Source: Gert-Martin Greuel.
Even though you may have never heard of him, James Simons started the Renaissance Technologies hedge fund, which netted him an estimated $1.3 billion in 2012. That colossal payday places him in line with Steve Cohen of SAC Capital Advisors, and ahead of other well-known managers like George Soros of Soros Fund Management and Bill Ackman at Pershing Square Capital Management, according to the latest estimates from Forbes.
What he owns
Renaissance Technologies owns $41.2 billion worth of publicly traded companies. Yet what is even more staggering than the size of the portfolio on a raw dollar basis is the number of companies it holds, which stands at more than 2,700. To put that into perspective, Warren Buffett's Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) at last count held the stock of just 43 companies worth a little more than $92 billion.
What is even more staggering is the diversity of companies held by Simons' Renaissance Technologies. There is the more than $2.1 billion worth of well-known holdings in household names like McDonalds, IBM (IBM 1.17%), Colgate-Palmolive (CL 2.17%), and Hershey (HSY 0.03%). But the company also has a $100,000 or less in more than 95 companies well off the radar of almost every investor on the planet.
Wait -- who is he?
It is critical to mention here that the massive breadth of positions held by Renaissance Technologies is certainly not something to be emulated by the average investor. Simons received his undergraduate degree from MIT and his PhD from the University of California Berkley. He didn't even enter the financial arena until he was almost 40, after spending years in academia and mathematics.
Source: Anders Sandberg on Flickr.
He was awarded the prestigious Veblen Prize from the American Mathematics Society, which is only given out every five years. In 2000, Institutional Investor Magazine wrote that his "Chern-Simons theory has recently emerged as a critical tool for theoretical physicists searching for fundamental laws of the universe."
He is affectionately known as the "quant king," and his trading strategies are based on computer algorithms and mathematical models reserved for the brightest of individuals on the planet.
What he recommends
During a presentation Simons gave when he ran Renaissance Technologies, he focused on four things, ensuring it always had great people, great infrastructure, an open environment, and fair compensation. He even admits that although those things aren't remarkable or mind-blowing -- like many of the trading algorithms the company has developed assuredly are -- those guiding principals have "worked, and they'll continue to work."
While those are the things he used to guide his business, they can assist investors along the way, too -- especially his third point of an open environment. Simons went on to say, "the most important thing that we do is have an open atmosphere [...] the sooner the better, start talking to other people about what you're doing. Because that's what will stimulate things the fastest."
Source: NASA / Tim Williams on Flickr.
All too often in investing, individuals are told the key to being a good investor is secrecy and privacy and not disclosing anything. However, Simons brings up a critical reality that it is vital to have conversations with entrusted friends or colleagues to bounce ideas off of and vet information.
Those conversations may lead to new ideas, the refinement of existing ones, or counterpoints that may have never been considered otherwise, which will ultimately lead to better investment decisions.
Building complex mathematical models to make investments is an undeniably difficult task reserved for very few, but the reality is, having conversations in an open atmosphere concerning thoughts about investments and beyond is something everyone should seek to do.
