Jim Simons is one of the most successful hedge fund managers in history. As the founder of Renaissance Technologies, Simons became the highest-paid hedge fund manager in the world in 2018. In the 2018 bear market, Simons earned more than 10 billion yuan (1.6 billion US dollars).

From Harvard Professor to Fund Manager

Simons is a legendary figure on Wall Street. He was once a brilliant mathematician and a professor of mathematics at Harvard University. Later, with the mindset of "serving the country" and challenging the difficult, he joined the Institute for Defense Analysis (IDA) to engage in code-breaking work and worked for the CIA for many years. As an anti-war advocate, he returned to academia to teach. Jim Simons served as a mathematics professor from 1968 to 1978 and was the head of the mathematics department at Stony Brook University (also known as the State University of New York at Stony Brook). He began his career in the hedge fund industry in 1982.

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With a keen insight into computer technology and the collaboration of several talented mathematicians and computer experts, the algorithmic trading system of Renaissance Technologies was born, becoming the most successful representative of automated trading at the time. This also allowed Jim Simons to earn a total of 105 billion US dollars in his 30-year career as a professional trader. Currently, his net worth is about 23.5 billion US dollars.

His hedge fund focuses on diversified systematic trading using a single quantitative model derived from statistical analysis of historical price data. His main model is pattern recognition. His flagship fund of Renaissance Technologies, the Medallion Fund, is the best fund in terms of compound return and duration in history. This fund has made so much money that they had to close the Medallion Fund to external investors because the increase in managed funds was so large that the trading volume when entering and exiting at the signal time severely affected the price of the target.

Simons' Four Trading Principles

1. Quantitative/Familiar with History

The foundation of quantification is data, and data must come from history. The essence of quantification is to predict the future based on history, recognizing the rule that "history is constantly repeating itself." But even if you don't do quantification, ordinary investors should also be familiar with history.

Simons has collected all the debt crises that have occurred since the history of finance in order to be familiar with market cycles. How did a stock perform before, what happened, and why did it happen? Understanding the logic of these historical events will definitely be of great help to your future investments.2. Investment Must Have Discipline

If asked what the ultra-short-term and intraday trading besides technical chart knowledge has truly brought me in the past, I would definitely say "discipline." Because in such a high-pressure environment, in such a second-by-second competitive environment, you must form a set of disciplines. Once your investment model is confirmed, do not easily change it, and you need strong discipline to resolutely implement it.

Whether it is value investing or trend following, including any strategy of Simons' Medal of Honor, there will be drawdowns, or so-called "losing streaks." At this time, you must maintain confidence in your strategy to ultimately make a profit.

Everyone's strategy may not be the same, which is a very natural thing. If your own method can make money, then you must stick to it! Because that is the most suitable for you. You must first agree when accepting someone else's strategy. If you do not agree, but are influenced by others' ideas, that is when you will lose money.

3. High Returns Do Not Require a High Win Rate

I have told everyone before that I almost write a trading log for every transaction, so I have calculated that my actual win rate is actually below 50%. Sometimes the win rate will suddenly increase, and sometimes it will be lower. But overall, it fluctuates around less than 50%.

But I don't worry about this issue at all, and I don't want to deliberately improve my win rate. Why? Because Simons' win rate is only 50.75%.

The answer is to win by using the profit and loss ratio. I don't care about the number of losses, I just need to make enough money when I make money. The so-called "big profits and small losses" is this principle. Just control your losses, and the rest will be completed by the market for you.

Assuming the frequency (time cost) is consistent, it is much easier for ordinary investors to increase the positive expectation value by increasing the profit and loss ratio than by increasing the win rate.4. The Universal Principles of Making Money Through Investment

No trading system can consistently make money without incurring losses, but the universal principles behind them have always been correct and should not be arbitrarily changed. If you do not follow these universal principles, any profits you make will inevitably be returned to the market at some point.

These universal principles include:

1. A sound risk management system

2. A formula for calculating positions based on risk

3. A stop-loss system to minimize losses

4. A system for increasing profits by adding positions and holding positions

Of course, the most important thing is to have a profitable model with a positive expected value. In conclusion, I want to say that you don't need to be as formidable as Simons in establishing a huge quantitative system, but as long as you establish your own stable profit model and adhere to it with discipline, and execute it, that is the best.