Jim Simons and Ren Tech's Path to Confidence

Long-time friend of the list, Dallas P., sent me a link to the Acquired podcast episode on Jim Simons and Renaissance Technologies.

Acquired does long-form episodes on big companies and their histories - this one is over 3 hours long and is on the shorter side. (!!)

They appeal to a wide audience, so I had low expectations for this episode, but I was pleasantly surprised.

"RenTech" is commonly known as the firm with the best returns of any fund ever, by a long shot.

None of the members of the firm were "finance people" - they were mathematicians and physicists.

When they started, they traded forex pairs.

But as they grew, they started encountering more and more slippage in their strategies.

So they added futures contracts to their trading.

But as time went by, they grew enough to see significant slippage there, too.

Where did they turn then? US equities, of course.

This became their bread and butter as their growth continued.

It's also clear that shorting is a big part of their success, as their biggest years were the dot-com collapse and the financial crisis.

All this with "one model", which I take to mean one big column library.

This is a common path for successful traders - starting with one instrument or two, then expanding to equities.

That transition isn't just a fad - it's because the math takes you there.

Here are the takeaways for traders from the episode:

• More instruments = more scalable, easier to find edge

• One growing column library becomes more powerful over time

• The right incentives in partnerships matter - a lot

• The ability to adapt is key in the long run

Thanks to Dallas for the recommendation. Well worth the listen.

Also, Dallas is an expert custom jeweler whom I've ordered jewelry from for family members - amazing stuff.

-Dave

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