Before entering Wall Street, Simmons was an excellent mathematician and became a professor of mathematics at Harvard University at the age of 24. Simmons' Fuxing Technology Company spent 65,438+05 years developing computer models, sifting through billions of personal data and picking out favorite securities for trading.
Unlike Buffett's "value investment", Simmons relies on mathematical models and computers to manage his huge funds, captures market opportunities with mathematical models, and makes trading decisions with computers. He calls himself "Mr. Model" and thinks that the model can effectively reduce risks compared with personal investment. Quantitative investors search for investment opportunities in the 360-degree range of the whole market through collecting and analyzing a large amount of data, screen investment opportunities through computers, and embody investment ideas or concepts in the model through the design of specific indicators and parameters, so as to track and analyze the market without any subjective emotions, choose investments with the help of powerful data processing capabilities of computers, and ensure the maximization of returns under the premise of controlling risks.
With the powerful information processing ability of the system, quantitative fund managers have a wider investment width, which can minimize the impact of people's emotions on the portfolio.
Investors like Buffett can be regarded as qualitative investments. Qualitative investors believe that the real world is extremely complicated and experience and thinking are the ways to win wealth. Therefore, the key to its success lies not in the top technology, but in the understanding, insight and courage that do not go with the flow, that is, the value-added of wealth is created by the "human" factor. Qualitative investors focus on in-depth fundamental analysis and research, supplemented by research on listed companies, exchanges with management and various research reports. Its portfolio decision-making process is that after synthesizing all the information, the fund manager relies on subjective judgment and intuition to select individual stocks, build a portfolio and generate excess returns.
In 2005, Simmons became the highest paid hedge fund manager in the world, with a net profit of $65.438 +0.5 billion, almost twice that of Soros; Since 1988, the average annual return rate of the medal fund he is responsible for is as high as 34%, and the assets have never decreased since 15.
Simmons almost never hires Wall Street analysts, and his Fuxing technology company is full of PhDs in mathematics and natural sciences. Capturing market opportunities with mathematical models and making trading decisions with computers are the secrets of this super investor's success.
"People have been asking me, what is the secret of making money?" James simons said this sentence almost every time he was interviewed by reporters, and he seemed to be used to those eager eyes. In fact, in the world of hedge funds, this should be a secret that everyone wants to know.
Simmons, 68, has silver hair and likes to wear elegant shirts and a pair of loafers and casual shoes barefoot. Although he has become the most profitable fund manager in Institutional Investor magazine, there are still many people who don't know who he really is. Simmons once founded the famous Chen Shengshen's Law with China scientist Chen Shengshen, and won the highest honor in American mathematics. In the legendary Wall Street, Simmons is completely different from his Fuxing Technology Company.
Simmons, who has a low-key style, rarely gives interviews, but since he gave up his thriving math career and started an investment management company, Simmons has created many unattainable records for more than 20 years. He is one of the greatest hedge fund managers in the world in terms of total profit and net profit.
The following are some figures related to Simmons: since 1988, the average annual return rate of Medallion hedge fund managed by Simmons is as high as 34%, which is 10 percentage point higher than that of Soros and other investment masters, and more than 20 percentage points higher than that of the Standard & Poor's 500 Index in the same period; From the end of 2002 to the end of 2005, the medal fund with a scale of $5 billion has paid investors more than $6 billion in return.
This rate of return is obtained after deducting 5% asset management fee and 44% investment income share, which has been audited. It is worth mentioning that these two fees charged by Simmons should be the highest in the hedge fund industry, equivalent to more than twice the average fee. High returns and high fees made Simmons quickly become a super rich man. In the list of "America's 400 richest people" published by Forbes magazine in September 2006, Simmons ranked 64th with a net worth of $4 billion.
Mr. model
The secret of Simmons' success is to design a quantitative investment management model for different markets, and conduct short-term transactions in various markets around the world with computer operation as the leading factor. But Simmons has been tight-lipped about the details of the transaction, and no one can get any clues about their operation except for more than 200 employees of the company.
For quantitative analysis of hedge funds, trading behavior is more based on computer analysis of price trends than subjective judgment. Fuxing company is mainly composed of three parts, namely computer and system experts, researchers and traders. Simmons personally designed the original mathematical model, and he also hired more than 70 people with doctoral degrees in mathematics, physics or statistics. Simmons meets with the research team once a week to discuss the details of the transaction and how to improve the trading strategy.
As a mathematician, Simmons knows that luck has only a half chance of success, and to beat the market must be based on careful and accurate calculation. The mathematical model of medal fund is mainly to find out the mathematical relationship between the changes of financial product prices, macroeconomics, market indicators, technical indicators and other indicators through the statistics of historical data, to find out the small profit opportunities existing in the current market, and to make profits through rapid and large-scale trading through leverage ratio. At present, some funds in the market have adopted the same strategy, but compared with Simmons' performance, they are often eclipsed.
The flagship product of Fuxing Technology Company, Medalian Fund, was established in March, 1988. In March, 1993, the fund reached $270 million and stopped accepting new funds. At present, the portfolio of the Medal Fund includes thousands of investment targets in the global stock market and other markets. The model continuously monitors the prices of major investment targets such as government bonds, futures, currencies and stocks, and makes orders to buy or sell.
When the order is placed, 20 traders will seize fleeting opportunities through thousands of quick intraday short-term transactions, and the trading volume can sometimes even account for 10% of the trading volume of the entire Nasdaq market. However, when the market is in a special moment such as extreme fluctuation, the transaction will switch to manual state.
Contrary to the popular investment concept of "buy and hold for a long time", Simmons believes that the abnormal state of the market is usually small and short-lived. Simmons said: "We buy, sell and buy at any time. We make money by being active."
Simmons revealed that the company has three criteria for the selection of trading varieties: open trading varieties, high liquidity and meeting some requirements set by the model. He said: "I am Mr. Model, and I don't want to make a fundamental analysis. One of the advantages of this model is that it can reduce the risk. And relying on personal judgment to choose stocks, you may get rich overnight, or you may lose your blood the next day. "
What Simmons is doing seems to be going beyond the efficient market hypothesis: the efficient market hypothesis holds that market price fluctuations are random and traders cannot continue to profit from the market. On the other hand, Simmons emphasized that "some trading patterns are not random, but traceable and predictable." Just as Buffett once pointed out that "the market is effective in most cases, but it is not absolute", Simmons also believes that although the market as a whole is effective, there are still temporary or partial market inefficiencies that can provide trading opportunities.
In an interview with The New York Times, Simmons mentioned a nuclear accelerator experiment he observed. "When two high-speed atoms collide violently, a huge number of particles will be ejected." He said, "The job of scientists is to analyze the changes brought about by collisions."
"I looked at the trajectory diagram formed by particle collision on the computer screen. They seem chaotic, but in fact there are inherent laws, "Simmons said. "This naturally reminds me of the stock market. Those small transactions, even if only 100 shares, will have an impact on this huge market, and thousands of such transactions will occur every day. " Simmons believes that what he has done is to analyze how complex the market will react when the wings of this butterfly flap.
"This topic may not be important to the world, but it is interesting to study the driving force of market operation. This is a very serious question. " Simmons laughs like an urchin, and his story sounds more like a scholar who is proficient in mathematics. Through complicated odds and probability calculation, he finally defeated the casino myth. The former US Department of Defense cryptographer and mathematician seems to think that there should be a simple formula to explain how to walk in front of the curve, and finding this formula is equivalent to getting the ticket to the door of wealth.
Do sth. Secretly and illegally
The hedge fund industry has always had a "black box operation" investment model, so there is no need to disclose its transaction details to investors. Among the first-class hedge fund investors, Mr. Simmons' box is said to be the "blackest".
Even a good quantitative hedge fund manager can't figure out what indicators Simmons' model uses. "We trust him and believe that he can handle the stormy waves of the stock market, so we don't think about what computers will do," said a long-term investor of the medal fund. When investors began to describe Simmons' investment methods, he admitted that he was completely guessing.
However, whenever someone suggested that Simmons' fund lacked transparency, he always shrugged helplessly. "In fact, everyone has a black box, and we call it the brain." Simmons pointed out that the company's investment method is not mysterious, and many times it can be solved in a specific way. Of course, he had to add, "For us, this is not too mysterious."
In new york, there is a famous saying: You have to go out to come in. Simmons' experience seems to be only the annotation of this sentence. On Wall Street, what he does always makes people curious.
Simmons' Fuxing Technology Company is headquartered in Long Island, new york. The first floor building with wooden glass structure looks more like an ordinary brain bank or a mathematics research institute. Different from many fund companies, the heart of Fuxing Company is not a trading room for all-weather trading, but an auditorium with 100 seats. Every half a month, company employees will listen to a science lecture there. "An interesting and practical statistical speech will definitely inspire your thinking." An employee who likes this way of learning said.
That's not all the surprises. Simmons doesn't like Wall Street investors at all. In fact, if you want to work for Fuxing technology company, Wall Street experience is a flaw. Nearly half of the company's more than 200 employees are top scientists in the fields of mathematics, physics and statistics, and only two of all employees are doctors in finance. Moreover, the company never employs business school graduates or Wall Street people, which is unique among American investment companies.
Simmons, who once taught at Harvard University, said, "We don't hire students with poor mathematical logic. "Good mathematicians need intuition and always have a strong curiosity about the development of many things, which is very important for defeating the market." Fuxing Technology Company has first-class scientists, including peter weinberger, a famous scientist in Bell Laboratories, and Robert Lowry, a professor at the University of Virginia. He also recruited some employees familiar with speech recognition system from IBM. "Traders are similar to speech recognition workers. They are always guessing what will happen next. "
There is almost no stream of people. Every six months, employees of the company will receive corresponding cash bonuses according to their performance. It is said that the performance benchmark within half a year is 12%, which can be easily achieved in many cases, and many employees also own shares in the company. Simmons attaches great importance to the atmosphere of the company. It is said that he often spends weekends with employees and their families. As early as 2000, they flew to Bermuda for a holiday together. At the same time, every employee swore to keep the company secret.
In recent years, Simmons has received the most questions related to American Long Term Capital Management Corporation (LTCM). LTCM was once brilliant in the mid-1990s. The company has two Nobel Prize winners in economics. They use computers to process a large number of historical data, get the normal historical price difference between two different financial instruments through accurate calculation, and then analyze the latest price difference between them combined with market information. If there is a deviation between the two, the computer immediately sends an instruction to enter the market in a big way; After a period of market adjustment, the amplified deviation will automatically return to the normal track. At this time, the computer ordered to close the position and leave the field to obtain the difference of deviation.
LTCM always follows the principle of "market neutrality", that is, it does not engage in any unilateral transactions, only focuses on finding arbitrage space formed by the efficiency gap between markets or commodities, and avoids risks through hedging mechanism to minimize market risks. However, because the model assumptions and calculation results are based on historical statistical data, once there is a trend contrary to the calculation results, hedging becomes a high-risk trading strategy.
This risk is further amplified by highly leveraged loans. In its heyday, LTCM used the $2.2 billion capital raised from investors as collateral to buy securities worth $654.38+025 billion, and then used these securities as collateral to conduct other financial transactions with a total value of $654.38+025 billion, with a leverage ratio as high as 568 times. In just four years, LTCM once achieved a rate of return of 285%. However, under excessive manipulation, it lost another $4.5 billion in just two months, and it has been invincible since then.
"Our approach is completely different from LTCM," Simmons stressed, and Fuxing Technology Company does not have and does not need such a high leverage ratio. The company has never had any preconceived concept in its operation, only looking for those meager profit moments that can be replicated. "We will never invest with' the market returns to normal' as a bet. One day the market will eventually return to normal, but who knows when."
Most of Simmons' supporters also disapprove of the risks of black-box operation. They said, "Long-term capital companies only have two Nobel Prize winners as facades, mainly Wall Street people, and their gambling determines that they will eventually make mistakes." Another famous quantitative fund manager also said, "It is hard to believe that Simmons' method will not have security measures. "He pointed out that the most important difference between Simmons' method and LTCM is that it does not involve hedging, but mostly makes short-term directional forecasts, relying on trading multiple varieties at the same time and making a large number of transactions in the short term to make profits. Specific to the loss of each transaction, because the position will be closed in a short time, the loss will not be great; After thousands of transactions, as long as the profitable transaction is redundant, the overall transaction result is profitable.
Master of mathematics
Simmons rarely gives speeches at financial forums. He likes math conferences. He celebrated his 60th birthday at a geometry seminar and donated money to the mathematics community and autistic children. In his speeches, he often emphasized that it was mathematics that made him embark on the road of successful investment. Some people say that it has nothing to do with wall street fashion, which may be one of the reasons why he doesn't pay attention.
Simmons has a natural sensitivity and intuition to mathematics. The son of a shoe factory owner decided to become a mathematician at the age of 3. After graduating from high school, he successfully entered MIT. Only three years after graduating from college, he received a doctorate from the University of California, Berkeley, and became a professor of mathematics at Harvard University at the age of 24.
However, although he was already a rising star in the international mathematics field, he soon got tired of his academic career. 1964, born adventurous, Simmons entered the defense logic analysis association, a non-profit organization under the US Department of Defense, to crack the code. Later, because he opposed the Vietnam War, he returned to academia and became the head of the Department of Mathematics at Stony Brook University in new york, where he did pure mathematics research for eight years.
Simmons has long been attached to investment. 196 1 year, he and his classmates from MIT invested in Columbia floor tile and pipeline company. When I was in Berkeley, I also invested in a wedding gift company, but the result was not satisfactory. At that time, he felt that the stock market was very annoying. "I once found a broker at Merrill Lynch and tried to do some soybean trading," Simmons said.
It was not until the early 1970s that Simmons began to really get hooked on investment. At that time, he was still teaching at Stony Brook University, and a mathematician around him participated in the sales of a ceramic tile company. "In eight months, I earned 10 times the money."
In the late 1970s, when he left Stony Brook University to set up a private investment fund, he initially adopted the method of fundamental analysis. "I didn't expect to invest in a scientific way," Simmons said. During that time, I mainly invested in the foreign exchange market. "With the increase of experience, I think maybe we can use some methods to make models and predict the trend changes of the money market."
In the late 1980s, Simmons and Lefel, a mathematician from Princeton University, redeveloped the trading strategy and changed from fundamental analysis to quantitative analysis. Since then, Simmons has completely transformed into "Mr. Model", creating amazing achievements for nearly 500 investors of the Medalian Fund.
In 2005, Simmons announced that he would set up a new fund with a scale as high as $654.38+000 billion, which caused a sensation on Wall Street. You know, this figure is almost equivalent to one tenth of the total assets managed by global hedge funds. When talking about the new fund, Simmons is more cautious. He said that unlike medal funds mainly targeting the rich, the new fund has a minimum investment of US$ 20 million, mainly for institutional investors, and will attract investment by reducing costs; In addition, the new fund will focus on investing in the US stock market and hold positions for more than one year-compared with the rapid trading of medals, the new fund seems to have begun to adhere to the concept of "buy and hold".
"The models and methods that are very effective for medals may not be applicable to new funds". It seems that Simmons believes that a hedge fund with hundreds of billions of dollars must be risky to adopt a medal-like operation.
Although this new fund has a good pedigree, many investors still doubt how much it can do. The basic fact is that compared with some small markets with poor liquidity, the size of funds as high as $654.38+000 billion may be too large, which will make it more difficult for them to withdraw.
Despite many questions, by mid-February 2006, Simmons had raised $4 billion and said he would absorb more funds. At the same time, the company promised investors that once the fund operation shows signs of weakness at any time, it will stop absorbing new funds, and then the new funds will not continue to increase to the upper limit of 1000 billion US dollars.
As of August, 2006, this new fund named Fuxing Institutional Equity Fund recorded an increase of 65,438+03%, while the S&P 500 index rose by 4% in the same period.
Simmons' current net worth is about $2.5 billion. Medallion Hedge Fund, the core business of revival, has achieved an average annual return of 34% since the establishment of 1988, which is the best hedge fund in this period. This rate of return has been audited after deducting 5% asset management fee and 44% investment income share. These two fees charged by Medallion are more than twice the average cost of hedge funds.
If the assets under management are too large, it will be more and more difficult for hedge funds to get higher returns than the industry average, right? Tell this to james simons.
Simmons is a world-class master of mathematics and the boss of Fuxing Science and Technology Company. The news that he will set up a fund with a scale of 1 trillion dollars is making a lot of noise in the industry. You know, this is about one-tenth of the total asset management of the entire hedge fund industry. According to early publicity materials, the minimum investment of this fund is $20 million, which is sold to institutional investors.
It is estimated that Simmons' current net worth is about $2.5 billion. Medallion Hedge Fund, the core business of revival, has achieved an average annual return of 34% since the establishment of 1988, which is the best hedge fund in this period. This rate of return has been audited after deducting 5% asset management fee and 44% investment income share. These two fees charged by Medallion are more than twice the average fee charged by hedge funds.
So far this year, Medallion's assets have appreciated by about 65,438+02%, while the market is falling. In various markets, short-term trading dominated by computer operation is the secret of Simmons' success. Medallion is reluctant to disclose the details of its operating strategy, even to its own investors. Other funds have adopted the same strategy, but they are far less successful than Medallion.
The new fund will adopt a completely different operation strategy: focus on investing in the US stock market and hold positions for more than one year.
Medallion has not absorbed new funds for 12 years. Simmons, 67, has been offering returns to existing investors. He also believes that if the fund size is too large, the rate of return will drop. In fact, Fuxing is expected to return the balance of funds to external investors at the end of the year, so that Simmons and his employees will become the only investors in Medallion. By then, the fund will be about the same size as it is now. Dealing with a few investors will help Simmons, who is not good at publicity, avoid media tracking.
Simmons declined to comment. A spokesman for Fuxing also declined to comment on the so-called Fuxing Institutional Equity Fund.
Simmons' latest move seems to be at odds with Renaissance's reluctance to let its assets exceed a certain range. Indeed, many fund managers find that the increase of assets will restrict the growth of performance. Investors who have a general understanding of the new fund said that this fund will be different from Medallion's existing hedge funds, and the new fund hopes to absorb more funds by setting a moderate target rate of return.
This new fund is the latest sign that hedge funds strive for institutional investors such as pension plans and seize the territory of traditional wealth management companies such as Datong Fund. The fund will use models developed by more than 60 mathematicians and doctors of physics. This fund sets its own rate of return to be stronger than that of the Standard & Poor's 500 Index, and strives to achieve relatively stable performance.
Investors said that although Simmons was not well-known on Wall Street, his past achievements made investors interested in the fund. Antoine Bernheim, author of the Catalogue of Offshore Funds in the United States, said that the average annual return of 34% since the revival of 1998 is the best in the hedge fund industry. Even george soros's Quantum Fund has an average annual return of only 22%, while the S&P 500 index has an average annual increase of only 9.6%.
In the past two years, Medallion's monthly assets have never decreased. According to one investor, Medallion has provided investors with rich returns in the past few years, but investors cannot use these huge returns for additional investment in Medallion. However, it may also stimulate investors' interest in new funds.
Medalian wrote in the publicity materials: Although the outstanding performance in the past cannot guarantee the success of the new fund, the new fund will also adopt Medalian's scientific operation strategy and take Medalian's technology as the cornerstone.
Benheim pointed out that Simmons' rate of return was 10 percentage point higher than that of legendary investment masters such as Bruce Coffler, Soros, Paul Tudor Jones, Louis Bacon, Mark·King, and it was outstanding in the hedge fund industry.
Simmons will attract investment by reducing expenses (for example, setting the asset management fee at around 2%). But at the same time, he may have to disclose more details about the operation of funds. This is because pension plans and their advisers often require employed wealth management companies to fully disclose the brief information of their investment strategies.
Jeffrey Tarrant, the investor of Fuxing and the president and chief investment officer of Protege Partners LLC, said that Fuxing basically operated behind closed doors, and its employees swore to keep secrets and adopted the strategy of proprietary trading.
Simmons' first job was as a professor of mathematics, teaching at MIT and Harvard University. He and others discovered the geometric law called Chen-Simmons, which became an important tool of theoretical physics.
Professor edward witten, a physics professor at the Princeton Institute for Advanced Studies, said that it is really remarkable that this outstanding math professor can break through another world.
Simmons violated military discipline during the Vietnam War and later joined the financial management industry. He hired some experts in applied mathematics, quantum physics and linguistics. It can be said that his company background has little to do with Wall Street.