.260 | who currently runs
00:39:00.020 | the firm
00:39:00.440 | a guy named
00:39:00.900 | David Magerman
00:39:01.560 | and a few others
00:39:02.680 | and they were
00:39:03.320 | brilliant in their
00:39:03.940 | own right
00:39:04.360 | and Jim said
00:39:05.380 | hey go try to
00:39:06.060 | help us figure out
00:39:07.020 | equities
00:39:07.360 | because we can't
00:39:08.040 | do it
00:39:08.460 | and to their credit
00:39:09.480 | they did
00:39:09.980 | and there's some
00:39:10.480 | good fortune
00:39:11.160 | there as well
00:39:11.980 | if you recall
00:39:12.880 | from the book
00:39:13.380 | or people will
00:39:14.100 | read the book
00:39:14.580 | there was one day
00:39:15.560 | where this guy
00:39:17.160 | younger software
00:39:18.700 | programmer
00:39:19.320 | David Magerman
00:39:20.260 | computer programmer
00:39:21.700 | came to his boss
00:39:22.760 | Bob Mercer
00:39:23.400 | and said
00:39:24.380 | hey boss
00:39:25.120 | this number
00:39:25.800 | I think
00:39:26.620 | it's not updating
00:39:27.700 | it's a static
00:39:29.440 | number
00:39:29.880 | and it should be
00:39:31.380 | updating
00:39:31.740 | it was like
00:39:32.100 | an S&P 500
00:39:32.880 | number
00:39:33.280 | that for some
00:39:34.100 | reason was stuck
00:39:35.120 | and didn't get
00:39:35.880 | updated
00:39:36.220 | and Mercer
00:39:36.900 | to his credit
00:39:37.360 | said oh
00:39:37.860 | you're right
00:39:38.760 | I made a mistake
00:39:40.300 | there
00:39:40.580 | and that changed
00:39:42.100 | history frankly
00:39:43.000 | they started
00:39:43.460 | figuring out
00:39:43.900 | equities
00:39:44.300 | so there was
00:39:45.360 | some good fortune
00:39:46.000 | maybe they want
00:39:46.820 | to figure it out
00:39:47.360 | anyway eventually
00:39:48.140 | or maybe not
00:39:49.080 | so you need
00:39:50.020 | some good fortune
00:39:50.820 | too
00:39:51.200 | and you need
00:39:52.320 | a lot of
00:39:52.740 | people looking
00:39:54.000 | at your work
00:39:54.520 | and you need
00:39:54.860 | people to
00:39:55.500 | you know
00:39:55.780 | you'd be able
00:39:56.200 | to take
00:39:56.440 | constructive
00:39:56.880 | criticism
00:39:57.420 | you know
00:39:58.340 | work as a team
00:39:59.080 | I want to go
00:40:00.340 | into a little
00:40:00.940 | bit different
00:40:01.340 | aspect
00:40:01.960 | of trading
00:40:03.740 | and I know
00:40:04.700 | you talked about it
00:40:05.920 | you mentioned it
00:40:06.520 | in the book
00:40:06.860 | but you didn't
00:40:07.220 | get into it
00:40:07.980 | but I want to
00:40:08.640 | look at the
00:40:09.700 | difference here
00:40:10.260 | between this
00:40:11.340 | quantitative
00:40:11.820 | investing
00:40:12.940 | that
00:40:13.460 | renaissance
00:40:14.540 | technologies
00:40:15.420 | does
00:40:15.720 | and high
00:40:17.400 | frequency trading
00:40:18.480 | the type
00:40:19.220 | that Michael
00:40:19.720 | Lewis wrote
00:40:20.340 | about in
00:40:20.780 | Flashboys
00:40:21.380 | can you talk
00:40:22.060 | a little bit
00:40:22.400 | about high
00:40:23.480 | frequency trading
00:40:24.260 | and how it
00:40:24.680 | differs from
00:40:25.580 | algorithmic
00:40:26.680 | trading
00:40:27.020 | with high
00:40:28.100 | frequency
00:40:28.460 | trading
00:40:28.860 | the emphasis
00:40:29.300 | is on speed
00:40:30.140 | and being
00:40:31.600 | the first
00:40:32.160 | they have
00:40:34.520 | better technology
00:40:35.860 | than most
00:40:36.220 | everybody else
00:40:37.040 | they try to be
00:40:38.100 | quicker and
00:40:38.600 | faster
00:40:38.920 | and try to
00:40:40.780 | just get in
00:40:41.620 | front of
00:40:42.400 | investors
00:40:42.960 | or rival
00:40:43.640 | traders
00:40:44.120 | even by
00:40:45.100 | milliseconds
00:40:45.700 | with medium
00:40:47.900 | frequency trading
00:40:48.820 | which is what
00:40:49.340 | Jim Simons
00:40:50.060 | and Renaissance
00:40:50.600 | what they do
00:40:52.200 | they don't
00:40:54.040 | emphasize speed
00:40:55.400 | they're self
00:40:56.120 | deprecating
00:40:56.620 | when it comes
00:40:57.100 | to their own
00:40:57.700 | technology
00:40:58.620 | it's impressive
00:40:59.400 | stuff over there
00:41:00.360 | but it doesn't
00:41:01.000 | really match up
00:41:01.800 | with some of
00:41:02.360 | the technology
00:41:02.860 | of others
00:41:03.500 | they also
00:41:04.580 | don't have
00:41:05.740 | the same
00:41:06.220 | holding periods
00:41:07.100 | as the others
00:41:07.780 | so high frequency
00:41:08.460 | trading
00:41:08.880 | you're in
00:41:09.220 | and you're out
00:41:09.700 | in milliseconds
00:41:10.360 | whereas
00:41:11.200 | renaissance
00:41:12.300 | it's
00:41:13.180 | moments to
00:41:14.600 | months
00:41:14.980 | is what
00:41:15.300 | they say
00:41:15.820 | or seconds
00:41:16.760 | to seasons
00:41:17.500 | generally
00:41:18.260 | the holding
00:41:18.920 | period
00:41:19.340 | is a day
00:41:20.140 | or two
00:41:20.640 | kind of thing
00:41:21.740 | you know
00:41:22.140 | it's still
00:41:22.420 | quite fast
00:41:23.460 | you can call
00:41:24.120 | that high
00:41:24.520 | frequency
00:41:24.860 | I suppose
00:41:25.380 | but that's
00:41:25.860 | not really
00:41:27.040 | what we on
00:41:27.640 | Wall Street
00:41:28.020 | describe as
00:41:29.040 | high frequency
00:41:29.660 | it's considered
00:41:30.240 | medium frequency
00:41:31.560 | a holding period
00:41:32.480 | that can be
00:41:33.360 | a day or so
00:41:34.160 | is not
00:41:35.440 | considered
00:41:35.980 | very fast
00:41:37.380 | or high
00:41:37.820 | so it's a
00:41:39.060 | different kind
00:41:39.580 | of investing
00:41:39.980 | and frankly
00:41:40.760 | that's one of
00:41:41.300 | their advantages
00:41:41.820 | too
00:41:42.120 | there are a lot
00:41:42.560 | of people
00:41:42.880 | doing high
00:41:43.660 | frequency
00:41:44.180 | there aren't
00:41:45.180 | as many
00:41:45.820 | doing medium
00:41:47.200 | frequency
00:41:47.900 | there's
00:41:48.440 | two sigma
00:41:49.060 | there are a few
00:41:49.800 | others
00:41:50.300 | but renaissance
00:41:51.500 | is a little
00:41:52.220 | bit unique
00:41:52.620 | in that regard
00:41:53.180 | so again
00:41:53.560 | the emphasis
00:41:54.040 | is on
00:41:54.740 | buying stuff
00:41:55.780 | that's going
00:41:56.040 | to go up
00:41:56.540 | and selling
00:41:57.140 | stuff that's
00:41:57.480 | going to go
00:41:57.780 | down
00:41:58.360 | as opposed
00:41:59.160 | to just
00:41:59.600 | being in
00:42:00.200 | getting
00:42:00.480 | stepping in
00:42:01.280 | front of
00:42:02.060 | rivals
00:42:02.620 | by a millisecond
00:42:03.660 | and one
00:42:04.480 | one of the
00:42:04.780 | points
00:42:05.380 | of the book
00:42:05.780 | what I
00:42:05.980 | found
00:42:06.120 | fascinating
00:42:06.660 | is that
00:42:07.760 | their win
00:42:08.660 | percentage
00:42:09.380 | was expected
00:42:10.800 | to be
00:42:11.400 | about
00:42:12.300 | 50.75%
00:42:14.680 | so not
00:42:15.620 | even 51%
00:42:16.680 | of the time
00:42:17.560 | they expected
00:42:18.680 | to win
00:42:20.100 | to have a
00:42:21.000 | profit
00:42:21.420 | but they
00:42:22.540 | would put
00:42:23.420 | in hundreds
00:42:24.300 | of thousands
00:42:25.300 | of trades
00:42:26.200 | so they
00:42:26.920 | would take
00:42:27.920 | that very
00:42:28.700 | very small
00:42:29.660 | percentage
00:42:30.400 | advantage
00:42:31.280 | that they
00:42:31.900 | felt that
00:42:32.320 | they had
00:42:32.860 | and they
00:42:34.000 | would just
00:42:34.460 | magnify it
00:42:35.500 | with sheer
00:42:36.120 | number of
00:42:36.800 | trades
00:42:37.300 | yeah you
00:42:37.920 | could think
00:42:38.520 | of
00:42:39.160 | renaissance
00:42:39.840 | you can
00:42:40.380 | liken them
00:42:40.940 | to a
00:42:41.500 | casino
00:42:42.100 | a las vegas
00:42:43.020 | casino
00:42:43.480 | which
00:42:44.120 | doesn't win
00:42:45.440 | on every
00:42:46.420 | trade
00:42:47.240 | as every
00:42:47.960 | roll
00:42:48.380 | every bet
00:42:49.400 | but wins
00:42:50.780 | on majority
00:42:52.120 | of them
00:42:52.580 | just a bare
00:42:53.160 | majority
00:42:53.560 | sometimes
00:42:54.220 | that's how
00:42:54.760 | renaissance
00:42:55.120 | looked at
00:42:55.960 | it
00:42:56.180 | some people
00:42:57.240 | come away
00:42:57.600 | from the
00:42:57.980 | book
00:42:58.160 | thinking
00:42:58.580 | ah the
00:42:59.120 | market
00:42:59.420 | must be
00:43:00.060 | inefficient
00:43:00.620 | because
00:43:01.420 | renaissance
00:43:01.900 | makes so
00:43:02.540 | much money
00:43:03.320 | and I
00:43:04.200 | would argue
00:43:04.720 | that if
00:43:06.080 | anything
00:43:06.480 | it kind
00:43:06.820 | of proves
00:43:07.280 | how
00:43:07.700 | efficient
00:43:08.860 | the market
00:43:09.460 | is
00:43:09.780 | because
00:43:10.360 | even
00:43:11.080 | they
00:43:11.420 | even
00:43:11.720 | renaissance
00:43:12.020 | technologists
00:43:12.660 | for all
00:43:13.000 | the brain
00:43:13.360 | power
00:43:13.740 | and
00:43:13.960 | technology
00:43:14.780 | behind
00:43:15.220 | them
00:43:15.680 | they
00:43:16.480 | don't get
00:43:17.300 | it right
00:43:17.740 | even 51%
00:43:19.260 | of the time
00:43:19.940 | and they
00:43:20.200 | just trade
00:43:20.560 | a lot
00:43:20.980 | and they
00:43:21.320 | also know
00:43:22.020 | when to
00:43:22.320 | use leverage
00:43:22.840 | that's another
00:43:23.300 | one of their
00:43:23.620 | secrets
00:43:24.060 | they use a lot
00:43:24.880 | of borrowed
00:43:25.300 | money
00:43:25.780 | at the right
00:43:26.580 | time
00:43:27.000 | their systems
00:43:27.480 | tell them
00:43:27.880 | when to
00:43:28.360 | yeah
00:43:29.040 | we know
00:43:31.080 | what environments
00:43:32.240 | work well
00:43:32.820 | for us
00:43:33.160 | and what
00:43:33.380 | don't
00:43:33.780 | they can
00:43:34.080 | pull back
00:43:34.600 | at the right
00:43:35.200 | time
00:43:35.560 | so
00:43:36.340 | it's not
00:43:37.140 | an argument
00:43:37.620 | for an
00:43:38.520 | inefficient
00:43:38.880 | market
00:43:39.340 | if anything
00:43:39.760 | it's an
00:43:40.100 | argument
00:43:40.360 | I would
00:43:40.800 | say
00:43:41.060 | for an
00:43:41.680 | efficient
00:43:42.140 | market
00:43:42.620 | so
00:43:43.580 | Greg
00:43:43.780 | you've met
00:43:44.100 | a lot
00:43:44.440 | of the
00:43:44.640 | smartest
00:43:45.160 | most famous
00:43:45.940 | people
00:43:46.380 | on Wall
00:43:47.180 | Street
00:43:47.380 | in your
00:43:47.860 | day
00:43:48.300 | I mean
00:43:48.620 | what
00:43:48.860 | have you
00:43:49.320 | learned
00:43:49.720 | yourself
00:43:50.760 | personally
00:43:51.580 | from all
00:43:52.140 | of this
00:43:52.520 | well
00:43:53.840 | when it
00:43:54.060 | comes to
00:43:54.360 | investing
00:43:54.780 | it's
00:43:55.280 | really
00:43:55.620 | hard
00:43:56.040 | to
00:43:56.740 | beat
00:43:56.920 | the
00:43:57.060 | market
00:43:57.360 | so
00:43:57.800 | I
00:43:58.120 | applaud
00:43:58.420 | you
00:43:58.580 | guys
00:43:58.820 | for
00:43:59.120 | your
00:44:00.300 | focus
00:44:00.740 | on
00:44:01.460 | long
00:44:02.200 | term
00:44:02.500 | and
00:44:03.020 | low
00:44:03.900 | fees
00:44:04.320 | and
00:44:04.840 | just
00:44:05.320 | not
00:44:05.780 | trying
00:44:06.100 | to
00:44:06.660 | outsmart
00:44:07.160 | the
00:44:07.320 | market
00:44:07.600 | because
00:44:07.800 | you
00:44:07.920 | really
00:44:08.100 | it's
00:44:08.380 | gotten
00:44:08.580 | harder
00:44:08.980 | than
00:44:09.200 | ever
00:44:09.500 | and
00:44:10.240 | the
00:44:10.580 | playing
00:44:11.200 | field
00:44:11.440 | is
00:44:11.780 | flatter
00:44:12.920 | and
00:44:13.140 | it's
00:44:13.780 | great
00:44:14.180 | for
00:44:14.400 | the
00:44:14.600 | average
00:44:14.880 | investor
00:44:15.240 | in
00:44:15.440 | that
00:44:15.740 | regard
00:44:16.180 | you're
00:44:17.060 | not
00:44:17.240 | having
00:44:17.580 | people
00:44:17.960 | share
00:44:18.480 | inside
00:44:18.800 | information
00:44:19.240 | like
00:44:19.860 | I
00:44:20.000 | used
00:44:20.200 | to
00:44:20.320 | see
00:44:20.520 | all
00:44:20.740 | the
00:44:20.900 | time
00:44:21.360 | on
00:44:22.240 | the
00:44:22.400 | street
00:44:22.720 | and
00:44:23.200 | was
00:44:23.320 | legal
00:44:24.560 | back
00:44:24.960 | in
00:44:25.080 | the
00:44:25.160 | day
00:44:25.300 | so
00:44:25.440 | in
00:44:25.540 | a lot
00:44:25.740 | of
00:44:25.840 | ways
00:44:26.120 | things
00:44:26.740 | have
00:44:27.100 | improved
00:44:27.660 | for
00:44:27.960 | the
00:44:28.140 | average
00:44:28.540 | investor
00:44:29.180 | but
00:44:29.920 | I
00:44:30.140 | don't
00:44:30.400 | think
00:44:30.580 | the
00:44:30.740 | market
00:44:31.060 | is
00:44:31.820 | nearly
00:44:32.360 | as
00:44:32.660 | inefficient
00:44:33.200 | as
00:44:33.580 | it
00:44:33.700 | used
00:44:33.940 | to
00:44:34.100 | be
00:44:34.340 | so
00:44:34.560 | in
00:44:34.680 | that
00:44:34.820 | regard
00:44:35.120 | it's
00:44:35.440 | much
00:44:35.680 | harder
00:44:36.020 | for
00:44:36.240 | the
00:44:36.360 | average
00:44:36.580 | investor
00:44:37.040 | great
00:44:38.240 | thank
00:44:38.440 | you
00:44:38.540 | so
00:44:38.700 | much
00:44:38.880 | for
00:44:39.120 | being
00:44:39.620 | on
00:44:39.780 | Bogleheads
00:44:40.160 | on
00:44:40.280 | investing
00:44:40.620 | I
00:44:40.760 | really
00:44:41.040 | enjoyed
00:44:41.580 | this
00:44:41.900 | great
00:44:42.260 | to
00:44:42.400 | be
00:44:42.560 | here
00:44:42.820 | thank
00:44:43.140 | you
00:44:43.260 | very
00:44:43.420 | much
00:44:43.620 | for
00:44:43.720 | your
00:44:43.820 | time
00:44:44.080 | this
00:44:45.980 | concludes
00:44:46.460 | this
00:44:46.780 | episode
00:44:47.260 | of
00:44:47.600 | Bogleheads
00:44:48.180 | on
00:44:48.580 | investing
00:44:49.300 | join
00:44:50.080 | us
00:44:50.280 | each
00:44:50.600 | month
00:44:50.900 | as
00:44:51.180 | we
00:44:51.360 | interview
00:44:51.760 | a
00:44:51.980 | new
00:44:52.120 | guest
00:44:52.460 | on
00:44:52.780 | a
00:44:52.880 | new
00:44:53.020 | topic
00:44:53.400 | in
00:44:53.780 | the
00:44:53.880 | meantime
00:44:54.340 | visit
00:44:54.980 | boglecenter.net
00:44:56.520 | bogleheads.org
00:44:57.840 | the
00:44:58.080 | Bogleheads
00:44:58.540 | wiki
00:44:58.980 | Bogleheads
00:44:59.680 | twitter
00:45:00.140 | the
00:45:00.500 | Bogleheads
00:45:00.900 | youtube
00:45:01.220 | channel
00:45:01.760 | Bogleheads
00:45:02.360 | facebook
00:45:02.920 | Bogleheads
00:45:03.760 | reddit
00:45:04.500 | join
00:45:05.140 | one of
00:45:05.480 | your
00:45:05.600 | local
00:45:06.040 | Bogleheads
00:45:06.820 | chapters
00:45:07.360 | and get
00:45:08.020 | others
00:45:08.300 | to
00:45:08.500 | join
00:45:08.820 | thanks
00:45:09.360 | for
00:45:09.560 | listening
00:45:09.900 | Bogleheads
00:45:11.900 | Bogleheads
00:45:11.900 | Bogleheads
00:45:11.900 | Bogleheads
00:45:13.600 | Bogleheads
00:45:13.900 | Bogleheads
00:45:14.740 | Bogleheads
00:45:16.740 | you
00:45:17.240 | you
00:45:17.740 | you
00:45:18.240 | you
00:45:18.740 | Thank you.