How Jim Simons Built the Best Hedge Fund Ever

[SunTrader]

Can't go wrong with "Boca" Buzzy.

 

[guru]

Even the king of quants is clearly not winning the game from entry signals, otherwise they would have a high win rate.

Renaissance searched for “overlooked” edges and joked about a 50.75% win rate while utilizing the law of large numbers to win in the long-run. Often times we get caught up searching for the holy grail or the perfect entry/exit for our trading or strategy development. But even with all these PhDs, RenTech was excelling trading a nearly 50% winning system to generate such astronomical returns. Much more can be gained by combining and adding unique smaller edges together than wasting time hunting for the perfect holy grail strategy!

“We’re right 50.75 percent of the time… but we’re 100 percent right 50.75 percent of the time. You can make billions that way” (pg 272)

This is great point and I'm coming to similar realization after being unable to select "best" strategies to trade out of millions. Each of millions of strategies that never had a losing year during last 12 years, do have ~30% chance of failure the following year. Thus if I select just one or two strategies to trade, I may end up with ones that lose money next year. But if I had capital to trade 100K+ strategies then the winning ones would overwhelm losers to extent of possibly never having a losing year. I'm currently combining hundreds of strategies/algos but this may not be enough.
And that's why retail traders have slim chances with just one or couple strategies, no matter how long they were successful in the past.

 

[RedDuke]

In terms of entertainment and information value, pit bull, which I just finished, is much better

Read Pitbull about a decade ago. Great book as well.

 

[themickey]

This is great point and I'm coming to similar realization after being unable to select "best" strategies to trade out of millions. Each of millions of strategies that never had a losing year during last 12 years, do have ~30% chance of failure the following year. Thus if I select just one or two strategies to trade, I may end up with ones that lose money next year. But if I had capital to trade 100K+ strategies then the winning ones would overwhelm losers to extent of possibly never having a losing year. I'm currently combining hundreds of strategies/algos but this may not be enough.
And that's why retail traders have slim chances with just one or couple strategies, no matter how long they were successful in the past.

I think it was along these lines raVar was aluding too wasn't it? 'owever the dogfight b'came too hot and he woz shot outta airspace.

 

[ironchef]

Even the king of quants is clearly not winning the game from entry signals, otherwise they would have a high win rate.

Renaissance searched for “overlooked” edges and joked about a 50.75% win rate while utilizing the law of large numbers to win in the long-run. Often times we get caught up searching for the holy grail or the perfect entry/exit for our trading or strategy development. But even with all these PhDs, RenTech was excelling trading a nearly 50% winning system to generate such astronomical returns. Much more can be gained by combining and adding unique smaller edges together than wasting time hunting for the perfect holy grail strategy!

“We’re right 50.75 percent of the time… but we’re 100 percent right 50.75 percent of the time. You can make billions that way” (pg 272)

Thanks for this comment. I now feel much better about my 50% win rate. I am not kidding, I bat ~500.

 

[ironchef]

This is great point and I'm coming to similar realization after being unable to select "best" strategies to trade out of millions. Each of millions of strategies that never had a losing year during last 12 years, do have ~30% chance of failure the following year. Thus if I select just one or two strategies to trade, I may end up with ones that lose money next year. But if I had capital to trade 100K+ strategies then the winning ones would overwhelm losers to extent of possibly never having a losing year. I'm currently combining hundreds of strategies/algos but this may not be enough.
And that's why retail traders have slim chances with just one or couple strategies, no matter how long they were successful in the past.

I think what @comagnum was saying is if your strategy has positive expectancy but with a win rate of close to 50/50, you have to keep at it until the law of large number kicks in for the strategy to work.

Like counting cards in blackjack, you have to play enough times to win, especially for us retails with limited capitals, hard to do that with hundreds of strategies.

 

[Real Money]

It seems that Mr. Simmons and I are interested in the same things.

When I was developing my trading tools, I discovered that I should be doing analysis on arbitrage spreads. Specifically, arb spreads involving multiple exchanges. This is similar to things I've read about called signal processing.

I did a little poking around and found out that Mr. Simmons and Ren Tec have similar interests.

"Connections Between Financial Signal Processing, Entropy, and Superior Investment Returns, James Simon, Jim Simon, Renaissance Technologies". Fisig.com.

 

[guru]

It seems that Mr. Simmons and I are interested in the same things.

When I was developing my trading tools, I discovered that I should be doing analysis on arbitrage spreads. Specifically, arb spreads involving multiple exchanges. This is similar to things I've read about called signal processing.

I did a little poking around and found out that Mr. Simmons and Ren Tec have similar interests.

"Connections Between Financial Signal Processing, Entropy, and Superior Investment Returns, James Simon, Jim Simon, Renaissance Technologies". Fisig.com.

RenTec may or may not be trading spreads anymore, or may have specific angle on this. Such info wouldn’t be published if it was so straightforward.
Though whenever I see your posts then I think of this guy:

Is there relation to your style of trading?

 

[Real Money]

combining hundreds of strategies

This sounds like a lot of work. I'm impressed guru. No wonder you need so much compute hardware

RenTec may or may not be trading spreads

I have some opinions on what they are probably doing, but it's just guesswork. Thanks for that video. I love the LTCM story and that guy is really impressive.

Is there relation to your style of trading?

Buy and hold seems to be the winner lately.

But, spreads are amazing for trading size. Especially, very short term.

I don't think you can really be a great trader on minute charts unless you have a very solid understanding of hedging. That includes stat arb, intermarket spreads, settlement spreads, and every other type of cross hedge.