James Simons - Mathematics, Common Sense, and Good Luck: My Life and Careers

so I'm mark Cashner I'm the Dean of the school of psy I'm only going to say a couple of words I began this series of talks last year because I realized that we have a number of people who are graduates of MIT very often who have accomplished an really unusual things in their careers and in our in our classes we talk about the heroes in our field whether it's physics or mathematics or biology who've done great things academically but we rarely talk about those heroes who've changed the world in other ways and so this colloquium series is to let the community see how much you can do with a science education so my job is to introduce the introducer and the introducer is is singer is singer is Institute professor one of our greatest mathematicians he has won so many prizes that if I listed them that would take up all of everybody's time but I will mention the National Medal of Science and the Abel prize which is the Nobel Prize of mathematics one of our true heroes is is going to introduce our speaker that yes in careers should be capitalized to emphasize the number of things that Jim has done the amazing accomplishments of Jim I in this talk I'm going to focus on Jim and mathematics and a little bit of me mixed in because in some ways Jim was my teacher in other ways I was Jim's teacher Jim was 17 when he entered MIT as a freshman in 1955 he was a brilliant math student graduating in three years and during those three years took graduate courses he stayed for an additional year at MIT in which he took to reading courses one for me on lis groups and Lee algebras that turned out to be very useful people ask me what Jim was like as an undergraduate I quote from a 2008 article the codebreakers at MIT Symons worked hard and played hard mostly late-night poker oh all the years that I've seen Jim in the Cambridge area poker was a passion and I think folk and poker remains a passion with Jim Jim went to UC Berkeley as a graduate student and in due course professor Burt Costin became his thesis adviser Burt moved to MIT later and in fact as a professor emeritus from MIT as of 93 there's Burton right there for a thesis Jim was trying to simplify the derivation of a special list of Li groups that list had been derived it got derived from geometry by bears a in Paris in a very complicated way and Jim felt because the answer was so simple I won't describe it because that's very technical there should be a simple way of getting that list of specialty groups he learned that I was similarly motivated and so he sent me a note asking whether we could meet at Christmas time when he was coming back to see his parents it was a memorable occasion because we had an enormous Blizzard at MIT the day we were supposed to meet a blizzard that most of you know you could barely walk much less drive but the two of us did show up in my office and spent the afternoon talking about the problem that really there should be a more direct solution and ways that one might attack Jim went back to Berkeley and in three months time solved the problem and that solution became his thesis he then came to MIT spent a year as an instructor at MIT in which he wrote up that thesis prepared it for publication and it was sent to the prestigious annals of mathematics and it was accepted as a paper for the annals as a joke at that time we decided that Jim was my honorary student and I was seeing this honorary teacher actually Jim taught me a lot over a period of time first in the 70s he told me and showed me that gays theories in physics was the same as connections on fiber bundles in mathematics the bread and butter of geometry moreover he showed me that famous dictionary that connected the technical terms in gates theory with those in geometry amah tree and that's where I first got interested in quantum field theory particularly in terms of gates theories many years later Jim showed me achior Simons invariants and Jim very important in geometry in fact an elegant extension of churn characteristic classes an important development in geometry and was perhaps much more striking or a striking I should say was the fact that it turned out to be very important in what we call topological quantum field theory so all the physicists were quite excited about that development after incitements and have been using turn assignments ever since any rate he taught me that but we felt as a joke that he was my honorary student and he could call me for advice and as his honorary chair I would give it jim systematically ignored my advice even with positive results but as a positive effects but as a result I claim some responsibility for his successes a case in point was his call from the Institute for Defense analysis in 1968 should he accept an offer from Stony Brook State University at Stony Brook as chair of the department my response was as a faculty member doing research and teaching great as chair of the department doing all that kind of administrative work absolutely no of course Jim ignored my advice and what was the effect Jim came to Stony Brook this chair he built up the department terrifically particularly in differential geometry he completed some work he was doing at the Institute for research work he was doing some very special work doing at the Institute for Defense analysis that led to his winning the Veblen prize in 1975 Jim Jim left the math department in 76 after being stuck on a math problem for a long period involving turned Simons he turned other interests and finally founded Renaissance technology I know nothing about hedge funds and I'm going to leave that problem of Renaissance technology to Jim but I can say this having vented visited their offices often enough it's the best math physics department in the world Tim retired recently on and I'm happy to report that finally he's following my advice he's now back doing research in mathematics and very interesting research at that I was only going I was going to stop there but I'm compelled to mention the Simons Foundation run by Jim and his wife Marilyn in my view the foundation is very generous and very astute in what it supports I mentioned a few things ought to the autism and research math for America the new Simon Center for geometry physics and it's beautiful new building and finally the terrific support for math and physics everywhere in particular our math department at MIT has got an enormous amount of support from the Simons Foundation I leave it at that I'm very happy to introduce you to my very good friend my teacher and my student Jim Simons well that was a heck of an introduction for which I think is because I was worried that my talk would be too long and is just gave about half of it so I can concentrate on the second half and fit the whole thing in in the the time allotted well actually it's a it's a it's a great it's a great pleasure to be here I've been in this room before I believe it looks familiar but it's everything else about the Institute's changed changed a great deal I always wanted to come here I lived in the area and I wanted to come here and study mathematics when I was a kid and tell you about an amusing bump on the road so when I was 14 I had a job in Christmastime and Breck's garden supply place I don't know maybe still here or not anyway I worked in the basement in the stockroom putting away stock that was my job and I was terrible at it I couldn't remember where the hell anything went and it seemed there seemed to be no system and they were they were not pleased with my work and demoted me if you can imagine a demotion from that level but I was demoted to floor sweeper which I loved because I was easy I could took no brain work and I could think and I liked to walk and think and what was nice isn't that and you get paid for in push-up room anyway christmas came and season was over and a this basement area was run by two men and a woman they had the job of the stockroom until then the course of saying goodbye to me they you know we tried to be nice and said well well you know what's your future plans I said well you know I want to study mathematics and go to MIT well they thought that was the funniest thing they had ever heard the guy who couldn't remember where to put this you know the sheep manure he's going to be a mathematician at MIT well I I fooled them I applied to MIT and I was accepted but then I got this call I got a call from Wesleyan universe I'd never heard of Wesleyan University was you know high school student I didn't know everything and they said well we've heard about you we'd really like you to apply to Wesleyan so I made a few increases it sounded and I said okay so and they said come down for the weekend we'll do this for you and that and go to a class I don't know I must have come down on a Friday whatever was I had a lovely time at Wesleyan it was a beautiful place and I was swept off my feet by their you know interest and a prettiness of the places so and so I applied to Wesleyan and I was rejected so there was no choice I mean I was I was destined I was destined for this for this place so anyway I did come and I did study mathematics and it went all right and one of the clinchers for a career in mathematics occurred when I first saw now there was a professor named Warren Ambrose who was a very inspiring mathematician some of the older folks here probably remember Ambrose Singer I didn't know at that time but there was a joint called Jack and Marion's which was a Coolidge Corner and I've learned it disappeared in 1971 but this was 1956 at 57 and it was open until 3 in the morning and we used to go there sometimes late at night to get a sandwich I and my friends and one night I saw Ambrose come in mrs. midnight 1:00 in the morning and this other older fellow singer I later discovered and he was he must have been in his thirties by then and Ambrose was maybe 50 anyway they came in sort of dressed like kids sat down at a table and we're busily doing mathematics and then on a several cages after that I'd see them come in and I thought this is the coolest thing in the world I mean what a what a life just to get up at 2:00 and we'll go out at 2:00 in the morning with your friends and do mathematics over coffee and probably cigarettes in those days I don't I don't remember but so that was the clincher that seemed like the world's like the world's greatest greatest career and and I pursued it I did play a little poker it's true along the way and along with Ambrose's singer I made two other good friends at MIT boys from Columbia and when we graduated someone asked me out in the meeting room there was a true that I drove a motorbike to Brazil well it was almost true we did with my Colombian friends ride motor scooters to Bogota now from Boston Boston to Bogota we did and that was was miraculous that I survived that excursion but we did get to Colombia and that had a big impact on me because I'd never been I don't even think I'd stepped foot in Canada and now here I am in Colombia and in those days it was a was an undeveloped country but it looked to me like it could do anything I mean any business could flourish in Colombia because they didn't have them and and these boys that I went to MIT with they were very bright boys and I knew since they always beat me at poker that they'd probably be good businessmen which is which it which it turned out that they were we'll get back to that in a moment anyway that was graduation I went out to Berkeley delighted to see my thesis advisor right over here Bert Bert kosnett and he taught me a lot and then I came back to teach to teach at MIT but on passant I convinced my friends that they in Colombia that they really should start some kind of a business because they were cut out for it and I told him I was going to come down which I did and not leave until we found something that we could start I had no money by the way I had no status in this the threat that I wouldn't leave was not well maybe maybe it worked now that I think of it anyway maybe they did want to get rid of me but in those two weeks we did find a business and they did start that business and I scraped up some money and my father invested it and so on and we had a little piece of that business which later provided the the basis of a career change and but so I was teaching at MIT I had invested in this business by borrowing money a couple years was going by I needed to start paying off these loans and like many a business that you start we expected dividends within 18 months and we had a remarkably well view of how a business works we did eventually get dividends about 12 years later in good amounts actually finally but I needed to pay back some of these some of these debts and so I went to the Institute for Defense analyses in Princeton New Jersey this was a joint on the Princeton campus at that time where they did secret government work and paid quite a lot and you could spend half your time doing your own mathematics and happier time doing their work whatever their work was it involved computers involved computers and I well you know was secret I don't want to talk about they knew and I knew and I loved both I loved it all it was great I turned out I wasn't bad at their work it was extremely interesting to model things and see them programmed up god knows not by me but someone else could program them up and test out theories models would it work would it would not work and at the same time mathematics was going extremely well and I did do the work there that subsequent prize solved you know kind of a major problem in geometry and it was going swimmingly that was it was it was a great experience I was there but then this was the time of the Vietnam War and the president of this organization to see two steps up from my local boss guy named Maxwell Taylor some of the people with gray hair in the room might remember general Maxwell Taylor anyway he ran this outfit and he wrote a crazy article was well I thought it was crazy in the New York Times Magazine section saying how we were going to win the Vietnam Warren was just you know victory was days away or whatever it was that he was touting and I didn't agree with that now the work we were doing had nothing to do with the Vietnam War but it annoyed me that my head of my organization could take such a silly point of view and I wrote a nice letter to the New York Times expressing that view which they kindly published in that same Sunday edition several weeks later so now I was on the watch list I didn't know it but I was on the watch list for the for this place and then a guy came along a few months later three or four and he was announced that he was a reporter for Newsweek magazine and he was doing an article on people who work for the Defense Department but were opposed to the war and he was having a hard time finding anyone to interview but he heard about me he read my letter could he interviewed me and I said sure what did I know Cort you connected me of course you can see how sophisticated I was at that time so he said well you know what what do you do well I blathered on about this and that but I said but my algorithm has been since they say you can do 50% of your work mathematics and the other 50% on the air work right now I'm doing only mathematics and I but I'm keeping careful records and when the war is over then I'll do an equal amount of their work and that's my approach so no I mean you know not unreasonable so I went back to tell my local boss I it was the first intelligent thing that had occurred to me a little late perhaps but that I decided I better tell my my local boss that I gave this interview and he said you did and what did you say and I said well I said what I said he said hmm he said I better call Taylor I pick up the phone call this general Maxwell Taylor there was a little silence at the other end so on and and he couldn't hear what Taylor was saying and he hung up he looked at me said you're fired I'm fired I mean I'm fine you're fired and well it was the first time and happily the last time I was ever fired but I was fired summarily and I said well I'm a permanent member that was my title permanent member okay he said I'll tell you the difference and when I started I was a temporary member I was a temporary member but then I became a permanent member so he said I'll tell you the difference between a temporary member and a permanent by my said yes he says temporary member has a contract well I guess it was true I had a letter when I was a temporary moment but when it became a permanent member I didn't have a contract and so there I was out on my ear but not especially worried and I did go against his advice and I did take the job as chairman at Stonybrook I figured was better to be a fire roar than a fiery and there was a fair amount of firing regrettably that had to be done the department was very weak but we hired a lot of people we had a good time we did build a good department and I did do some some mathematics there that ended up with churn that ended up being pretty useful in physics and and it was there that I did learn about the ball Maranatha experiment and the relation the apparent relation between what we mathematician called you know bundles with connection and what the physicists called gates Terry and I did run off to MIT and said not to MIT to see is he was in I think he was at Rockefeller that year sat in some place over coffee and explained this connection and it was a very very exciting time and it was I think there were conversations like that going on perhaps in lots of coffee shops around about how physics the way it was evolving and the geometric side of mathematics were really becoming quite intertwined and now they're inextricably intertwined as far as I could as far as I can see so those were all those are all good times but then as is said and as he's been giving my I talked I did get frustrated I was stuck I was really stuck and a problem I was trying to prove a certain number was irrational I guess you all know what an irrational number is it might not seem so important that a number being rational or irrational but in this case it seemed to have a lot of a lot of implications and I was wholly incapable of solving this problem and it's still an open problem this whole area that's it's a great set of problems about volumes and whether the irrational in some sense so anyway I was I was very frustrated I had been I was on the wrong side of of a divorce I was on turned out on the right side of my next marriage I did have a new girlfriend who spent sitting right there my new girlfriend and my South American business at long last started paying some dividends in fact I started paying a lot of dividends and I had some money and I invested that money and found out that I wasn't bad at it and all of this was made me think okay it's time for a change and so in 1976 I was 38 I felt I'd been a mathematician all my life but really sort of since I was 18 I think I was so I guess I spent 20 years in that game and decided to to go into business and never occurring that I would apply mathematics to the business Ivy did subsequently but I just felt you know you read the newspapers you you you think you'll do pretty well but and we did we did okay but after a little bit I started collecting some data and I figured there's something to be modeled here there's something to be modeled here like we used to do in the old ID a days so I brought in the best modeler in the world Lenny guy named Lenny bomb from ITA and persuaded him to come and we're going to make these models and do great and Lenny started making models and with we were fooling around but I kept trading and then Lenny seemed to get less and less interested in models and more and more interested in reading the news real that in those days it was just a role it would tick away you read the news and when he was always reading the news instead of thinking about models and then he started having opinions on what was going to go up and what was going to go down this was all foreign currencies bonds that kind of stuff and I started listening to him and he was right he was right he was right enough times is it okay the hell with the modeling let's just let's just try to make some money and we had a remarkable run in to two years since I said to hell with the model we multiplied our investors money by 12 now that was even after that fees that's a sounds pretty good right for it was we were incredibly lucky see the last word up there is luck luck good luck good luck and we certainly had good luck had a lot of good luck in my career so but in the back of my mind was well okay Lenny doesn't want to build models but maybe we could build some well someone else could come in and build models and another fellow Jim axe who was quite a famous mathematician left Stony Brook to come in and he did builds a model so those next years was a combination of fundamental training I did venture capital I invested in all kinds of things but the models kept being built and working better and better and finally at the end of about a 10 year run it was clear to me that this gut wrenching business of fundament mean you know if you're doing fundamental trading one morning you come in you feel like a genius you know your positions are all your way and you think god I'm really smart and look at all the money I made overnight then the next day you come in and they've gone to get you and you feel like an idiot there was we were pretty good at it but it just didn't seem to be a way to live your life you know so building models go with the model so by 1988 I decided it's going to be 100% models and it has been ever since in the business that we built so some firms you know investing firm say oh they have models and what they typically mean is you know we have a model and it advises the trader what to do and if he likes the advice we'll take it and if he doesn't like the advice he won't take it well that's you can't that's not science you can't simulate how you would do how how was how are you feeling when you got out of bed you know 13 years ago when you're looking at at historical simulations did you like what the model said or didn't you like what the model said that it's a hard thing to backtest so if you're going to trade using models you just slavishly use the models you do whatever the hell it says no matter how smart or dumb you might think it is at that moment and that turned out to be a wonderful decision so we built a business 100% based on building computer models starting in those areas that I mentioned currencies of financial instruments gradually moving to stocks and finally to anything that moved well it had to be tradable had to be liquid we was always liquid but and you know bringing in data data you in those days we you know we sent gals down to the New York Federal Reserve to copy histories of interest rate numbers and they didn't exist in the 70s you couldn't go and buy data and it was certainly not online deliveries of all this stuff so to build the original models we needed to collect a lot of data by hand which we did and but gradually you know we got smart of the models got better we brought in more and more people is said our we have the best math and physics department in the world at Renaissance I don't think that's quite true on the other hand it ain't bad we have a lot of smart smart guys and and we certainly hired people who were good at that kind of work so we started this thing called the medallion fund in 1988 in 1993 we closed it to any new investments by outsiders just employees could invest by 2002 we started taking out the outsiders altogether buying them out and by 2005 there weren't any left so since then last five years this vaunted medallion fund has been owned a hundred percent by by the employees which today are about three hundred three hundred employees and well so people would always ask me well what's the secret how come because we're not the only quant in the world will not the only guys who have you know made models I disparage some model making was sort of a part-time thing but there were certainly other outfits but we seem to have done better than than anybody we had really established a remarkable record so people always ask me well what's the secret you know what are the secrets not close I'm not going to tell you the various predictive signals and so on and so forth unless no I'm definitely not we'll keep that that's even bigger secrets in that there stuff down there and idea its secrets are trying to garden but the real secret sauce is that we start with great scientists we start with first class people who've done first-class work or we believe have reason to believe will do first-class work and and because I was there at the beginning and a few other people who had been pretty good at math and science we had we had good taste and that that's state stayed with the company the second thing is we provide people with a great infrastructure and I've had people come to us from all over when they come to work they said they never saw it's more easy to get to work here than anyplace else the data is easily sure we have someone in need we have an alumnus here that I saw earlier who could testify to that I'm not going to ask him to do so but you would so the infrastructure give people good infrastructure and I think the most important thing that we do is have an open atmosphere so my belief is the best way to conduct research on a broad scale is to make sure and much as possible that everybody knows what everybody else is doing at least as quickly as possible sometimes you get an idea you want to keep it to yourself for a little while you don't want to look like an idiot but the sooner the better start talking to other people about what you're doing because that's what what will stimulate things the fastest no compartment ization know we don't have any little groups that say here's our system and we developed it and you you run it and we get paid based on that so none of that everybody meets once a week all the researchers meet any new idea gets brought up discussed vetted and hopefully put into put into production so it's an open atmosphere and and people get paid based on the overall profits you don't get paid just regular work you get paid based on the profits of the firm so everyone has an interest in really everyone else's success and those policies no one of which seems so remarkable turn out to be a pretty winning combination great people great infrastructure open environment and try to get everyone compensated roughly based on the overall performance and that's worked and it continues to work so so that made a lot of money it made an awful lot of money so we started a foundation my wife and me in 1994 and at first it was I believe in her dressing room if I'm not mistaken is that is that right news issue it was a little box with the folders in it and and it didn't even have that big a dressing room so it was a it was a tight quarters but gradually it expanded and she hired a few people and then a few more and so we have this foundation which has actually grown quite considerably not only in in size in terms of dollars given out but I think in terms of sophistication and well it's great so you know my first career was a mathematician and my second career was this business of being a businessman and now my third career is kind of being a philanthropist and so what is our foundation do well it's one of the very few I think that's focused almost exclusively on basic science so we support basic mathematics basic physics a lot of biology but primarily it's serious it's serious research across the board I think we have a autism project which is interesting but it's we do it from the ground up understanding the genetics trying to understand the neuroscience and get a get insight into this condition which will provide insight into how our normal brains work so you know we're focused on basic science and that's and that's very gratifying and I can feel good about that at that approach and we so it's proud we do other things as well on a smaller scale but that's the and I don't think there is we're talking to some people the other day there's probably not a foundation of our size that is as focused just just on basic science now at first we gave to institutions we gave somebody MIT there we did help the math department I think there's a few endowed professorships here and so on but in later years we've been more focused we've been focused on the making bridges between mathematics and physics and the life sciences at the Institute for Advanced Study and a ihes in France that's been a important at Rockefeller that's been important to us the autism has been important now we're getting more focused in math and physical science looking at individual projects mit has an application to us in to us for a for a theoretical computer science institute and they're not the only applicant as I know they know a very good application I have to say but I also have to confess that there are a few other good ones too but someplace is going to get a great Institute for Theoretical computer science so those are the kinds of things those are the kind of things that we do and so I retired from Renaissance and at the end of oh nine and have never have never been so busy people say well now that you're retired you know what are you doing I'm busy as health so you know even we have math for America something that we started seven or eight years ago to try to improve the teaching of mathematics everyone's concerned about it American kids in mathematics education well we've taken the view so we have a narrow view our viewers have teachers of mathematics who know mathematics now you might think well of course but regrettably especially when you get to high school the majority of the teachers of math actually don't know much math so that's not a productive environment in order to stimulate the kids in learning math or science or anything else I mean you you sign up for Italian lessons you know you don't want a Chinese speaker you want an Italian speaker you know the guy with an Italian books as well I'm trying I'm I'm learning this and not to worry you'd say you know I'd like somebody else please like somebody else but the kids don't have a choice in the matter so so we're trying to do that and we're doing it okay so why don't we have enough I don't want to dwell on this point but why don't we have enough teachers of math and science and high schools who know the subject and one answer as well if they knew the subject well they'd also know enough to work for Google or Goldman Sachs or God knows where because today the world is so much more quantified and the economy is so much more based on quantitative methods than it was 30 or 40 years ago so the difference in the quality of the job the pay and the respect is so great for someone who's actually qualified to do a good job of teaching high school mathematics that they get pulled away and don't often find themselves in the classroom anymore so you have to make the job better that means pay these folks more which we do in New York through our program and a few other cities and provide them more respect and support which we do so you know if you're paying a guy 25% more and make them feel or her feel special all of a sudden the career is a lot better you make the career better people stay and will stay in the career if it stays the way it is people won't stand the career and if we don't do something it isn't going to be a good situation so this is something you probably all have have given some thought to so I'll conclude this I was talking to my wife about this talk and what I might say and she said well you know you should end with values said I'm not sure I have any values I got she assured me that I had some values if only I could think hard about them so yeah I guess I do have some values and and I think they have got me so I'm calling them guiding principles value sounds like a very serious business but I'll tell you some guiding principles which I think have worked pretty well so one thing I've always done is do something new I love to do something new and I don't like to run with the pack and for one thing I'm not such a fast runner so you know if you're one of n people all working in the same problem at different places or me I know I would I'd be last high you know I'm not going to win that race but if you can think of a new problem or a new way of doing something that other people aren't all working on at the same time maybe that would give you a chance so do something new second collaborate with the best people you possibly can when you see a person get to know a person who seems like a like a great guy or a great gal to work with in something try to find a way to do it because that that gives you some reach and some scope and it's also fun to work with terrific people I wrote down here be guided by beauty I really mean that I think pretty much everything I've done has had an aesthetic component at least to me now you might think well building a company that's trading bonds what's so aesthetic about that but it is what's ecstatic about it is doing it right doing it right getting the right kind of people and approaching the problem and doing it right and if you feel that you're the first one to do it right and I think we were that's a terrific feeling and it's a beautiful thing to do something right it's also a beautiful thing to solve math problem of creates and mathematics that people hadn't thought of before so be be guided by beauty is not such a bad principle and then I wrote down don't give up at least try not to give up and sometimes even it's appropriate to be at something to be trying to do something for a long time and finally hope for some good luck so that's it okay yes my question is in economics there sometimes non-convex production curves there's imperfect competition in financial markets the liquidity of a market can vary its efficiency can vary there's asymmetric info so it's curious to people at Renaissance do they do you have a discrete mathematics team if you look at fat tail risk as well as the continuous variance well that's considerably more technical a question than I expected I might as well give a lecture on differential cohomology yeah but yes I suppose we consider all those things we simply look at risk modeling risk is as important to do the fat tail risk refers to the fact that risk in financial markets is typically not a normal distribution the tails of a distribution are heavier and the inside as as not as not as heavy so understanding that is real important you know we we look at everything we possibly can and analyze everything we can and so far we've got a reasonably right another question do you consider high-frequency trading to be socially useful and if so how much okay the question was do I consider high-frequency trading to be socially useful and if so how much how much can you make at it I how you how you how useful I consider high-frequency trading to be natural and definitely socially useful what's happened is what's happened is that as the markets have become electronic and computers have been applied to generating prices and accepting trades and all the rest the markets have grown tremendously more liquid spreads have come down the bid-ask spreads have come down the fellows who used to be you know the specialists on the floor specialists of all they were supposed to be the market makers you know well they were it was a full of baloney and they would create very wide spreads and at the first sign of trouble they would they would disappear with the electronic trading has come the ability to trade fast and that has brought spreads down and it has brought market impact down so there's two things that happens when you buy a stock one thing you pay a little typically you will pay a little bit above the mid price just as if you sell it you'll sell it for a little bit below the mid price but the other thing that happens is infinitesimally perhaps you move the market well if you buy a hundred shares you're probably not going to move the market well you buy a hundred thousand shares you probably aren't going to move in the market well how much you're going to move in well if you're the only buyer out there you're going to move it a heck of a lot but if there's a lot of buyers in set and if you're the only sellers but if there's a lot of people active in that market a hundred thousand shares might go very easily so the more volume the better and it's volume that's been created by these high-frequency traders so I think the the research shows that the costs of training spreads and market impact of them down come down a great deal and it's all due to high frequency traders so is it socially useful well if you think liquid you know highly liquid markets are socially useful then and I think so will there ever be glitches and it could be there was a there was a glitch I think they called it the flash crash of a few months ago and for eight minutes or so the market some market took a dive and it came right back I mean it came right back no but it's an important point in 1987 when the stock market crashed it went down 25% and a half a day and it didn't recover for six months because there was nobody there on the other side they were wrongly they would do this thing recovered this flash guys recovered because someone had made a mistake I presume some kind of order went in that was much too big there was nervousness in the market it was already down 3% and it took a dive and everyone stood back and so my god what's going on well but then the algorithms kicked in and you know all this trading just came back and this thing disappeared in ten minutes so it it was a little destabilizing but it was a whole lot different from the crash of 1987 so that's a long answer to a short question yes I think high-speed trading is socially useful and I think that the people who argue against it are wrong a few years of fundamental trading that you did before modeling for us your Mina I was wondering how the few years of fundamental trading that you're done when you first started Renaissance and hence the modeling that you did oh how do they influence the model yeah would you built your models very differently you think had you not okay how did it my experience in fundamental trading affect the models that gradually got built I think that they taught us something I think they taught us something the early models that we built were pretty crude and I think we're inspired by just sort of looking at the looking at what we've seen being in the markets is a good way to observe them you know you really look at them when you have something riding on them so I would say it was it was influential but yeah yeah I think so I think I think it's a good thing for for anybody to do even if he's a quant to get some experiences just you know trading something but then actually a question okay one more so my question is what kinds of things should people in the public be paying attention to among the economic indicators and and just things that are going on which rather bewildering in this world what what are the important things that we should be looking at just to give I mean a simple example when I look at the you know the national debt it sort of looks like maybe it's it's twice everybody's salary that's how much they owe we'll need to pay off or something I don't know I mean you know bringing it down to scale but but for a normal person how do you how do you interpret what's going on how do we interpret those sixty five billion dollars in CDOs no yeah and I said sure I love it question is you know the economy not only the United States but the world looks kind of unbalanced unsettled those big debts being built up by my countries and we have obviously a recession in United States and we're we're busy bailing out banks and you know where's it all going what do you know where is it all going going to hell in a handbasket or what and what should would be what should we be looking at well I think all the things you mentioned are worth looking at the national debt as a fraction of GNP was considerably higher even than it is today right after the second world war and we never paid off that debt what we did was grow the GDP so the denominator got bigger and bigger and after a while we were back in the box so there's nothing better and under most circumstances in my opinion and some good growth and I don't think we're taking steps in United States to promote that good growth because I think we should be maybe even printing more money in building infrastructure and doing some things that the country has is lagging in getting which would get some more people back to work and would put us in a better position to compete even if we do have some inflation it's not the worst thing in the world as inflation but so I don't think there's any you know what happened in this collapse is the United States got a lot poorer and it got a lot poor because the value of everybody's house went down and people's most of people's net net worth was associated to their home and they had been borrowing against the rising prices in that home you know home equity loans that had fueled a lot of growth and that that came to a to an end so we had two bad things happen the people's balance sheets were decimated and they had a not only couldn't they borrow anymore but they had to be paying back paying back debt and a balance sheet disaster is not something it's just it's going to get fixed very fast we were it's going to take a number of years I think to rebuild to rebuild from from this base and is the government doing the right thing or the wrong thing I mean I'm not a not a big fan of this government I'm not a big fan of the of a tax bill that just passed except that it was welcome I have a physical a per up there no I as one clapper I mean it it made obviously it made no sense to continue the tax cut for rich guys like me that made no sense whatsoever and and and for some of you out here probably it didn't make much sense but if that was the price to pay as it apparently was because we have a rather timid president that was the price to pay for extending the unemployment and making some other you know and keeping the tax cuts for for less affluent people and one thing another it was wasn't the worst thing in the world so it looks like maybe it'll produce a little extra growth but that's what we need we do need growth and my own view is I'd rather have it at the risk of inflation than have no growth then and say we you know we've held the dog value of a dollar it'll give it who cares if everyone's out of work later they don't think that 20% unemployment a wonderful dollar is not going to it's a help ok any any way over there look at that guy he's hiding what were some of the key things wrong with what was going on with your long-term economic modeling that they yeah that was wrong the client models had nothing whatever to do with the financial meltdown as far as I can see what had to do it that well financial meltdown was based on mortgages being created that would know damn good and they were created because there was a market for them so these subprime mortgages you lend money to people that you would never if you were the lender you would never dream of lending money under these circumstances on the other hand if your uncle said don't worry I you lend it and I'll buy the paper you might say well okay uncle if you say you you'll buy the paper I'll lend the money you lend the money buy the paper sell the paper to the uncle this paper got securitized and at the end of the day stamped triple-a now who the hell did that the rating agencies stamped this paper triple-a and they stamped the triple-a either because they were idiots which i think is largely the case but also because they were the fees were paid by the issuers of this rotten paper who wouldn't have issued it in the first place but it didn't expect to get triple-a and then this whole chain this whole chain I mean you know in the old days you would go to the bank really old days you go to the bank you want to buy a house the bank actually was the one who went you this money the bank was going to hold the mortgage the bank was going to service the mortgage and the bank wanted you to pay so the banks were you know but now a bank loaned you the money for a microsecond and they sell it to the next guy so if the so it had very little to do with quantum Otto's it's true that courts were designing these these packages of mortgages but the the underlying statistics what's the probability that this mortgage is going to get paid or what's the probability that a guy who's had seven jobs in eight years in four different cities and who was simply stated that he earns you know whatever what's the probability that he's really going to pay off his mortgage anyone with common sense he comments ended up they would think it's pretty darn close to zero but but that fact was not taken into account in the underlying statistics so that's enough that's a long answer I would do one more I think lucky me when when creating models to trade the markets would you recommend focusing on creating models around fundamental economic data or on price behaviors such as the S&P 500 or oil gold or combination of both thank you I mentioned Warren Ambrose in my beginning of my talk this mathematician who inspired me I'm actually going to ask you a question and I went to him one day early in my career and I said professor Ambrose I mean really early is it best to learn a lot about one area of mathematics or learn a little bit about a lot of areas of mathematics and he looked at me and he said one can make the cliche either way and that was the end of the discussion so there isn't any right answer to the question you asked all those things are good it's good to use economic models it's good to use you know price-price histories it's good to it's good to use make models using all these things and there isn't any there isn't any right or wrong to that answer so you

Channel: hamsterpoop

Views: 342,194

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Keywords: james simons, mathematics, common sense, good luck, my life, careers, james harris simons, founder, ceo, Renaissance, Technologies, Renaissance Technologies

Id: SVdTF4_QrTM

Length: 63min 10sec (3790 seconds)

Published: Fri May 24 2013

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James Simons Net Worth: US$21.6B (Dec.2019).