Gregory Zuckerman on the Quant Revolution

Simons launched the quant revolution. If you are at all interested in so many things Renaissance technologies and Jim Simon's quantitative investing, hedge funds, how difficult it is to beat the market, and how astonishing the performance of Renaissance technologies has been. Let me tease you a little bit. Thirty years sixty a year. That is just mind blowing. Nobody in the universe comes close. There wasn't anybody who does half of that. That's what makes this so just completely

mind boggling ing. Uh. They are absolutely a unique entity. You will find this to be an absolutely fascinating conversation. I really enjoyed the book. I plowed through it in a day and a half on the beach over the holiday weekend, and it's not out until November five, So by the time you're hearing this it will be available for pre order. All I can say is I enjoyed the book and I had a fascinating conversation with Greg, and I'm sure you will enjoy it. So, with no

further ado, my conversation with Greg Zuckerman. This is Masters in Business with Very Ridholts on Boomberg Radio. My extra special guest this week. I've been looking forward to this conversation for a long time. Greg Zuckerman, Wall Street Journal reporter and author, two time winner of the Geralds Lobe

Award for Outstanding Business Reporting. He is the author of The Frackers, The Outrageous inside story of the new Billionaire Wildcats, and The Greatest Trade Ever, How John Paulson defied Wall Street and made history. But his newest and most fascinating book is Jim Simons, The man who solved the markets and launched a quant revolution. Greg Zuckerman, Welcome to Bloomberg. Great to be here. I think I sort of retitled

the book for you. Um So I'm I'm fascinated by Jim Simon's ever since I was a high school student applying to Stonybrook Math department, where he turned out to be the chairman that plus six annual returns for thirty years. Those are just astonishing numbers. What was it that made you decide to write a book about the most reclusive hedge fund manager ever? So? I've always wanted to. He's sort of if you're a financial journalist, and I focused on the Bye side to a large extent, there's no

one more impressive. He's the white whale, isn't he? He is the white whale. And yet he's also got this mystique about him, part because they're such a secretive firm. Um, others have tried. That was part of the allure as well, that others had reached out to him, he didn't want to work with them. I myself had tried. He didn't want to cooperate. Uh. For whatever reason, that created an added a level of mystique allure for me. So I took the challenge on. So, in pursuit of this, you

spoke to over forty current and former Renaissance employees. What was that like? Well, early on it was quite difficult. Um, no one wanted to talk to me. And why was that? I know, there's a little bit of paperwork involved as to why some people were hesitants to speak with you right. So Jim Simmons and his colleagues at the firm have everyone signed forty page nondisclosures non competes and they're serious

about them. Um. I was warned early on, don't waste your time, Greg, both by people internally, people that used to work there. Simons himself said he wouldn't talk to me. It got worse than that. Simon started telling people I wanted to talk to not to talk to me, not to cooperate with me. Another word, you would set up a conversation with someone and he would get wind of

it and and quash it. Yeah. I had meetings set up with senior people in the industry, in the quant world, billionaires who you wouldn't think would care what Jean Simon's would think, these arrivals of renaissance. And yet right before we were supposed to sit down, they said, sorry, I can't talk to you, Greg. Jim asked me not to the family. It's you describe very much like the mafia. Right. Yes, we're competing, but you still are things you don't do. And one thing you don't do in the quant world

is get Jim Simon's upset. So here I was being told, don't waste your time, Simon isn't gonna work with you. I'm not gonna work with you because Jim asked me not to. I had I literally had um my advance and not insignificant advance from my publisher on my death in my basement in my home in suburban New Jersey, and I wouldn't cash it because I wanted the ability to hand it back because you were concerned you wouldn't be able to get anything done without any cooperation. Right. Um,

If you talk to my wife, she doesn't. She can give you all kinds of conversations where I was whining and complaining and just frustrated and concerned that I wouldn't be able to pull this thing off. Um. And at one point the accounting department from Penguin, they were like, what this has in this check? Something's wrong because who what? What author doesn't cash a check? You know? We don't

do so well. What was the turning point where you felt, Oh, now I'm starting to at least get a little traction with these guys. Right. So I went out to California and I spoke to some former colleagues of Simons who worked with Jim back in the day, back in the eighties and nineties, right, and their story was just too fascinating not to do the book and too compelling. I mean,

these are interesting characters. As a or, you look for just colorful color, colorful, intriguing individuals, characters you could write about, and they you couldn't do better than these people. They um were temperamental, they were high strung, they were fascinating, they were smart. They had accomplished all kinds of things in academia, and then they took on this challenge of trying to conquer the markets. So and there was all kinds of intrigue that I wasn't really aware of behind

the scenes. Um anger, fights, disputes, screaming matches, things that you know when you think of a quant and you know, mathematics, mathematicians maybe just I did. I didn't really think they lend like you and not yes, exactly scientific. Right. So when I learned about the early story of Renaissance, and it's quite fascinating, I said, you know what, how do I not write this book? It was a bit of a leap. So I had the early part, but then what do I do about the middle of the later

parts where people. There weren't as many people who had retired, who were academics who might speak to me. These are more recent types of individuals, some still there. I had to I had to work somehow get them to talk. So what was the turning point? When did you start to have these folks speak with you? When I got a good sense for the story? Um, I got some people who work there to open up to me. And why they spoke to me. I'm as a writer, you're

never a hundred percent sure. I believe that good stories want to come out. And this is a great story. This is the greatest financial um investor in modern history. Jim Simmons. His firm is the most impressive money making operation in Wall Street history. So some of them were proud, and some of them actually wanted to share and talk to extent that they could, they kind of wouldn't tell me. Usually, no secret source came out. Well, it leaked out so here and there. So that's my job as a writer.

You get a little snippet, they drop a little crumb here and there. It's my job to kind of put it together into some thing of a loafer, at least a half a loaf for for the readers, so they gave me enough to give me encouragement. Yes, they weren't laying out all the algorithms for me, not that I

would understand a mena or anyway. When when I finally and then I finally got Sigmons to speak, so discussed that because for the longest time he said, no, I want nothing to do with this, so I'm never gonna speak to you. How did you finally get him to sit down with you? And and how long did you talk to him for? So we had and still have a complicated relationship. He didn't want the book to be written. He still, as of a few months ago, asked, do we do I really have to write this book? Um?

Part of it is the guy makes a billion and a half dollars hardly going into the office and doesn't want to rock the boat. These are hard working individuals, scientists he's hired or helped hire or have joined subsequently, and he doesn't want to get them angry. He says, he's a generally a pretty good guy, and here they are working, slaving away. And if the guy making a billion and a half dollars is talent secrets, um, they wouldn't be thrilled with him. Um, So he didn't really

want this book being told. And but at some point he got the message that I wasn't going away, and he realized I was doing serious research. So I was talking to academics he worked with back in the day, Um code breakers. He's got this really rich, fascinating life even before he got to Renaissance. If he had never started Renaissance, he never even invested, he'd still be so of ample sub be ample um opportunity to write a book,

there'd be reason to write about him. So UM. I think when he started hearing from these seventy and eight year old academics uh, from Princeton and other kinds of places he worked with back in the seventies and in the sixties, even uh, he got the message I wasn't going away, And I think he realized, while better to talk to Zuckerman than um not share any perspective in

a book about him. In his firm, the joke I used to hear from people who had Lucked in interviewees and other books was well, who do you want to shape the story? Do you want do you want to shape the narrative or do you want to let your competitors and enemies shape the narrative, right, And that's a lot of my approach in my day to day writing at the Wall Street Journal. UM I called the haircut approach. I'm gonna give you a haircut. You can sit still or you can move around, but I'm gonna give you

a haircut. And it's not to say that it's a threat in any way. It's being it's just honest, right, a little blond, but yeah, And Simon's realized that there's something to be said for working with me. But I do want to make it clear that he wouldn't share UM inside UM secrets, secret sauce, as you describe it. So I don't want to suggest that he kind of opened the kimono. That was still difficult to the end. So it was so we sat down together multiple times for how many hours we add it all up was

over ten hours. Really, that's a lot of Jim Simon's FaceTime. It was a lot of time, and the top ranged and included his recent life, which is also quite interesting what he's trying to do an autism research, science education, subsidizing teachers around the city of New York City, UM politics, a little bit too. He's a big funder of democratic causes and in candidates, so the topics ranged. He was generous with his time and though and regarding some of

those subjects, his early life and his mathematics. A guy like me needed help understanding. So I appreciate the help he gave me there And in terms of there you are you saying Jim Simons tutored you in in mathematics to some extent. Yeah, Um, he was quite helpful, because I listen, I had a lot of people helping me.

But he is a professor at heart, and I could see him, even though he is objecting to your purpose, I could see him kind of saying, no, no, let me explain the math here and and bring you along right. And part of it is and I've learned this something about mathematicians. Uh, little mistakes really bothered them more than they do me or people that come from a different perspective.

So I think it would have just bothered him had there been significant um errors in the book, be in regard to his early life, other parts of his life. And I get that. You know, I would send small sections. We don't send large sections, but small sections to various top mathematicians, and they would get angry, Greg, this is all wrong. How can you write this? It's overstayed as wrong. You got you gotta change everything, and you know you're taken aback. Early on, I was taken aback. Eventually I

learned not to be. And then you drill into it and I don't know, they're five percent was wrong, but those that five percent really bothers them. So I got that. So I think, if you're Jim Simons, this guy's writing a three fifty page book about you and your life. Um, if they were glaring dumb errors, it would have bothered him, really would have would have said him, said him off. Let's talk a little bit about um, the book and what's revealed in it. I've kind of been Jim Simon's

groupie for a few decades. I think I know about everything that was public about him and Renaissance technologies and who worked there and there their approaches. But I found the book filled with so many surprises and so many unknown things in the past. Um, tell us what you thought was the most surprising thing you learned, and how much of this is fresh new information that was never publicly known before. Sure, So I've read everything that's been

written about Jim and his firm. I've watched every interview on YouTube. Are a few here and there. Uh, And I would say about nine of what's in my book is fresh and new. I think that's about right. I felt like almost everything, like every now and then I would recognize something. Oh, I kind of knew that, but every page it was a new revelation that was something

previously unknown to me. And as a writer, that's sort of why I did it, to learn I didn't know enough about this world and about Jim, and each of these characters is potentially a book on their own right. There were so many. I think that was one surprise. There's so many rich characters at their firm. It's not sort of Jim and Okay, you hear a Bob Mercer and and Peter Brown. Time after time. I ran into fascinating, accomplished, quirky,

colorful characters. And the other surprise is how hard it is to be a quant So you think of these guys are mathematicians, they're scientists. You would think that instinctively they would want to pursue a quantitative approach, the scientific method. That's where they come from. And yet from the beginning from Simons and his early colleagues, guys like Lennie Boum, Jim Max, Ellen, Burla Camp others, you see that there's

they're fighting their instinct there. Really their instinct is to kind of just trade like you and I do, just sort of look at the news and anticipate where the world is going and the markets are going. And they sometimes fall back into that pattern, even they that was shot can. Uh. The early parts of the book describe Jim Simons as the derogatory term I use. He's a macro tourist. He's like every day trader, watching TV, looking for news, trading in and out of stuff, doing good

some days, losing money the other days. But there's nothing special or unique about that. He was every newbie trader, wasn't he listen? He had unique approaches what he thought were unique approaches. I get into them. At one point he consulted with this early economist named Alan Greenspan, and Uh, they had different ways. They thought they had an edge, but no, they didn't have an edge. Not only that, but it tore him up inside and made it literally

physically made him ill. That he'd come into the office just unsure of himself. Um, some days up, some days down. They made a lot of money. At one point the name gave back a lot of money. They were fallings out with different types of people. But it's not just early days. Even last year. End of last year. The market is loading, as we recall and Q four exactly. And Jim Simons and I write the story. I tell

this anecdote in the book. He's on vacation on his huge ship somewhere and he starts panicking about the market and he calls his wealth manager. The guy's managing his money. I mean, Jim Simmons were twenty three billion dollars, so he's quite the portfolio. And he's like, maybe we should be buying some insurance here. That's like me panicking in the markets down? Hey, should I be selling? Like like, that's a big deal. I guess when it's twenty three

billion dollars, it is a big deal. It is. But he's a guy who made his twenty three billion dollars on the scientific approach on, not on testing ideas and having systematic approach to investing, not on these narratives and nervousness and reacting all these behavioral mistakes that we all make. He was about to make too. So even an eight year old, the genius, the guy who solved the market, as I call it, he is apt to um to

trade like everybody else. And the point being, it's not easy being a quant You have to fight your instincts to some extent, even when you're a scientist and a mathematician. So let's talk about that a sec. In the early days when renaissance was starting to become who Who, they eventually become their big secret. They were really big data. Before big data was a thing, before crisp Ereuters or Dow Jones or Bloomberg made commercial database of market prices available,

they were effectively assembling their own. That was fairly unique, wasn't it. That's exactly right, and that was one of the early edges. And frankly, they were collecting data when no one cared about it, no one saw a need for it. This is pre Bloomberg, pre everything else. They were going down to the Fed collecting obscure pieces of data,

economic and other. They were going back in history, so um, it was a several years later, but they were collecting stuff from like the late eighteen hundreds and they didn't really have a purpose for a lot of that data at the time. They had this instinct instinct that maybe it's because they were scientists, that the more data the better, and any kind of data could be helpful and maybe not right now, but at some point down the road.

And yet that gave them a complete advantage because then they could test, they could create models, they could do scenarios that others couldn't. And the way I like in it is too a little bit like if you wanted to create a library, Um, how long would it take you? Okay, like your public library or local library probably take you, I don't know, a few months to collect all the books. But what if you wanted to create the Library of Congress. It would be pretty impossible. Some of that stuff you

just can't get your hands. And that's what Renaissance still has today and and it does help them. So the cost of building that database, and they were fastidious about making sure the data was clean and up to date and accurate. How to be substantial. The typical hedge fund charges too, and twenty two percent management feed of the profits. But Simon thought the cost of the database needs to

be passed along. Two investors. So instead of charging two and twenty, he charged brace yourself five and forty four. Who the hell would pay that sort of fee when you're making a lot of money and LP how will have pay that kind of fee? And they their their returns, which for the first time ever have been released, because it's only always been a rumor. You're appendix one or

Appendix B, I don't remember which. The end of the book, you note since the medallion has averaged annual returns of sixty but that's before those five and thirty six or five and forty four fees. Afterwards, it's only thirty nine point one percent a year for thirty years. Those are just eye popping astonishing returns, right uh, and right as you suggest, you will pay for those kind of returns.

You pay almost any feed. They kept raising the fees partly to discourage investors from sticking in the funds, and eventually they kicked out all the investors. And that's part

of their secret to that they kept it. They kept medallion as they realized it couldn't return these sort of numbers beyond what is it, seven billion or eight billion dollars seven eight billion a year, So you know, you got to give Jim Simons all kinds of credit and his colleagues, and they are the greatest modern day investors

in history. But you also want to um note that they didn't they weren't able to grow it, and they knew they couldn't grow it beyond what it is right now, we're talking about the Medallion Fund ten billion dollars, So it's not like they kept growing its fifty billion dollars. They knew they could not get those kinds of returns and and they currently keep the Medallion funds or actually

it's been that way for fifteen twenty years. Is that about right for just Simon's and the employees of Renaissance, right, Which is a wonderful way of keeping talent, recruiting in retention. Yeah, you don't even have to pay people there. I mean, they do pay nicely, but just the ability to invest

in Medallion retains top talent. It also makes them so wealthy quite frankly, that a lot of these guys when they leave, and the few women they're working there, when they leave, they're not going to another Wall Street firm. They've made so much money, they're doing philanthropy, They're going back to academia other interesting things. So it's a it's a great way to retain talent, and it's also a great way to make sure people aren't gonna quit and

start rivals. So let's talk a little bit about one of the most significant people in the book other than Jim Simons, and that would be Bob Mercer. He uh. By the time he joins Renaissance, Simmons has figured out how to trade bonds, how to trade currencies, how to trade commodities, but he hasn't cracked equities. So Renaissance is a small, unimportant firm generating some nice returns, helping to

make Simon's conventionally rich, not a billionaire, but rich. But Mercer comes along, how important to see to the Renaissance story. That's exactly right. So around nine Renaissance was okay, middling kind of firm, respected by those who knew it. Most people had no clue who they were. They were doing nicely as you suggest, in commodities and currencies, uh futures, but couldn't make it happen in equities. And for some of the people internally that was fine. They were getting

wealthy who cares, but no scale, no influence. No, they don't leave a mark on Wall Street. And that's what Simon's wanted. You want to leave a mark on the world broadly and make a lot of money use that money. And you couldn't do that unless they could crack equities because, as we know, um equities, you can manage much more money um in the in the equity world and relative to the other types of world's fixed income in commodities, etcetera. So they were frustrating, and there were a bunch of

turning points within the Renaissance story. They almost fell apart a number of times, more than I would have expected. That's another kind of surprise from my research. There were several times where they really it was it was touch and go whether they would keep going or not. So there were people within the firm and said give it up, Jim, stop trying to figure out equities. And they almost gave

it up. And then this guy's you suggest. Bob Mercer came along and Peter Brown to speech recognition experts from IBM, and they built an improved equities trading system, much improved. The engineering that technologies was much better. They combined all kinds of different signals and factors into one system, which is one of their great advantages too, as opposed to different models. A lot of different quant firms have multiple different models. They have one system and it's hard to

pull that off. And that's what it took somebody like Bomb Mercer to figure that out. So so one of the things we haven't talked about, it would be important to bring this up. Simmons isn't recruiting people from Wall Street. He's not rating Morgan Stanley or Goldman Sachs. He's rating the IBM Watson team. He's rating academic math and computer science and physics department. He's taking former ns A codebreakers and hiring them. This is not the usual team of

wool Street whiz kids. These are really brilliant scientists, academicians and others, but no one is coming out of of Lower Manhattan. They're They're really a different cud, aren't they, Barry. That speaks to the paradox of the whole Jim Simons and Renaissance story. The very people who figured out the market, who conquered the market are pretty much the last people you would have expected, because they were people that didn't

know anything about the market. It's about you didn't know the white investing, not only that some of them were aren't even capitalists internally when you talk to them. So let's let's let's stick with that issue. We'll come back to the academic nature. I'm kind of fascinated by Bob Mercer. The uxtaposition with him is, here's a guy who by all measures, brilliant, rational, completely mellow and even tempered, just a data driven mathematician professionally. But then I guess that's

his uh Dr Jekyl. But the Mr Hyde is his personality when it comes to his personal politics is the polar opposite. He's a wild eyed conspiracy theorist. He trolls the other Renaissance Technology employees. Simons is a big democrat. A lot of the other academics at Renaissance are certainly left of center, if not Democrats, or or even further left.

How does Bob Mercer play in that environment? Yeah, so, Bob Mercer as a scientist who demanded internally that everyone stick to the scientific method, and it's a data driven firm. Everything has to be approved ever, no intuition exactly. And yet, as you suggest, when it comes to his personal beliefs, he believes every insane conspiracy theory out there. It's so shocking compared to who he is professionally. What I'm really

trying to emphasize is how different personally his beliefs are. Yeah, I mean, everything he argues against doing professionally he does personally. It seems just so odd. He demands proof when it comes to work and not so much outside of work. I mean, for a long time he was treated as

a curiosity within Renaissance. He again to go into the lunch room get under people's skin by talking, by sharing some of these conspiracy theories about Hillary or somebody else, and people weren't sure internally whether he really believed in it or not. He was the boss, they didn't want to challenge him too much, so for a while they didn't take him seriously. They didn't think they needed to.

And then lo and behold as he as the firm grew and he became a multi billionaire, they realized that he was funding all kinds of causes that many people, if not most people at Renaissance are really uncomfortable with, unhappy about, and they were they were stuck. They don't know what to do. We're talking about everything from Brexit. He was helpful in terms of Brexit. Bright bart he was funding bright bart Um and then he got behind the Trump campaign. He's the one who put Kelly Anne

Conway and Steve Bannon in the Trump campaign. And one can argue, and people have said that there may not have been a Trump presidency were it not for this guy, Bob Mercer, which made everyone internally uncomfortable. And and let's set the stage for that. It's August of two thousand and sixteen. The Trump campaign is in the midst of imploding. There have been a series of scandals. Back when scandals

actually resonated, the whole Access Hollywood tape comes out. I mean, the Trump campaign was circling the drain before Robert Mercer stepped in with a few handpicked people and a little bit of cash. Right. So what happened was Bob Mur's daughter, Rebecca Mercer, who kind of runs the political side of things in the family, she ran up to to Trump at an event campaign event and say you better turn things around or else we're done. And they've been funding

him financially. First they were Cruise, they were backing Take Cruise, and they after a lunch between Avanca and Rebecca Mercer. The Mercers switched gears and also CRUs lost. He got out of the race. Then they switched gears. They became one of the top funders. I think that they eventually hime the top funder for for Trump. Sobca Rebecca Mercer runs up to Donald Trump at an event says you're gonna lose unless you drastically change things, and Trump kind

of acknowledge. He's like, yeah, what do I do? And Rebecca said, You've got to work with this guy, Steve Bannon. So Steve in Trump's like, all right, I'll meet with him. So Steve Bennon goes out to the the country club in New Jersey to talk to Trump, has to wait through Trump goes through a couple of hot dogs, Um ice cream Sunday, Um, plays golf and and you know, Bannon's waiting and waiting, and finally he gets an audience with Trump and he lays out strategically what he should

be doing, and Trump listens to him. To his credit and the rest of this history. So if we're not for Rebecca Mercer and Bob Mercer, it's not clear Trump would have won. I can't get a good read on Rebecca Mercer in the book. She's really very minor character relative to all these other scientists. Who is she and and and what was she doing before the election. So

Rebecca Mercer, like her father, is very conservative. Rebecca homeschools her children and believes in small government, low taxation, hates the Clintons like Bob Mercer um and but they also believe in data. And they also believe in the fact that they got really frustrated with mainstream Republicans and they didn't think anybody was going to shake things up like

they thought it should be shaking up. And frankly, as an outsider, as a writer, I look at these two bowl and I see too that people that never really contributed to broader society. It's not like I volunteered their time to do something to run to support to fund um broader society. By Mercer spent his whole life trying to make money, or was first first trying to do

science and then trying to do to make money. Is nothing wrong with that, But then all of a sudden he becomes he and his daughter become the ones who really have such a remarkable shift on society, on you and I I I find that a little distasteful. Frankly, Now, weren't they though, on a bunch of philanthropic boards in the Museum and Natural History in New York and elsewhere? But they had to be throwing some money around. Yes, that that was That was pre election though, wasn't it. Uh,

that's a good question, Wenkley, go on the board. I mean, come back to that, because it was only after the election that the pressure started coming up to put Wait, he's a climate denialist and he's on the board of the Natural Museum of Is is she on? Am my? Confusing? Who's on which board? Rebecca was on the board of Natural um boar of of Museum and National History in New York, But she's also a climate denial Yes, Mercer

is a climate denialist. Um. They he believes that nuclear war may not be as harmful as we all believe. Less should get past the radioactive cloud. It's really not that bad. That's the argument. There you go. Um again, not based on science. There's like some stray he picked up on some stray he sees on a stray scientific

paper that was since discredited. Um, which is again goes back to the irony that a guy who demands science when it comes to his day to day work, when it comes to his personal outside interests, he's less demanding. And and then the other question that's so interesting is how is Robert Mercer forced to step down as CEO at Renaissance Technologies and and what is his role currently.

So Bob Mercer was at Renaissance throughout the campaign through the election, and many internally were unhappy about that, but not everyone. Others thought he was a good leader. He formed a really impressive partnership with a guy named Peter Brown. Peter Brown is tempestuous, He's always got great, crazy, interesting ideas. Some work, some don't, and Bob Mercer was the calm one that was being in the yang and they worked really well together. So internally some people were like, what

do we do here? Our CEO is still doing a great job, We're still making six a year in the market. But for the destroying democracy thing, he's fantastic and society potentially um and even Jim Simons was was torn. So Jim Simons was the largest, one of the largest funders of Hillary Clinton and his top employee, he Bob Mercer, was the top funder for for Donald Trump, so he was in a bind. Jim Simons, he couldn't fire his employee for his political beliefs, and he also liked him.

He likes some one individual basis. And to Simon's credit, he says in the book, who am I to tell him how to spend his own money? It's not my decision exactly. And many were torn internally, but it got to the point where morale was being affected and they were worried about their ability to recruit. And that's the lifeblood for that of that place. What what about outside investors? A lot of big institutions are not especially happy with Trump.

How were they dealing with Bob Mercer as CEO of Renaissance. So by then, um they had started a few outside hedge funds for institutions and others. They still had them dwing, which is only for internal employees. But right by the time the election, they had outside investors and many were unhappy. But that said, the returns were still really good. So it wasn't clear to me that how many we're really

gonna pull out over Bob Mercer's politics. The bigger issue is that they were worried about their ability to keep attracting talent, and that's what they worry about. That is their biggest concern because they're not competing necessarily with PDT and two Sigma only, they're also competing with Google and Facebook. These are scientists who could go work somewhere else, and they were concerned about their ability to keep recruiting them. And at some point Jim Simons said, Bob, we've got

to talk. And I talked about that scene. I described that scene in the book, and it was difficult for both of them. Bomb Mercer was effectively told to step down, and Jim Simons was telling his old friends who who helped make him a multibillionaire, that he could no longer help run the firm. The secret source of anything is that ability to attract incredible talent from all manner of of academia and technology and science, isn't it. They have a lot of sauces that are secret and impressive. Um

the collaborative. They're much more collaborative than most firms. They don't try to predict where the market is going. It's all relationships. It's groups of stocks versus groups of stocks. Four thousand or so long, four thousands or so short UM. They have many but among the most impressive. Most impressive things about that firm is they still can recruit almost any one for any area, and they get superstars from

academia and other places. Quite fascinating. One of the things I found so fascinating from the book that I did not previously put together in my head but should have, but the book made it clear. Jim Simons is really an outstanding builder of teams. He was deputy director at the subdivision of the UM National Security Agency Code Group. I'm I'm during a blank on their name c RD,

it was called at the time CRD. Then at sunny Stony Brook, he takes what was essentially a modest state school in New York, builds it into a powerhouse mathematics department, like a world class math department, filled with Nobel laureates and others. And then at Renaissance he builds another spectacular team. Is it fair describe to describe him as an architect more than anything? I think that's fair, So listen. Jim

Simons has his faults. UM, He's not a perfect individual, but he's quite impressive in his ability to both do the math and the science, and when he wants through a needs two. He can do the algorithms, but more importantly his ability to manage talents. And someone internally said to me, Greg, it's not his genius, but his ability to manage genius, which is not easy to do. It's really not easy. And you think about these really quirky personalities,

which really jumps out of you. I think when you read the book, how many unusual, odd headstrong, um stubborn um top top scientists they've hired, and you know they're pretty wealthy. They could leave and go somewhere else, and he was able to create this incentive for them to stay and work together. Not just stay there, but they work together. And like you suggest, you can see that pattern early on in his career. He was great as a department chair at keeping people happy, all the different

personalities and kind of thing. Or you can't really force someone who's a professor to do what what you'd like them to do. You've got to create incentives. And that's exactly what he's done at Renaissance. And I think in some ways you can learn management skills from him as much as you can learn how to create algorithms. So one of the interesting parts of the development of Renaissance was um what took place in the mid nineties. So he's uh, Mercer and Brown, Peter Brown are working on

the equities portion. Uh, and they're not making a whole lot of progress. It's expensive, it's time consuming, and it's simply not delivering the sort of returns that everybody has hoped for. And so in Simon says to Brown and Mercer, quote, get your system to work in the next six months, or I'm pulling the plug unquote. How close was the entire equities portion of Renaissance to um never becoming what it became. Oh, it was very close. And one has to also call or remember or note that Jim Simons

had remarkable patience. So he has this optimism that most most people don't share. He encourages his people. People were giving up internally about trying to figure out equities. People were saying, it's a waste of our resources. Stopped distracting us,

and Simmons kept encouraging his team. And yet, as you know, even he was at his wits end and ready to move on and gave his employees, his staff, Bomb Mercer and Peter Brown a matter of months to figure it out because they had tried and failed over and over again, and there was a quirk, there was um, there was an error in the code. There was an error in the code that a guy named David Magerman, who's colorful, and you have to tell so, so let's I was

fascinated by that part of the book. So everything seems to make sense substractly, but it's losing money. It's not making money. And one day one of the more junior guys decides to literally go through the algorithm, him through the actual lines of code, line by line by line by line, and ultimately finds an error where one of the SMP prices is fixed, meaning it's supposed to update automatically and it doesn't. It's a it's an entry number

instead of a variable that pulls the data inaccurately. That's exactly right. So this guy, David Maggerman, was had just been hired a few years earlier from IBM. Early on he got some had some accomplishments, and got some respect internally, but then he blew it. He made a series of dumb error's mistakes. Basically, he was doing things he should have been doing. At one point he almost pulled the plug on the whole system. It was embarrassing. He was embarrassed.

He was close to getting h really getting pushed out of there. And he's the one who said, you know what, maybe I can look at this system and find what the bug is. And as you suggest, there was it was static. They were there, it wasn't updating, and the system wasn't updating incorporating the new way SMP five hundred prices, which sort of you know, it's a surprise in itself. You think of these top giants in science, they should have made this kind of dumb mistake and thousands of

lines of code. Those mistakes happen, right, Yeah, but you think a Renaissance and Medallion and Jim Simmons, and who are they? They're like you and I, or at least not like this was before they became Renaissance. This was really when they were also rents. Yes, but you know it also is a reminder that even the giants make dumb right. And yes, so magerman Um picked up on the mistake. Internally, he finally got some respect because he brought her over to bomb Mercer and it was Mercer's math.

He kind of got it wrong, and he kind of to to his credit by Mercer, there's some appealing aspects to his personality as well. He said he owned up to it and said, yeah, I screwed this up. Let's fix it, and they're off to the races. It Literally, as soon as that's fixed, the things becomes a money

printing machine. It's remarkable. And they went from managing Medallion was about eight hundred million dollars or so at the time, and Equities was like thirty four million dollars to ten billion dollars of the greatest hedge fund in man's mankind modern financial history. So there was a small, tiny error that he picked up on and the rest is history. So other firms that are in the quant space, like d E. Shaw, they had a big head start over Renaissance.

What was it about Jim Simons that allowed him to catch up to people like David Shaw? There are a lot of things they do better. Renaissance does a lot of things better than everybody else. There's a certain urgency within the firm that you feel when you're there and you talk to people that you don't really necessarily get elsewhere. There's a collaboration that you see internally. One model that other firms don't share. There's a sense of humility. They

don't um They don't take too much risk. They pull back risk during crisis, when things are are even internally when people are saying heads put on more risk, they generally speaking pull back. They use leverage. They use heavy leverage. People don't really focus on how much leverage. But they are a ten billion fund that can get over a hundred billion dollars when they see the opportunities. Um, I

could go on and on. They really have the best trading ability to see what their impact on the overall market is, meaning they have the ability to execute trades without moving prices. That and they know when they'll move the prices and when they won't, so they can play with their signals and try to make them uh and try to make sure their activity isn't picked up on by rivals. They have some signals that they are internally are proud of and think people aren't aware of. And

and there's sophisticate stuff where these are mathematical relationships. And it's one thing that one thing I think everyone should realize that it's not like they've got some secret sauce about you know, when IBM goes up every day. These are mathematical relationships between groups of stocks and and their relationship to indexes, relationships to each other, relationships to factors. It's complex, complicated stuff, um, but they have certain unique

insights that others don't. Just like seeing the world just a little bit with a better um with glasses when everybody else isn't isn't wearing them. They can see things that others can quite interesting. There's a quote from one of the researchers. Am I pronouncing this right? Panific? I love this quote. Quote. Our entire premise was that human actors will react the way humans did in the past, and we have learned to take advantage of that. How

much of that is reflected in their algorithms? Yes, so almost all of what they do is based on predictive models that incorporate historic returns, historic moves in the market, and they could be recent returns, they could be from the late eight They don't usually use those, but they're there if they want them to. So they've gotten the better data, and it's cleaner than other people, and they were cleaning it way before anybody else, and they cared

about this stuff more. But right, the genius of renaissance is that we as investors, our behavior is somewhat repetitive, and it maybe and it rhymes. Now, it's not clear going forward whether that will continue. So things have changed. We've got as we all know, um, passive investing is changing, is dominating the market. Active investors don't play the same role factor investing, etcetera. So will Medallion's models. Will renaissances

models continue to trounce the market even internally. They're not sure and most of what they they're doing, they're not high frequency traders. They're not long term investors. But they'll buy and sell almost a pair, trade in groups of stocks and hold it for days or weeks. That's pretty that's a good way to look at it. Generally speak on average is about a two day holding period, but they'll get two weeks too. They'll do fast trading. They'll

do what looks like high frequency but really isn't. In that they're doing that usually to break up their trade, so the rapid fire within seconds. But they're not in and out necessarily. No, they're not flashboys. Their medium frequency is what people call it in the industry. They frankly,

their technology is good, but it's not great. You would think they would have the best of everything, and they sort of poke fon it at each other internally that they've got good technology, but it's not cutting edge necessary. They're not co locating and all that kind of stuff. Well they don't have to though. They're not sniffing out other trades and front running them. They're executing their own strategies. That's exactly right. So people do get them confused with

kind of the flashboys. But yeah, generally speaking about two days or so as a holding period, And and we talked about in the early days, Jim Simons was sort of a macro tourist. He still occasionally overrides the system. Tell us about when that happens and and why does he think his flawed human instinctual judgment is better than the system. It is unusually a little bit surprising. They generally speaking never override their models, and they take they

never can. We generally speak exactly in times of crisis. The firm will pull back when they're not sure, when they're worried, and that's part of that humility. So they don't have this arrogance that our models will survive. The ltc M kind of things. They're not. They're not you know John mary um Weather and that team at all. Right, they get scared like you and I. And even though internally there are people that say, don't ever mess at the models. People like Simons. He doesn't run things day

to day. But in terms of crisis I describe in the book there were there's panic. There was panic. They're like any other kind of trading firm. And in those kind of times he overruled his colleagues and he said, yes, we'll probably make money here if we stick with our models, but I'm worried about surviving. And if you think about it, they also borrow a lot of money, so they've got lenders, banks and others, and those banks get nervous if they

pull back on them. That will affect things. So Simon's that's part of Simon's his genius that again he can manage really well too, and and and deal with investors and borrowers as well. How much leverage do they use, It depends. It ranges if they're excited about the market and opportunities if they're not. But they can do ten times or even more. It depends what opportunities and times

sounds like a lot. Long term capital management was a hundred x. The big Wall Street banks in in the sub prime era were fort x, so ten x almost sounds modest. Also, you gotta remember they're long and short all the time. Everything is hedged, and they're long again about four thousand and short about four thousand on average equities. So them leveraging up is not like you and I

going along Microsoft and leveraging up. It's it's different. It's pretty balanced than the odds are against anything untoward happening. And the thing to remember about renaissance is they only get right barely more than fifty of the time, and

they're aware of that. So on the one hand, their sharp ratio is crazy great, which allows them to leverage up and borrow this money, and it's pretty impressive in its own right, but also as a reminder, they realize they're they're not they're not hitting home runs every single day. It's like a casino. They're making small amounts all the time, quite quite interest in and it's sort of laughable today.

But you listed in the book a number of fairly famous UH investors and hedge fund managers today who in the early days of renaissance. Jim Simons went saying, Hey, I'm raising this fund and I'd like to have you being an investor, and they pretty much across the board said no, left him out of the office. Bruce Covernor pulled Tutor Jones, who else famously said not to Simon's Donald Sussman is the key one. Donald Sussman is one

of the most respected investors on Wall Straight. He backed the Shaw, He's backed a lot of um famous investors over the years, and he's a really well impressive guy in his own right, got a great track record. And Simmons came to him, hat in hand saying I think I've got it, I think I've figured it out. I'd like some backing from you. And it wasn't that Sussman disagreed. It wasn't that he was necessary really skeptical of Jim Simons,

but he had already invested in d SHAW. I didn't want to invest in a competitor, and there wasn't much of a track record at that point. Is really when they decided to go all in on quantitative investing UM, using big data, using algorithms as opposed to using some of the instinctive intuition type trading, and so there wasn't much of a track record in when Jim Simons went to speak to Donald sssman, So you can't blame him

too much. But yeah, there were a number of pretty well respected investors I talked about in the book who had an opportunity to invest in Medallion and passed on it. And then a few years later, or maybe it's fifteen years later, Simmons goes to the outside Medallion investors and says, hey, thanks for the capital, but here, we're gonna give this back to you. We we can't use it anymore. What a What was the thinking there? And be what was the reaction of the investors. They must have been pretty

you know, stunt. So they again have these remarkable models that allow them to know how much they can make in certain size, how much they impact the market, pretty sophisticated, and they realized that a ten billion or more they're going to really not be able to have those kind of returns. Now, you and I would probably say fine, instead of being up sixty six percent a year, will be up thirty five percent a year, and we'll grow this,

say U m here and make the money. But no, they wanted this hedge funds to be just for them and to have these outstanding, remarkable returns. So they proceeded to kick, as you suggest, kick their LPs out, kick their investors out. And they were not happy. They weren't they weren't thrilled. Some of them said, you know, I stuck with you, Jim, through the difficult times, and here you are kicking me out. And he kicked out his friends too. He kicked everybody out, really, and he basically

was just a little cold. You know, Jim Simmons is uh an fascinating guy. He's a scientist, he cares about society, he's a huge philanthropist, um does all kinds of really interesting things in education and science. He also really really loves money and he as a tool for what it can do, or just loves it. Let's not go overboard here. Look for an academic that it comes across that he is much more motivated by accumulating cash than the typical academy.

Oh my god, it's no comparison. Quite honestly. He always had one foot in the world of academia and one foot out. He was always doing businesses and they're quite interesting. I read about him in the book. He pursued trading and business, not full time, and it never really worked out completely, but he always had his outside interest. So yeah, he always really was focused on getting rich and he wanted to change the world with that money. But he

also just playing like getting wealthy. So here they were with staring at the possibility of seeing the return slow down, and he said, I'd rather kick out my investors than risk the possibility of our returns. Uh dropping. And you described earlier lots of colorful characters in the book, Simmons is really one of the most colorful characters of everybody. He's a chain smoking two packs of Merits a day.

There's a hilarious story about a group of institutional investors from a healthcare company that are there for some um, just kicking guitars to give Renaissance money. And there's also a birthday kick involved. Tell that story. Sure, that's the Robert Wood Johnson Foundation there, dedicated to public health, and they came by Renaissances Long Island Offices to talk about investing in Reef. That's one of their outside funds. This was early on when they were raising money for it.

They were impressed. They were having a nice launch. People around the table. Simon's comes in to finish off the sale. Everyone's all excited. The salesman at Renaissance can see their commissions. They can imagine how much they're gonna be making from this big investment. And Simmons, as you suggest, is change smoking. He doesn't care. He doesn't care. He's smoked, always a cigarette in his hand. And he's also, you know, almost

eighty two, so it hasn't really impacted his life. So he's in this meeting and Simons looks around the no ashtras. He's looking for an ash tray, but he needs to ash somewhere, and he sees this big fancy cake that have been wheeled in uh to to to end the dinner, to the lunch, and everyone's gonna have a piece of it. So he reaches over and he sticks his cigarette deep

into that cake and he's Jim time. He just gets up and raves goodbye, and that thing is sizzling as he exits the room, and everyone just looking at each other. And the Renaissance salesman are just um dumbfounded, apoplectic because they've lost their commission. They're sure these are this is the Robert Johnson Foundation dedicated to public health. So obviously this guy just ashed and a sizzling vanilla cake right in front of them. They're not gonna write a check.

But they did nonetheless speak for themselves, right. And in the book, I was shocked to read this. Someone says to Simon's your scientists, don't you know about the dangers of smoking? What was his response? He said to them, it's not clear. This his tongue in cheek. It probably wasn't. But he researched his genes and according to his his work, his research, he was is one of these unique people that can actually withstand um, all the chain smoking that

he does, he inflicts on his body. He claims his predisposition is to not get lung cancer. Genetically, he has the lucky whatever it is gene that that means you can smoke without ill effects. Yes, and he fooling himself a little bit like bom Mercer with his pseudo signs outside of the office. Um. And that's one thing that's kind of jumped out in the book, that these guys are like you and I in so many ways. They've

got their foibles and they get emotional Um. In their lives, and they get fights with their wives and scream matches with their colleagues. And Jim Simmons, yes, has convinced himself that he won't be impacted by smoking in it into his credit. It hasn't impacted him, so you know, once again he may be right. Uh, Greg, can you stick around a bit? I have a bunch more questions. Happy, We have been speaking with Greg Zuckerman, author of the Man Who Solved the Market? How Jim Simon's launched the

quant revolution. If you enjoy this conversation, be sure and come back for our podcast extras. Will we keep the tape rolling and continue discussing all things renaissance technologies related. You can find that at iTunes, Google podcast, Stitcher, Spotify, wherever your finer podcasts are sold. We love your comments, feedback and suggestions. You can write to us at m IB podcast at Bloomberg dot net or give us a review over at Apple iTunes. Check out my weekly column

on Bloomberg dot com. Sign up for my daily reads at Rid Halts dot com. Follow me on Twitter at Rid Halts. I'm Barry Retults. You're listening to Masters in Business Radio. Welcome to the podcast. Greg, thank you so much for doing this. I have to tell you I really really enjoyed the book, not just because I'm a you know, fascinated by Renaissance and I've had a handful

of dealings with Jim Simon's without his involvement. He he no, I have never met, but um, when I was a high school student trying to figure out where to go to school, like towards Stony Brook, and there goes the outgoing math uh department chairman. If you would have met him, you would never have given him a penny. The joke about all these people who passed on him. He had the scruffy beard and you know, yellow fingers from nobody. I could see how people wouldn't have taken him seriously.

But I have to tell you why I um. And there's a funny story that I can't verify about the alumni department. It's Stony Brook. Um. I can't even share publicly because I don't know if it's true, but if it is, it's pretty hilarious. I really enjoyed the book. I normally take a ton of notes, and the books are always marked up and underlined and with post its, and oh, here's the question, and here's the topic. There really is zero writing in the book because I read

it like a thriller. It's a fascinating tale about really an amazing story with really interesting people. You did really nice job on this, um, thank you. What What was the process like writing this? This gotta be quite quite a monstrousity to put together. It's hard, the hard thing

I ever did in my life. Really, I could. I could totally see that the challenges We're getting people to talk, and even when they started talking, understanding what they were telling me, and I'm not a math guy, I had to understand this is a different language quant to some extent, and even at that point, trying to make it into

a narrative, as you suggest, I tried to appeal. I want to try to appeal to everyone, um, the quantity type people, mathematicians, scientists, but also just the average nonfiction readers. I did. There were there were a few times where I'm working all night in my basement and I hear some sound upstairs and I'm like, oh, my kids left the TV on again, And then I go up to turn it off and there's no TV on. Then I realized that sound, those sounds are the birds getting up

in the morning, went through the night. And part of it is because I was fascinated by the story myself, and these characters are interesting and intriguing and what they accomplished, and the challenges they overcame, and the drama behind the scenes that I wasn't aware of. So it was the hardest thing ever did, but also it was rewarding and fascinating to me in the In the early phases of this, did you ever reach a point where you said, uh, this is just going now, where I have to pull

the plug on this? Many times? I came close too many times? He really, Yeah. I mean I wasn't close to given up, but I couldn't figure out how I was going to make it happen. And then I would have a breakthrough. Someone would be kind enough to share

with me and and talk to me. Maybe would maybe be on the record, maybe it wouldn't, but that would keep me going now, would give me encouragement and deal with all the people slamming the door on my face subsequently, because then there'll be somebody kind enough to to share right after that. When you spoke to people off the record, how do you use that if you're telling somebody. I'm not gonna quote you. I'm not going to use this. How do you work that into the story. Does it

just give you enough background? Or what do you do with off the record um conversations and with Simon's on or off the record with you? Right? So I don't do off the record. Off the record the way we define at the Wall Street Journal means you can't use that information. But I was up front with with all these people and saying, I'd like to use your information on background, meaning use it, right, but I won't name you,

won't quote you, won't cite you. And I um, I said, you know, I've been around a little bit, so I have a certain reputation. And I said, I'm not gonna burn you. There's no incentive for me to burn you. I'm not gonna name you. I'm not gonna tell anybody Rento Science that we're talking. UM. So I got people sufficiently comfortable, and Jim Simons was pretty darn open and frank and transparent. I have to tell you about what

he wanted to speak about. Again, I want to make clear that he wasn't opening the kimono and telling me all his signals. I had to get that stuff on my own, uh and his and how he dealt with certain things, and the setbacks and the narrative and the drama behind the scenes. But he was quite cooperative about other things, and I have to thank them for that. So the early cancelations, the Cosa Nostra, Simon's don't say

anything after you speak with Simmons? Do you circle back with the early cancelors And were they a little more open at that point? No, they still wouldn't talk to me. So I had to keep even after Simon says, all right, I'll finally talk to you. You know why there because they were even concerned about the possibility that Jim might get angry with him. Oh yeah, well you say that Jim is talking to you about How do I know that's true? Jim? Yeah, But it just got too busy.

This guy's it's got a lot going on, and you're not gonna call him up and say, can I talk to Greg? Already? Did you told me I can't talk to Greg? But now can I talk to Greg? It wasn't worth their while. So I had to keep finding other people and and quite honestly, a lot of the people early on at the firm and in his life were old and um, and you're eighty something, You're like, I'll say, who I what I want to who I want one. They've accomplished a lot in their own right.

I mean, these these are scientists that are big names, hollid names, and some of these fields. It's harder. You have to you have to focus on the fact that, even setting aside when it came to Wall Street and investing, these people are really accomplished in their own right. So they're proud of what they've done. And some of these people don't mind talking. Huh that that's really that's really quite fascinating. UM. I have a quibble with you. Is

Jim Simons really the man who solved the markets? Or is he the guy who just figured out, here's how to apply mathematics as a way to extract profits from the markets. I didn't get the sense that he figured out the markets. The markets are just an a means to an end for him. Yeah, to the extent that he's um recorded these remarkable to that extent he saw

the market. But right, there's no hidden understanding that jumps out of you that he knows that you and I don't know he's as flum mixed by the day to day moves as anyone else. What he does and his his colleagues really UM do understand is that what impacts prices is a lot more than you and I are aware of. Now They've got whole levels of factors that aren't included in the a q R s and the

stuff that you can buy off the shelf, etcetera. So they are they have a better understanding of the market, I would argue than anyone else, But maybe it's overstated

to say they completely solved it. So the other thing that I thought was really intriguing UM in the book is despite these guys making boat tons of money, just so much compared to what they would have made had they stayed either IBM or Academia, they're making four and five and ten x plus whatever the Medallion Fund is strowing off some of the um squabbles about money, especially in the later history of the firm. So I described

the firm as having four phases. The early macro tourism phase, then there's a later phase where they figure out um how to trade currencies, commodities and futures uh, and then when Mercer and Brown cracked the equity code is the third phase, and then the fourth phase they started bringing a lot of UM Russian computer scientists and other UM academicians.

This like fourth generation of of the company really degenerates into this petty, jealous, backbiting envy to the point where a bunch of them go to Simon's and say, you're making too much money. We demand some of it. How the hell did does anyone get away with that? Yeah, they were people telling Jim Simmons he made too much money. There were people saying he should step down. There were people it was something of a coup. They tried to how does he not just say you you and you

you're fired. Go back to making nine dollars as a teaching assistant. Because I keep coming back to the point that Jim Simmons loves money, and they were really valued employees, so they could have been jerks, but he gets past that, and he's a great manager. He wasn't insulted by that. Listen, if you're gonna hire some of the top scientists in the world, you're gonna get the personalities that come with that,

and he embraced that, so he wasn't insulted. He doesn't take himself so seriously, and he actually gave back some equity and he and he said, maybe you guys are right and I'm talking too much of a cut. And I give him credit for that. So it was amazing. In the book, I'm like, I just don't know, because normally employees like that are so cancerous they could destroy a company with the sort of petty, envious jealousies that that you described in the book. I found that to

be just completely shocking. Um and his I guess he resolved in a way that was pretty uh, pretty reasonable. Yeah. Um. He again has a great instinct when it comes to people. So it's not he's not just like this um quant uh focused on money and numbers and algorithms. He understands people and what what drives them. And he thought he could work with some of the people leading the coup. Yes, they were headstrong and tempestuous and difficult, but they had

potential as managers and he was right. He actually created he turned them into pretty good managers. So, for for whatever reason, he's got these talents on both sides the equation. So who's running Renaissance Technologies Now, it's not Jim Simon's the CEO, and it's not Robert Mercer who's running the day to day. It's Peter Brown, who's a former IBM scientists just to work closely with Mercer and was considered

the more wild of the two. Yes, and when he took over, when Bob Mercer stepped down, people internally were concerned because, as I said, Peter Brown is a little bit tempestuous and gets emotional sometimes. I describe a couple of scenes in my book where he panicked, he got nervous, and he got scared. This was years ago, and he learned from those lessons, and later on when main market difficulties, he didn't react that same way. But people worried about

Peter Brown taking over. And to his credit, he's aware of his flaws and his weaknesses, and he's been leaning and we're talking the last few years, last couple of years, he's been leaning on his colleagues, his senior colleagues, much more than anyone had expected, and it's worked out nicely. I imagine Brown is Mercer without the politics, um at least in actuality, because he's still working closely with Mercer. Yeah, but very different person now. Um, Bob Mercer is this

cool customer. You don't really can't read him. Even his colleagues don't really understand. He's so on emotional. They don't stand where he stands on certain issues. You do not wonder when it comes to Peter Brown. So in some ways they offset each other. They worked really melded, and they messed really well together. And what is Jim Simon's doing today day to day at Renaissance? So he barely goes in the office and yet he makes about a

billion and a half dollars a year gig. Yeah, but really he's But it's not to say he's not very hard at work. He runs a foundation and it's really active. One of the biggest supporters of science in the country. They're very active when it comes to things like autism research, and they're cutting edge the back all kinds of cutting

edge approaches. Um he supports, he funds. He he subsidizes the salaries of high school math and science teachers in New York City, ten thousand of them because he doesn't want so many leaving. What does that to subsidize, Well, it depends how many each year, but oh yeah, it's huge, like millions of dollars. I mean, he's worth twenty three billion dollars. But to his credit, he's on the cutting edge of all kinds of different approaches when it comes

to science education. UM. They published Planta, which is a basic fundamental science and mathematics magazine, which really who else covers that sort of stuff. And he's also trying to subsidize the work, and he isn't subsidizing the work of scientists trying to get at the beginning of life and how this world began, in the first moments of our existence,

of this universe existence. UM. They're trying to build out in Chile a UM all kind of massive array exactly of of ability to see, UM, go back in history and see through the massive telescopes to see what happened. So he's on the cutting edge of all kinds of different science, and he's just as focused on that as he was trying to crank out the sixty six percent

returns at at the Medallion Fund. The current theory of the Big Bang is under assault because some of it doesn't seem to work, and some of the work that Simon's is doing is to try and figure out if not the Big Bang, then then how did the universe come into existence? Simons himself isn't a believer in the Big Bang, and yet he's funding efforts to test if it actually there's some proof to it, because deep down

inside he's a scientist. And show me the day to show me the evidence, and if you can't disprove it, then that's the best we have to work with, right The Renaissance story, that Jim Simon story really is a story about the scientific method. If you think about society today and you think about the White House, it's all about narratives. And if you think about Wall Street to Pharaos and we work and people get carried away with the narrative and it leads to problems. It leads to

real issues. Whereas there's something that he said, I I've become a believer in the scientific method, where it's about data, it's about proof, and this that is to me one of the lessons of the Renaissance. Jim Simon's story quite quite fascinating. So we only have you for a finite amount of time. Let's jump to our favorite questions. We ask this of all of our guests, sort of our speed rounds. Tell us the first car you ever owned

you're making model. Never owned a car at least, grew up in Providence, Rhode Allen outside of my dad, taught at Brown University. Nothing really going on. The most exciting thing was we walked to campus, my high school friends and I and try to hit on girls and usually unsuccessfully. So that required legs and not automobiles. So yeah, I didn't really have a car. What's the most important thing

people don't know about, Greg Dockerman. I've got this separate life where I write books for young people with my two sons. So we wrote two books called Rising Above, where we've interviewed sports stars who overcame challenges in their youth racism, sexual abuse, um, physical abuse, all kinds of different emotional and other types of challenges, and we asked them how they did it, and to us it was really inspirational and we share those stories in our books.

Tell us who your early mentors were in the field of journalism. Uh? Yeah, so I never really had great mentors, quite frank, have had a series of bad bosses early in my life before gaming. No, now, my my must a great early on. I'm talking so early on, I wasn't. I stumbled into this profession. Oh really, what were the original plans? I was gonna go work on Wall Street. I was reading books like Adam Smith and Ray Dirk's You just got Ray Dirk's vaguely familiar. He had this

famous case. It went to Supreme court. He was an insurance analyst who UM were shorting and and it was a famous case, went Supreme court and he won, and he left an impression on me with a book. I was buying barrens as. At a young age in camp, I was trading stocks. Um, I was a guy was gonna go work on Wall Street. And I didn't really do any summer kind of job. I was working in camps and I didn't have an experience, didn't know any mine.

My dad was an academic, and I graduated and it did well, went to Brandon's University, did well, and I couldn't even get an interview on Wall Street. Was nine. It was after the market had crashed a couple years earlier, and um, I stumbled around. I start some some businesses and some work, some didn't. And then I went in one day and interviewed to be a financial journalist. I'm like, wait, I love writing and I love Wall Street They're gonna

pay me to write about Wall Street? How great is that? So? What writers influenced the way you think about writing, either articles or books? So James Stewart first and foremost, Um, everything, he's long standing Wall Street Journal reporter, right, and then then he went he's at the New York Times. Now book author Um Danna Thieves. He wrote a book called Follow the Story, which is about writing. And I've read

and reread that book numerous times, so that guides me. Um. There's a editor at the Journal named Mike sikon Alfie who I've learned a lot from. He's an investigative editor. He had we had a Poulterer a package that we won this past year, and he was the editor of that group and he has left a big influence on me. Since you mentioned a couple of books, tell us about your favorite books. What do you enjoy to read Wolf Street related or not when you're not researching your own books? Oh? So,

Paul Auster, Philip Roth, you know the fiction there? Give us some titles. When you say Philip Roth, I immediately think of Portnoy's Complaint. But what else do you read? You know? American pastoral is great? Um, there's really nothing much that from him that I don't love and and won't read. Um. I'm reading Patti Smith right now, her autobiography Kids. Yeah, all right, that's them reading the earlier one.

But she's brilliant in her own right, Um. Catch her in the Ride at a young age left a huge influence in me in terms of being an outsider. And that's what as a journalist I see myself. My job is to kind of polke halls and look at the foibles and mistakes and and and accomplishments of others people in the world of finance. That's sort of my position in some ways. I saw myself in that character, the holding coffeil character to some extent. What was the first

author you mentioned before, Philip Paul Auster. Paul Auster's fiction writer who's brilliant in his own way. He's got gets into some give us a book to Uh. Brooklyn Diary is a good one. He's so many Brooklyn, All right, well we'll go with that. Tell us about a time you failed and what you learned from the experience. So many. So. I got a tip that there was a guy who was running a fraud named Bernie Madoff, and that was

probably two thousand and three. Al right, so there was already the Baron story, but nobody really picked up on it in a big way. Exactly right when did that? Maybe two one? And good source for the tip. It was a good source in the industry, but didn't have firsthand knowledge. So I started making some calls and it was early in the process. I got a call from Bernie madoffs right hand person, and they said, he here, are you making calls on Bernie? Why don't you come

in and meet with him? And I was torn. At that point. I hadn't done enough research, so I said, I want to meet Bernie, but let's do it in a week or two. Well, Greg, he travels a there aren't gonna be many opportunities. If our you, I'd really take advantage. So I went in met with Bernie. Was he charming? He was charming, but not convincing. I asked him a series of tough questions. I came out of it unconvinced that it was legit, but I thought he

was front running. I didn't think it was a complete fraud, not a ponzi, but he was. Because they were a legitimate trading operation, weren't they right, and I thought they were front running that legitimate trading and that's how you get the smooth returns. And I wasn't the only one on Wall Street who had that thought. And that's no excuse. I should have pursued that story and I blew it. I should have kept working on it. So what was

the lesson? The lesson is to keep pushing and and if you've got an instinct, and to keep pursue it. And you listen, some of my best stories, quite frankly, are those that editors were luke warm on and I kind of kept going at it. You know. UM, give us an example. I wrote. I wrote a front page story. It became a front page story about John Paulson and his tremendous trade, uh the sun probably trade. And people internally were kind of like, well, um, he must have cheated.

There's no ray he could have done it in a legitimate way. Um. I I wrote it. I broke the story on the London Whale. And even internally they're like Jamie Diamond, JP Morrigan, there's no way they could have that kind of embrace that kind of risk. Um. I did a story about a family, about a brother of a of a woman in cancer FitzGeralds who died on nine eleven, and I wanted to tell the story of how he wanted to tell the story how his his

sister died on nine eleven. And I started researching, and people like you're never gonna find out exactly how she died. And you know what, you work hard enough, and that's the lesson. Sometimes you can actually piece things together. All right. So let's go back to our our speed round. Um, what do you do for fun when you're not researching and writing books? What what do you do to kick back and relax? I obsess over the New York Yankees with my son Eli, and play a lot of sports.

So I'm on a softball team, I'm on a basketball team. Um, still playing basketball? Yeah, not as well as I used to. I've learned to come off the bench. It's been humbling. Yeah, I'm a short, Like forty is where that all goes to hell, right at the point where you have a good run, workout and you're kind of happy about that. But I'm pretty competitive, so you listen. If I can contribute, then I'm proud. At this point, I don't need to start and dominate like I was a quick, good past,

first point guard back in the day. And if I can come off the bench and help, that's fine. Today that that's kind of kind of fun. Let's talk about journalism a little bit. What are you most optimistic about today? And what are you most pessimistic about? I'll start with the most pessimistic. It's an easy question, right, I guess it's a difficult time in some ways for journalists. We're in a time where it's more, um, it's open season some extent. You can criticize, you can be opening your

your criticism. So I wrote a story about Jeff Gunlack a couple of years ago, Double Line fastest growing mutual funds UM ever, two hundred billion dollars um, the new bond Kings. People don't know who he is. And my story was sort of obvious. It was they had piqued in a m they lost some money. People were coming out. It wasn't like a flood of money, and the returns were good, but they're no longer great. And I wrote the story and they were. They came back hard at me,

both privately and publicly. So he gets on this conference call and he starts insulting me, he calls. He says, um, um mother zucker. He calls me publicly mother mother Zucker. It was kind of amusing. Yeah, I kinda like, yeah, I gotta like that. Um So, so there won't be the greatest bond trader ever. The man who solved the bond markets not coming anytime. So through that book, sure, if he does something special, I have a new challenge.

I like the challenge. Um but I do think there's a new freedom that people have again not just on Wall Street but in society, to be critical of the media and and and me included. The flip side is there's a new appreciation to there's a new appreciation of

what we do. And I sense that as well. Readership is up both at the Wall Street Journal where I am, and elsewhere Washington Post, New York Times, all the Atlantic, New York or all their subscriptions are through the roof because they've been covering the new new thing, which is the Trump administration calling journalists the enemy of the people. And and to some extent, he's right. We are going to miss him. He brings news, He creates news every

single day. It's exhausting, it's emotionally draining for us but it does sell papers and we are going to miss that. So we had an interesting conversation about politics and the election, and a bunch of people were talking about what could lead to Trump losing his reelection campaign, and my position was Trump fatigue. You know, I was praying after the election, all right, now that's over, we can get back to normal. I think it's used exhausting. People just want to get

back to normal. It's it's never ending, and it's too much. Yes, whether you agree with it or disagree with it, it's like, you know what I'd like to go through a day where the president is not three front page stories every day. Yeah. The question is do people feel that way in the swing states? And in our country it's Pennsylvania and Ohio, basically even Ohio. I don't think. I think Trump's got Ohio. Florida, Pennsylvania, Wisconsin,

and Michigan are going the other way. It's Pennsylvania, Ohio, and I'm sure maybe a toss up at this point, small, but it doesn't mean it's But if you look at he won three states by seventy seven thousand votes and that put him over the top. So whatever we talk about nationally is a relevant. How how those three states going to vote? That's Pennsylvania, Ohio, Florida, plus Michigan and Wisconsin. The real question to me is if he loses, what

does he do and what happens? Um does he leave and what happens with Oh no, So my wife is in the same camp as you. There's no way on God's green earth he stays if he loses and PS I think the Secret Service would march him out of the White House. Our job is to protect you, but also to uphold the constitution, and most people agree with you. I agree. I don't do that straight talk to people in d C. I was just down in d C.

I think that's a really far fetched threat. I know people there's there are a bunch of people who wonder that something to listen. If you're a macro tourist as as I am, and someone extend looking at world of politics, right, you've got to at least consider all kinds of possibilities nowadays more than ever, right to to say the just, to say the least, and and what are you most optimistic about with journalism? I just spoke to a group down in the DC area students, and it's easier to

have a voice. You can start a podcast, you can start a blog, you can break news locally, you can on Twitter, right right, you can do any of those things. Yeah, there are new ways ways to have a voice that in the past there weren't. You don't have to be in the mainstream meeting necessarily to have influence and have an impact. So and you still can't have impact and improve things and write about people. And that's one thing

I always tell journalists. Focus on the people. You can get at important themes through the individuals, and they make for the most memorable stories, at least the way I look at it. You know, we didn't talk about the John Paulson trade at all, So I'm gonna move this back to the earlier part. This will be the last question of the regular discussion, but I want to bring it up here. So you write a book about John Paulson,

the greatest trade ever. But I find there's some really interesting oddities about the trade, not that it's not legit, but whether or not it was really John Paulson who deserves all the credit. Uh. Polo Pellegrini is his research assistant, seems to be the person who comes up with the idea brings it to Paulson has to twist his arm a little bit to get him behind it. The trade makes literally five billion, six billions for the funds Paulson, and I don't remember if this was your book or

your article or somewhere else. It's all a blur. Paulson gives Pellegrini a bonus check for two hundred and fifty million dollars, and I remembering that correctly? Was it? Was it more? It was one seventy five story, hundred seventy five million dollars, and Pellegrini's responses, A hundred seventy five million? I quit? Is that fair? It wasn't right then? It was later on he quit? And how much later was it? It was a good six months later, And it wasn't

necessarily Now he was okay with that hundred million. How do you be upset about that? Well, because it's not even ten percent of the six billion agreed um. He was fine with that. Listen, Paulson was the one taking the risk. If the trade had blown up, it would have blown up. But if if it hadn't worked out, then Paulson would had to close down his fun probably so Pellegarian was okay with that. UM. I think the big argument is that Paulson to I don't give him

so much credit for being short housing. There were a lot of people, if you recall you probably a lot of people that were worried about housing. What I do give John Paulson credit for is figuring out a way to express that trade, express that bearishness, and that to some exent is Paul Pella GREENI I agree Pella GREENI told John Paulson, hey, boss, there are these things called CDs contracts. Really, what are they? So Paul Paulson had no idea what CDs contracts, and that obviously was the

key to the greatest trade ever. So I give Pellegrini a lot of credit in the book and otherwise um for coming up with a way to express that trade. But I also give John Paulson tremendous credit for he was a fifty year old guy who didn't know anything about the debt markets, and he threw himself into learning about how to express the at trade win. Lots of

other people were sticking with equities and shorting equities. So the postcript to Paulson is two subsequent hedge fund performances, Pellegrini launches his own fund quickly raises a billion dollars as the guy behind the Pulson trade. I think the first year he just shoots the lights out. It's like eight some crazy number. The second year they're barely up for eight percent, six percent something like that. The third year they're negative. They return the money and he basically

retires to some island in the Caribbean. More or less accurate. So that's astonishing. Paulson, on the other hand, the fund scales up to forty six billion dollars. He becomes a macro tourist in gold and other things. It's a terrible bet. He's a big buyer at the peak. The fund puts up some pretty crappy numbers for a couple of years, and now the fund is back to what in little digit billions. It's mostly his money too, so it's become

a family office. And he proceeded to lose twenty or thirty billion dollars, so someone said, and I haven't verified this, but career wise, net net, he's a money loser for his outside investors. I think it's close, and I would argue that he missed the lesson of the greatest trade ever. Why is it called why do I call the grad strade ever? Because it had limited downside and remarkable upside. And frankly, that's what he did his whole career, even

when he was a risk arb. He was getting into positions little riskier than most other risk carbs, but they had potential for upside. A new buyer comes in in a merger deal and limited downside because I already had a deal. His whole career, he was doing those countrades until he did the greatest trade ever. And then he took on all this new money and he started betting on banks and on pharmaceutical companies with and gold lots of upside, but also lots of downside. He missed the

act opposite of what Simons did with medallion. Hey, this won't scale, and we want to make sure we're are are upside and downside's reward is balanced. The greatest trade led to the man who did not solve the market the and that basically created what is now ostensibly a hedge fund but really a family office for the Paulson for Yeah, it's a great point that John Paulson is a very good investor, but he got too big And how many times have we seen that same store over

and over over and over? And you know it's these guys are fallible like anybody else. You can be smart, but take on too much money and then you're going with your second best idea and your third best idea, et cetera. And he missed that lesson. Everyone thinks I'm the exception because I'm I did the greatest trade ever and I caught this one before other people and they're wrong, and it's tough to take on all that a O M. And he's as you suggest, Jim Simons capped at least

the Medallion Fund. He capped that, so maybe he learned that lesson for sure. And our last two questions, what sort of advice would you give a recent college grad who was interested in either becoming a journalist or a book author or covering Wall Street and finance? Well, this is a broader recommendation for young people in general. Find the people. Find the individuals in whatever area you're interested in.

Who are the pace setters, who are the key individuals people that you are you respect, and reach out to them. Send him a note, Hey, I'd love to buy a cup of coffee, give twenty minutes of your time. People are generous with their time. You'd be surprised. I'm sure you found the two people on Wall Street um senior. People want to help, want to give back, are much more generous with your time than you might think. Don't

be intimidated. If you've got genuine interest, reach out to them, tell them why you're interested in the area, form a relationship and learn from them. And our final question, what is it that you know about the world of writing and journalism today that you wish you knew twenty five years or so ago when you were first getting started. That your relations tips are the most important thing you've got, and you've got to develop them. You've got to be

kind to people that are kind to you. I always was, but it's been reinforced to me. But also the fact that our reputations are created and recreated almost on a daily basis, so you can be doing poorly at your job. I've had times to the Wallstreet Journal where I was a low man on the totem pole and people didn't really give me good assignments. And you can change that. That's the beauty of it. You go break a story,

you can change, You can your reputation can transform. And and if you blow it, you know your reputation is impacted too. Is don't make any mistakes, but don't lose hope. Just tomorrow is a new day. Go break a story. Huh. Quite fascinating. We have been speaking with Gregory Zuckerman, the author of The Man Who Solved the Market How Jim

Simon launched the quant revolution. If you enjoy this conversation well, be sure to look up and intro down an on Apple iTunes, where you could see any of our previous two hundred and fifty eight conversations we've had over the past five plus years. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. Go to Apple iTunes and give us a review. I would be remiss if I did not thank the crack staff who helps put together this conversation each week.

Carolin O'Brien is my audio engineer. Attica val Brunn is our project manager. Michael bat Nick is my reluctant head of research. Mike Boyle is my producer. I'm Barry Ritolts. You've been listening to Masters in Business on Bloomberg Radio,