Jim Simons’ Road from Mathematics to Market Maven

By James Case

The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution. By Gregory Zuckerman. Portfolio/Penguin Random House, New York, NY, November 2019. 384 pages, $30.00.

Jim Simons has enjoyed a long and varied career in pure mathematics, code-breaking, and finance. He is perhaps best known for founding the Simons Foundation, which supports research in mathematics and the basic sciences. As of June 2020, his net worth allegedly exceeded $23 billion. In The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution, Gregory Zuckerman describes the twists and turns along the road that ultimately led to Simons’ success. Because Simons has long maintained a notoriously low profile—and those who have worked for him have been almost equally reticent—piecing together his story was a difficult task for Zuckerman.

Simons was born in 1938, near the end of the Great Depression, to middle-class parents in Brookline, Mass. The family moved to nearby Newton in time for him to attend the highly regarded Newton North High School. After watching his father, who was trapped in a job he disliked and always a bit short on cash, Simons concluded that he wanted enough wealth to be the master of his own fate. He also decided to study math at the Massachusetts Institute of Technology (MIT).

Simons was an inconsistent student who did outstanding work in courses he liked while neglecting those he did not. However, he experienced an epiphany of sorts in the calculus class that introduced him to Stokes’ theorem. There he witnessed for the first time the way in which algebra, geometry, and analysis could combine symbiotically. Soon fellow students were asking Simons for help in the subject. “I just blossomed,” he later told a friend. Though he considered himself less talented than some of his classmates, Simons felt fully capable of making a substantial contribution.

After graduating with a B.A. in mathematics in 1958, Simons felt the need for a little adventure. He and two friends embarked on a motor scooter trip that they dubbed “Buenos Aires or bust.” Though the group never made it to Argentina, two of the three persevered long enough to reach Bogotá, Colombia, where an MIT classmate welcomed them into his family home. Simons and his friend luxuriated in creature comforts until it was time to return to MIT for graduate school.

Before long, Simons’ advisor at MIT suggested that he transfer to the University of California, Berkeley, where he could study geometry under Shiing-Shen Chern. But when Simons arrived at Berkeley, he found that Chern was on sabbatical elsewhere. Simons was therefore obliged to work with others, including his eventual thesis advisor Bertram Kostant. He completed his dissertation about holonomy groups on Riemannian manifolds in 1961.

While in graduate school, Simons married his 18-year-old girlfriend, became a father, and gained his first investing experience. After deciding that stock prices moved too slowly to hold his interest, Simons followed a broker’s advice and bought soybean futures (financial contracts that promise the delivery of a good or service at a pre-determined price and date). These rose almost immediately from $2.50 to $3.00 per bushel, leaving him with a paper profit of several thousand dollars. When more experienced friends urged Simons to realize the profit by selling immediately, he ignored their advice and barely broke even when he finally did sell. Nevertheless, he was hooked.

Upon leaving Berkeley, Simons accepted a three-year teaching fellowship at MIT. But he grew restless after a single year of teaching and decided to return to Bogotá and start a floor-covering business with a friend. With financial backing from the friend’s family—along with a paltry sum that Simons and his father scraped together—the duo opened a factory that produced vinyl floor tile and PVC piping. Once the business was established, Simons took a teaching position at Harvard. Though he was a popular teacher, he earned no more than any other postdoc. And because he borrowed money to invest in the flooring business, Simons had to moonlight at a local junior college just to make ends meet. Not surprisingly, his own research suffered.

To double his income and kickstart his research, Simons accepted a job with the Princeton, N.J., division of the Institute for Defense Analyses (IDA). In an effort to attract the best talent, the Defense Department encouraged staff members to divide their time fairly evenly between code-breaking activities for the government and their own personal research. The organization was a beehive of ideas. Simons proved to be an adept listener with a knack for recognizing his colleagues’ better ideas and devising algorithms to test them. In this setting, he soon became a star code breaker.

At the same time, Simons’ academic research began to prosper. His 1968 paper titled “Minimal Varieties in Riemannian Manifolds” extended the solution of Plateau’s problem through six dimensions and conjectured a counterexample in dimension seven, which has since been verified. The paper attracted a good deal of attention and was rich in applications; it is still cited on a regular basis. This single paper established Simons as a leading geometer.

Meanwhile, Simons’ interest in investment had returned. He and three IDA colleagues published an internal classified paper entitled “Probabilistic Models for and Prediction of Stock Market Behavior,” which promised annual gains of 50 percent. He also persuaded his IDA boss and the institute’s best programmer to join him in an investment company, which was to be called iStar. However, Simons was unable to assemble sufficient funding to make the project a reality.

All of this was happening during the Vietnam War. Students everywhere were protesting and attempting to remove military installations of every description—including the IDA near Princeton University—from their campuses. After Simons contributed a mildly anti-war opinion piece to a local newspaper, he was interviewed by a Newsweek reporter who coaxed even more subversive thoughts out of him. He was fired from his IDA position as a result.

Almost immediately, Simons was offered the chairmanship of the Mathematics Department at Stony Brook University. The school was only 11 years old and the state of New York wanted to turn it into a “Berkeley of the East.” The university had already hired Nobel Prize-winning physicist Chen Ning Yang, and the president was looking for an aggressive leader to build a world-class math department. Under Simons’ leadership, the Stony Brook Mathematics Department became a mecca for young mathematicians.

In 1976 at the age of 37, Simons received the American Mathematical Society’s Oswald Veblen Prize in Geometry for his work on minimal varieties and a paper he wrote with Chern that introduced a new class of geometric invariants. The award cemented his place among the first rank of active geometers. In fact, Chern-Simons theory has since generated tens of thousands of citations in mathematics and mathematical physics literature.

Though he was comfortable with his acclaimed research and power as department chairman, Simons grew restless again. When a larger firm acquired the flooring company in Colombia, Simons and his fellow shareholders enjoyed windfall profits. His dormant penchant for investing was reawakened. In 1978, Simons resigned from his position at Stony Brook to found an investment company called Monemetrics that would develop algorithms to identify unusually profitable short-term investment opportunities.

Monemetrics was not very successful and Simons was forced to shut it down after only a few years. However, this experience did nothing to shake his conviction that one could algorithmically tame the market. But it was not until he and Howard Morgan founded Renaissance Technologies (RT) in 1982 that real progress commenced. Simons’ role in the new firm was primarily that of a leader, and he assembled his workforce much like the IDA had assembled its code-breaking crew. He hired bright young mathematicians, provided them with the best programming support that money could buy, and awaited results.

Robert Mercer and Peter Brown were two of RT’s most important hires. The pair was directly involved in IBM’s work to translate natural languages using artificial intelligence techniques, and Simons was eager to explore whether similar methods could identify exploitable patterns in market data. Mercer and Brown, perhaps enticed by the prospect of genuine wealth, agreed to leave IBM for RT.

Researchers at RT were not looking for fundamental principles of market behavior; instead, they searched for exploitable patterns in data. For instance, they noticed that large asset price movements—both upward and downward—are frequently followed by substantial movements in the opposite direction. If an asset price goes down, one can purchase that asset before the price rebounds and sell it afterwards for an immediate profit. If a price goes up, the asset can profitably be “sold short.”

But RT did not become a legendary cash cow on the strength of one such observation. Profitability required a steady flow of similar findings, each of which was tested with care before considered “investment grade.” The hedge fund required terabyte (and later petabyte) data storage capacity, along with immense computing power to analyze their treasure trove. Most of the patterns that RT employees discovered were more complex and less enduring than the foregoing example; such windows of opportunity have a pronounced tendency to close quickly.

The book’s final chapters describe the condition of the leading figures at RT as they enter their later years. There is particular focus on the role that Mercer and his daughter Rebekah have come to play in politics; the outcry surrounding this involvement led Mercer to step down from his role as co-CEO at RT in 2017. Though none of the other major figures in RT have chosen to become so prominent, many have deployed their wealth in support of various causes, both political and otherwise.

Ultimately, The Man Who Solved the Market offers a fascinating glimpse into the life of elusive mathematician Jim Simons and his role as founder of one of the world’s most successful investment firms.

James Case writes from Baltimore, Maryland.