In The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution (Amazon,) Gregory Zuckerman chronicles the rise of Renaissance Technologies (RenTec) and its founder, Jim Simons.
It is a fascinating book. You should absolutely, without a doubt, read it.
The basic question that Jim Simons asked was: Is it possible to develop a mathematical model of the market and use it to trade profitably?
Turns out that it is a qualified “yes.” There are a handful of people who can do it successfully over a long enough period of time to become billionaires without blowing up. And they are extremely secretive of the methods they use.
Reading through the book, I realized that some of the machine learning models they seemed to be using in early 2000’s is what Google has commercialized now. It looks like they have a 10-15 year head-start in some areas over everybody else in things like sentiment analysis and language translation.
Also, Simons, worried about the capacity of his algorithms, capped the size of his fund a long time ago and kicked out outside investors. Today, the fund is run for and by its employees.
The gains Simons and his colleagues have achieved might suggest there are more inefficiencies in the market than most assume. In truth, there likely are fewer inefficiencies and opportunities for investors than generally presumed. For all the unique data, computer firepower, special talent, and trading and risk-management expertise Renaissance has gathered, the firm only profits on barely more than 50 percent of its trades, a sign of how challenging it is to try to beat the market—and how foolish it is for most investors to try.
The Man Who Solved the Market
Recommendation: Must Read!