Wall Street Manna

An irreverent look at Wall Street

Tuesday, January 6, 2009

James Simons' "fuzzy" math

The other day I cooked some fish for dinner, and the next day, when I walked in the house it stunk. So I cleaned the kitchen again, but it still smelled funny. I sniffed the microwave, and refrigerator, and cleaned them again, but the house still smelled funny. I ran the dishwasher but things still smelled funny. No matter how I cleaned, or how much bleach I used, I couldn't get rid of the smell.

That night, the smell got worse. It was the smell of a rodent, that had died in the attic. It wasn't just something fishy going on, it was a rat! And somehow this incident came to my mind when I was checking out Renaissance Technologies annual returns for 2008.

Hedge fund manager James Simons made $670 million in 2004, $1.5 billion in 2005, $1.7 billion in 2006, and $2.8 billion in 2007, as head of Renaissance.

Simons made some very good money this year by aggressively shorting stocks. Supposedly the astrophysicists and the mathematical wizards with all their PHD's contributed markedly to his success, but somehow their algorithms didn't factor in a good locate or a real borrow.

He testified this year in front of Congress in November, and talked about his mathematical background, and his stint as a code cracker for NSA. Here's a story on him.

How did his funds do? Here are their returns for 2008.

James Simons futures fund-DOWN 12%
James Simons Renaissance Institutional Equities Fund- DOWN 16%

Now I didn't mention the Medallion fund. This was the fund that gave all the money back to investors that were not employees of the company in 2005. This fund is owned just by the employees of James Simons Renaissance Technologies.

How did this fund do?

The Medallion Fund was UP 80%.

Thus Simons was able to generate, once again, outsized returns for his employees, but he wasn't able to replicate any of this success to the two funds that the public can participate in. So if you worked for him, you were up 80%. If he managed your money, you were down 12-16%.

So in honor of all those astrophysicists from James Simon's Renaissance Technologies, we have picture from space, of the Keyhole Nebula that tells how Simons treats it's investors!

Now if only we had a rat at Renaissance that could give us the view inside the keyhole....


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