Our conversation with Greg Zuckerman has revealed amazing and timely insights, not only confirming our hypothesis that to be great at investing one needs to have a big doze of the “architect archetype” on their team, but also leading us to identify one of Jim Simons’ core principles which he released two weeks after we published “Be Guided by Beauty”.
So if you haven’t already, please buy Greg Zuckerman’s story of Jim Simons “The Man Who Solved the Market”. Here is what Greg has to say about it.
ARCHITECT VS ENGINEER
Question:
Greg, the idea of ‘architect versus engineer’ is something I've been paying attention to. Even in your own words, you said Simons was really “an architect of it all”. What comes to your mind on this topic?
Greg:
Frankly, I was a little disappointed, at least initially when I realized that a lot of [Renaissance Technologies’] breakthroughs, were not directly from Jim Simons. I had assumed, given that he's worth $23 billion and he's going to go down as maybe the greatest money-manager in modern financial history, that he was responsible for their achievements.
And, as you suggest, it's more that he's put together this structure. I don't want to underplay it. He pushes his team into the right direction. But a lot of it is being the architect and a lot of it is, frankly, kind of themes and approaches that anybody can relate to.
He named it Renaissance Technologies because he was going to be more a VC (venture capital) then a trader. He was the architect for this project and is responsible for the success in a lot of way. Even though he didn't discover the signals himself, people internally don't resent that. I thought they would. I thought people would say, “God, this guy”, especially today, when he literally doesn't go into the office more than a handful of times a year and he makes about a billion dollars from the firm. And yet people internally give him a ton of credit. There were crises within the firm and he made tough decisions like how much to trust the models, when not to trust the model and things like that. And those are really important decisions.
I don't want to generalize and stereotype, but people in the quant world, many of them are very focused individuals and there are super smart, often scientists and mathematicians and, but there are also certain personality type where frequently, I don't want to say all the time, but frequently they are good because they are so focused. And the drawback there is they don't see necessarily always the big picture. And that's why you need somebody like Jim Simons who has the vision and that's kind of what his job was. And maybe you need somebody in every organization, be it quant or not quant, to take that role to be the visionary. It's a nice compliment to the super duper smart scientists and PhDs, focused on a task and they're really good at.
TENACITY AND FAILURE
Question:
In my thinking, one thing that differentiates architects from engineers is that they allow themselves to fail more often in order to succeed. An engineering failing is often catastrophic. Like a bridge falling apart. It's really bad. So you've got to play it safe. But in architecture failure is a failure to innovate. In math speak, it’s type one error vs type two error. In English, it's failing while innovating versus failing to innovate altogether. The vast amount of investment managers are really trying hard to avoid failing when innovating. So as a result, they fail to innovate. How do you see failure on the path of Jim’s success?
Greg:
Jim has so much optimism and persistence and tenacity. There are so many times he could have given up or tried something else. Time and time again you see it not just here, but in everything I write, the degree of success of people that have overcome and have learned how to deal with setbacks.
Jim wasn't even clear that he was going to be a quant. It's hard to be a quant, it's hard to turn the decision over to the machine, even for somebody like Jim Simons, who is a mathematician.
I write other kinds of stories with my sons and I write books for young people. We have a series called Rising Above. And the whole idea is we went and talked to superstars in the world of sports about how they overcame challenges in their youth. And the whole goal is to inspire and also teach young people how to deal with the setbacks and failures. And maybe you could learn from some of these superstars, but I think adults can learn just as much from somebody like Jim Simons.
They were meeting frustration after frustration and he kept going. It literally took them years to figure out equities and to make money. And they could've given up. But if it was a traditional investment firm with outside investors to whom you have to explain why you're using these resources and time while it’s not working, why are you doing that? Committing all that stuff to equities when you may not be able to figure it out. Jim’s optimism helped but also the fact that he had a structure where he didn't have many outside investors also helped.
OUR TAKE-AWAYS: