Chart of the week
The Man Who Solved the Market
What does this chart show?
The returns of the Medallion Fund, run by Jim Simons’ Renaissance Technologies, (black) vs the S&P 500 (blue).
From 1988 - 2021, the Medallion Fund earned 62% annualized returns gross of fees and 37% returns net of fees (5% AUM, 44% performance fee). The fund only posted negative returns once, in 1989.
Why does it matter?
How many investors, after earning 9% and -4% returns during their first two years invested, while the S&P was up 16% and 30% respectively, would have stuck with Simons and not redeemed? This example highlights the necessity for developing true conviction and a rules based process around entering and exiting positions prior to making an investment.
The consistency and size of the returns posted by the Medallion Fund seem to call the Efficient Markets Hypothesis - that asset prices reflect all available information thus making it impossible to consistently beat the market - into question. While Simons clearly created unmatched quantitative techniques to consistently beat the market, there are other strategies that exploit inefficiencies and investor behavior, such as trend-following, momentum, and value, that have demonstrated a level of persistence that leave E.M.H zealots clinging to MBA textbooks.
The Bottom Line
Jim Simons is the man who solved the market.
Data & Chart Credit - The great work of Nick Maggiulli