The Man Who Solved the Market

The Man Who Solved the Market

The Man Who Solved the Market by Gregory Zuckerman tells the story of Reinaissance Technologies (the best performing hedge fund of all-time), and its founder, Jim Simons.

Jim first developed the idea of "algorithmic investing" while at the Institute for Defence Analysis. He and some teammates created hidden markov models which they thought could accurate predict the market simply from price data.

Most of the characters in the story are pure mathematicians who just like solving puzzles. Evidently the public markets formed enough of an interesting puzzle that it just started to get them hooked.

Renaissance Technologies got the early edge by focusing more on data. Not just the algorithms and bets behind that data, but by putting a focus on filling in and tracking down missing price sheets.

Renaissance seemed like it gained early advantage from being the first algorithmic trading company, mastering the discipline around it, and achieving a sort of AI takeoff

Renaissance had a core thesis around trading in very high volumes in a very short time. The average position was held for just 1.5 days. The idea behind this is sort of like the way a casino treats gambling. If you have a 51% edge on each bet, it is to your advantage to have as many bets as possible

I hadn't realized that D.E. Shaw, Two Sigma, and other cos were basically born out of Renaissance. A bunch of these recruited heavily out of MIT, particularly in some of the programming competitions there.

The early strategies employed were honestly really simple. They mostly involved looking at fluctuations in commodities and currency markets, and then making predictions around which of those would revert to the mean. If the Yen has dipped for the first time in months, it's worth buying some, and then selling it when it returns to the mean.

I question some of the accuracy around the book, just since the firm itself is so incredibly secretive. That said, it's interesting to see how the modern world of algorithmic investing evolved, especially with one player so far out in front.

Overall, the book was entertaining, though a lot less ground-breaking than I'd hoped for.