WEBVTT - Gregory Zuckerman on the Quant Revolution 0:00:02.279 --> 0:00:06.840 This is Masters in Business with Barry Ridholts on Boomberg Radio. 0:00:07.240 --> 0:00:09.840 This week on the podcast, I have a special guest. 0:00:10.039 --> 0:00:12.840 His name is Greg Zuckerman. He is a reporter for 0:00:12.840 --> 0:00:15.560 The Wall Street Journal and an author of numerous books. 0:00:16.160 --> 0:00:18.800 The one we spend the better part of two hours 0:00:18.840 --> 0:00:22.919 discussing is the Man who Solved the Market, How Jim 0:00:22.960 --> 0:00:27.080 Simons launched the quant revolution. If you are at all 0:00:27.240 --> 0:00:31.880 interested in so many things Renaissance technologies and Jim Simon's 0:00:32.400 --> 0:00:37.560 quantitative investing, hedge funds, how difficult it is to beat 0:00:37.600 --> 0:00:43.760 the market, and how astonishing the performance of Renaissance technologies 0:00:43.800 --> 0:00:47.080 has been. Let me tease you a little bit. Thirty 0:00:47.159 --> 0:00:53.320 years sixty a year. That is just mind blowing. Nobody 0:00:53.360 --> 0:00:55.639 in the universe comes close. There wasn't anybody who does 0:00:55.720 --> 0:00:59.000 half of that. That's what makes this so just completely 0:00:59.240 --> 0:01:04.000 mind boggling ing. Uh. They are absolutely a unique entity. 0:01:04.240 --> 0:01:07.479 You will find this to be an absolutely fascinating conversation. 0:01:07.560 --> 0:01:10.120 I really enjoyed the book. I plowed through it in 0:01:10.160 --> 0:01:12.360 a day and a half on the beach over the 0:01:12.400 --> 0:01:16.959 holiday weekend, and it's not out until November five, So 0:01:17.120 --> 0:01:20.440 by the time you're hearing this it will be available 0:01:20.480 --> 0:01:23.559 for pre order. All I can say is I enjoyed 0:01:23.600 --> 0:01:26.080 the book and I had a fascinating conversation with Greg, 0:01:26.400 --> 0:01:28.920 and I'm sure you will enjoy it. So, with no 0:01:29.040 --> 0:01:35.759 further ado, my conversation with Greg Zuckerman. This is Masters 0:01:35.800 --> 0:01:40.319 in Business with Very Ridholts on Boomberg Radio. My extra 0:01:40.400 --> 0:01:43.120 special guest this week. I've been looking forward to this 0:01:43.160 --> 0:01:46.880 conversation for a long time. Greg Zuckerman, Wall Street Journal 0:01:46.920 --> 0:01:51.280 reporter and author, two time winner of the Geralds Lobe 0:01:51.280 --> 0:01:54.960 Award for Outstanding Business Reporting. He is the author of 0:01:55.000 --> 0:01:58.920 The Frackers, The Outrageous inside story of the new Billionaire Wildcats, 0:01:59.480 --> 0:02:03.360 and The Greatest Trade Ever, How John Paulson defied Wall 0:02:03.360 --> 0:02:07.320 Street and made history. But his newest and most fascinating 0:02:07.320 --> 0:02:11.760 book is Jim Simons, The man who solved the markets 0:02:11.840 --> 0:02:16.520 and launched a quant revolution. Greg Zuckerman, Welcome to Bloomberg. 0:02:16.600 --> 0:02:19.040 Great to be here. I think I sort of retitled 0:02:19.120 --> 0:02:22.920 the book for you. Um So I'm I'm fascinated by 0:02:23.000 --> 0:02:26.320 Jim Simon's ever since I was a high school student 0:02:26.360 --> 0:02:30.400 applying to Stonybrook Math department, where he turned out to 0:02:30.440 --> 0:02:35.600 be the chairman that plus six annual returns for thirty years. 0:02:35.639 --> 0:02:39.880 Those are just astonishing numbers. What was it that made 0:02:39.919 --> 0:02:43.640 you decide to write a book about the most reclusive 0:02:43.680 --> 0:02:47.960 hedge fund manager ever? So? I've always wanted to. He's 0:02:48.040 --> 0:02:50.800 sort of if you're a financial journalist, and I focused 0:02:50.840 --> 0:02:53.320 on the Bye side to a large extent, there's no 0:02:53.360 --> 0:02:55.840 one more impressive. He's the white whale, isn't he? He 0:02:56.040 --> 0:02:58.600 is the white whale. And yet he's also got this 0:02:58.680 --> 0:03:02.440 mystique about him, part because they're such a secretive firm. Um, 0:03:02.560 --> 0:03:05.560 others have tried. That was part of the allure as well, 0:03:05.760 --> 0:03:08.920 that others had reached out to him, he didn't want 0:03:08.919 --> 0:03:11.640 to work with them. I myself had tried. He didn't 0:03:11.680 --> 0:03:15.160 want to cooperate. Uh. For whatever reason, that created an 0:03:15.200 --> 0:03:18.280 added a level of mystique allure for me. So I 0:03:18.320 --> 0:03:22.040 took the challenge on. So, in pursuit of this, you 0:03:22.120 --> 0:03:26.519 spoke to over forty current and former Renaissance employees. What 0:03:26.600 --> 0:03:30.320 was that like? Well, early on it was quite difficult. Um, 0:03:30.400 --> 0:03:32.920 no one wanted to talk to me. And why was that? 0:03:33.000 --> 0:03:36.080 I know, there's a little bit of paperwork involved as 0:03:36.080 --> 0:03:38.880 to why some people were hesitants to speak with you right. 0:03:39.160 --> 0:03:42.920 So Jim Simmons and his colleagues at the firm have 0:03:43.080 --> 0:03:48.200 everyone signed forty page nondisclosures non competes and they're serious 0:03:48.240 --> 0:03:51.480 about them. Um. I was warned early on, don't waste 0:03:51.480 --> 0:03:54.440 your time, Greg, both by people internally, people that used 0:03:54.440 --> 0:03:57.560 to work there. Simons himself said he wouldn't talk to me. 0:03:58.280 --> 0:04:01.440 It got worse than that. Simon started telling people I 0:04:01.480 --> 0:04:03.840 wanted to talk to not to talk to me, not 0:04:03.920 --> 0:04:06.400 to cooperate with me. Another word, you would set up 0:04:06.800 --> 0:04:09.200 a conversation with someone and he would get wind of 0:04:09.240 --> 0:04:12.200 it and and quash it. Yeah. I had meetings set 0:04:12.280 --> 0:04:15.760 up with senior people in the industry, in the quant world, 0:04:15.920 --> 0:04:20.280 billionaires who you wouldn't think would care what Jean Simon's 0:04:20.320 --> 0:04:25.279 would think, these arrivals of renaissance. And yet right before 0:04:25.320 --> 0:04:28.120 we were supposed to sit down, they said, sorry, I 0:04:28.120 --> 0:04:31.640 can't talk to you, Greg. Jim asked me not to 0:04:32.360 --> 0:04:37.280 the family. It's you describe very much like the mafia. Right. Yes, 0:04:37.480 --> 0:04:39.760 we're competing, but you still are things you don't do. 0:04:40.120 --> 0:04:41.920 And one thing you don't do in the quant world 0:04:42.320 --> 0:04:46.680 is get Jim Simon's upset. So here I was being told, 0:04:47.080 --> 0:04:49.760 don't waste your time, Simon isn't gonna work with you. 0:04:50.400 --> 0:04:52.279 I'm not gonna work with you because Jim asked me 0:04:52.320 --> 0:04:55.840 not to. I had I literally had um my advance 0:04:56.279 --> 0:04:59.960 and not insignificant advance from my publisher on my death 0:05:00.440 --> 0:05:03.039 in my basement in my home in suburban New Jersey, 0:05:03.120 --> 0:05:05.880 and I wouldn't cash it because I wanted the ability 0:05:05.920 --> 0:05:08.480 to hand it back because you were concerned you wouldn't 0:05:08.480 --> 0:05:12.680 be able to get anything done without any cooperation. Right. Um, 0:05:12.760 --> 0:05:15.400 If you talk to my wife, she doesn't. She can 0:05:15.440 --> 0:05:17.520 give you all kinds of conversations where I was whining 0:05:17.520 --> 0:05:21.359 and complaining and just frustrated and concerned that I wouldn't 0:05:21.360 --> 0:05:23.800 be able to pull this thing off. Um. And at 0:05:23.880 --> 0:05:27.479 one point the accounting department from Penguin, they were like, 0:05:27.839 --> 0:05:31.560 what this has in this check? Something's wrong because who what? 0:05:31.560 --> 0:05:35.279 What author doesn't cash a check? You know? We don't 0:05:35.279 --> 0:05:38.159 do so well. What was the turning point where you felt, Oh, 0:05:38.200 --> 0:05:41.000 now I'm starting to at least get a little traction 0:05:41.040 --> 0:05:43.360 with these guys. Right. So I went out to California 0:05:43.440 --> 0:05:46.760 and I spoke to some former colleagues of Simons who 0:05:46.760 --> 0:05:50.160 worked with Jim back in the day, back in the 0:05:50.240 --> 0:05:54.159 eighties and nineties, right, and their story was just too 0:05:54.200 --> 0:05:57.760 fascinating not to do the book and too compelling. I mean, 0:05:57.800 --> 0:06:00.760 these are interesting characters. As a or, you look for 0:06:01.000 --> 0:06:06.760 just colorful color, colorful, intriguing individuals, characters you could write about, 0:06:06.760 --> 0:06:09.359 and they you couldn't do better than these people. They 0:06:09.520 --> 0:06:12.440 um were temperamental, they were high strung, they were fascinating, 0:06:12.480 --> 0:06:14.960 they were smart. They had accomplished all kinds of things 0:06:15.000 --> 0:06:18.039 in academia, and then they took on this challenge of 0:06:18.080 --> 0:06:21.240 trying to conquer the markets. So and there was all 0:06:21.320 --> 0:06:23.480 kinds of intrigue that I wasn't really aware of behind 0:06:23.520 --> 0:06:28.680 the scenes. Um anger, fights, disputes, screaming matches, things that 0:06:28.760 --> 0:06:31.720 you know when you think of a quant and you know, mathematics, 0:06:31.839 --> 0:06:36.120 mathematicians maybe just I did. I didn't really think they 0:06:37.040 --> 0:06:42.760 lend like you and not yes, exactly scientific. Right. So 0:06:42.800 --> 0:06:46.880 when I learned about the early story of Renaissance, and 0:06:46.960 --> 0:06:49.120 it's quite fascinating, I said, you know what, how do 0:06:49.160 --> 0:06:51.400 I not write this book? It was a bit of 0:06:51.400 --> 0:06:53.680 a leap. So I had the early part, but then 0:06:53.720 --> 0:06:55.520 what do I do about the middle of the later 0:06:55.520 --> 0:06:58.640 parts where people. There weren't as many people who had retired, 0:06:58.680 --> 0:07:01.320 who were academics who might speak to me. These are 0:07:01.320 --> 0:07:04.280 more recent types of individuals, some still there. I had 0:07:04.279 --> 0:07:06.360 to I had to work somehow get them to talk. 0:07:06.480 --> 0:07:08.600 So what was the turning point? When did you start 0:07:08.680 --> 0:07:11.800 to have these folks speak with you? When I got 0:07:11.880 --> 0:07:15.240 a good sense for the story? Um, I got some 0:07:15.360 --> 0:07:18.680 people who work there to open up to me. And 0:07:18.960 --> 0:07:21.520 why they spoke to me. I'm as a writer, you're 0:07:21.560 --> 0:07:25.040 never a hundred percent sure. I believe that good stories 0:07:25.640 --> 0:07:27.960 want to come out. And this is a great story. 0:07:28.080 --> 0:07:33.640 This is the greatest financial um investor in modern history. 0:07:33.720 --> 0:07:37.640 Jim Simmons. His firm is the most impressive money making 0:07:38.200 --> 0:07:42.640 operation in Wall Street history. So some of them were proud, 0:07:42.800 --> 0:07:45.320 and some of them actually wanted to share and talk 0:07:45.360 --> 0:07:49.160 to extent that they could, they kind of wouldn't tell me. Usually, 0:07:49.400 --> 0:07:52.520 no secret source came out. Well, it leaked out so 0:07:52.560 --> 0:07:54.559 here and there. So that's my job as a writer. 0:07:54.760 --> 0:07:56.960 You get a little snippet, they drop a little crumb 0:07:57.240 --> 0:07:59.200 here and there. It's my job to kind of put 0:07:59.200 --> 0:08:01.040 it together into some thing of a loafer, at least 0:08:01.040 --> 0:08:03.440 a half a loaf for for the readers, so they 0:08:03.440 --> 0:08:06.480 gave me enough to give me encouragement. Yes, they weren't 0:08:06.560 --> 0:08:08.880 laying out all the algorithms for me, not that I 0:08:08.920 --> 0:08:11.080 would understand a mena or anyway. When when I finally 0:08:11.280 --> 0:08:14.440 and then I finally got Sigmons to speak, so discussed 0:08:14.480 --> 0:08:18.120 that because for the longest time he said, no, I 0:08:18.160 --> 0:08:19.800 want nothing to do with this, so I'm never gonna 0:08:19.800 --> 0:08:22.280 speak to you. How did you finally get him to 0:08:22.320 --> 0:08:24.400 sit down with you? And and how long did you 0:08:24.440 --> 0:08:27.080 talk to him for? So we had and still have 0:08:27.200 --> 0:08:30.679 a complicated relationship. He didn't want the book to be written. 0:08:30.720 --> 0:08:33.800 He still, as of a few months ago, asked, do 0:08:33.880 --> 0:08:36.200 we do I really have to write this book? Um? 0:08:36.360 --> 0:08:38.719 Part of it is the guy makes a billion and 0:08:38.760 --> 0:08:42.520 a half dollars hardly going into the office and doesn't 0:08:42.520 --> 0:08:45.559 want to rock the boat. These are hard working individuals, 0:08:45.840 --> 0:08:49.599 scientists he's hired or helped hire or have joined subsequently, 0:08:49.920 --> 0:08:51.760 and he doesn't want to get them angry. He says, 0:08:51.800 --> 0:08:54.320 he's a generally a pretty good guy, and here they 0:08:54.320 --> 0:08:57.280 are working, slaving away. And if the guy making a 0:08:57.320 --> 0:09:00.360 billion and a half dollars is talent secrets, um, they 0:09:00.360 --> 0:09:03.679 wouldn't be thrilled with him. Um, So he didn't really 0:09:03.679 --> 0:09:07.240 want this book being told. And but at some point 0:09:07.840 --> 0:09:11.439 he got the message that I wasn't going away, and 0:09:11.520 --> 0:09:13.800 he realized I was doing serious research. So I was 0:09:13.880 --> 0:09:17.320 talking to academics he worked with back in the day, 0:09:17.840 --> 0:09:21.439 Um code breakers. He's got this really rich, fascinating life 0:09:21.640 --> 0:09:24.640 even before he got to Renaissance. If he had never 0:09:24.679 --> 0:09:28.120 started Renaissance, he never even invested, he'd still be so 0:09:28.679 --> 0:09:32.040 of ample sub be ample um opportunity to write a book, 0:09:32.040 --> 0:09:35.360 there'd be reason to write about him. So UM. I 0:09:35.400 --> 0:09:38.480 think when he started hearing from these seventy and eight 0:09:38.600 --> 0:09:42.600 year old academics uh, from Princeton and other kinds of 0:09:42.640 --> 0:09:45.000 places he worked with back in the seventies and in 0:09:45.040 --> 0:09:47.840 the sixties, even uh, he got the message I wasn't 0:09:47.880 --> 0:09:51.200 going away, And I think he realized, while better to 0:09:51.240 --> 0:09:55.040 talk to Zuckerman than um not share any perspective in 0:09:55.080 --> 0:09:57.480 a book about him. In his firm, the joke I 0:09:57.559 --> 0:10:01.520 used to hear from people who had Lucked in interviewees 0:10:01.600 --> 0:10:04.360 and other books was well, who do you want to 0:10:04.400 --> 0:10:06.720 shape the story? Do you want do you want to 0:10:06.920 --> 0:10:09.040 shape the narrative or do you want to let your 0:10:09.040 --> 0:10:11.920 competitors and enemies shape the narrative, right, And that's a 0:10:11.960 --> 0:10:15.120 lot of my approach in my day to day writing 0:10:15.120 --> 0:10:17.920 at the Wall Street Journal. UM I called the haircut approach. 0:10:18.559 --> 0:10:20.480 I'm gonna give you a haircut. You can sit still 0:10:20.559 --> 0:10:22.160 or you can move around, but I'm gonna give you 0:10:22.200 --> 0:10:24.040 a haircut. And it's not to say that it's a 0:10:24.120 --> 0:10:27.480 threat in any way. It's being it's just honest, right, 0:10:27.679 --> 0:10:31.959 a little blond, but yeah, And Simon's realized that there's 0:10:31.960 --> 0:10:34.160 something to be said for working with me. But I 0:10:34.160 --> 0:10:37.320 do want to make it clear that he wouldn't share 0:10:38.080 --> 0:10:42.720 UM inside UM secrets, secret sauce, as you describe it. 0:10:42.880 --> 0:10:44.920 So I don't want to suggest that he kind of 0:10:44.920 --> 0:10:48.000 opened the kimono. That was still difficult to the end. 0:10:48.120 --> 0:10:51.600 So it was so we sat down together multiple times 0:10:51.679 --> 0:10:54.319 for how many hours we add it all up was 0:10:54.400 --> 0:10:58.080 over ten hours. Really, that's a lot of Jim Simon's FaceTime. 0:10:58.160 --> 0:11:00.720 It was a lot of time, and the top ranged 0:11:00.840 --> 0:11:04.240 and included his recent life, which is also quite interesting 0:11:04.240 --> 0:11:07.359 what he's trying to do an autism research, science education, 0:11:07.679 --> 0:11:12.359 subsidizing teachers around the city of New York City, UM politics, 0:11:12.360 --> 0:11:15.000 a little bit too. He's a big funder of democratic 0:11:15.000 --> 0:11:18.120 causes and in candidates, so the topics ranged. He was 0:11:18.200 --> 0:11:21.840 generous with his time and though and regarding some of 0:11:21.880 --> 0:11:25.160 those subjects, his early life and his mathematics. A guy 0:11:25.200 --> 0:11:28.679 like me needed help understanding. So I appreciate the help 0:11:28.720 --> 0:11:31.680 he gave me there And in terms of there you 0:11:31.760 --> 0:11:34.719 are you saying Jim Simons tutored you in in mathematics 0:11:34.720 --> 0:11:38.440 to some extent. Yeah, Um, he was quite helpful, because 0:11:38.760 --> 0:11:40.600 I listen, I had a lot of people helping me. 0:11:40.920 --> 0:11:44.120 But he is a professor at heart, and I could 0:11:44.200 --> 0:11:48.000 see him, even though he is objecting to your purpose, 0:11:48.080 --> 0:11:50.400 I could see him kind of saying, no, no, let 0:11:50.440 --> 0:11:53.040 me explain the math here and and bring you along right. 0:11:53.080 --> 0:11:55.480 And part of it is and I've learned this something 0:11:55.480 --> 0:12:00.600 about mathematicians. Uh, little mistakes really bothered them more than 0:12:01.040 --> 0:12:05.160 they do me or people that come from a different perspective. 0:12:05.559 --> 0:12:08.640 So I think it would have just bothered him had 0:12:08.679 --> 0:12:13.800 there been significant um errors in the book, be in 0:12:13.800 --> 0:12:16.199 regard to his early life, other parts of his life. 0:12:16.440 --> 0:12:19.160 And I get that. You know, I would send small sections. 0:12:19.240 --> 0:12:22.560 We don't send large sections, but small sections to various 0:12:22.840 --> 0:12:25.760 top mathematicians, and they would get angry, Greg, this is 0:12:25.800 --> 0:12:29.120 all wrong. How can you write this? It's overstayed as wrong. 0:12:29.120 --> 0:12:30.760 You got you gotta change everything, and you know you're 0:12:30.760 --> 0:12:33.319 taken aback. Early on, I was taken aback. Eventually I 0:12:33.640 --> 0:12:35.719 learned not to be. And then you drill into it 0:12:36.000 --> 0:12:38.160 and I don't know, they're five percent was wrong, but 0:12:38.200 --> 0:12:40.680 those that five percent really bothers them. So I got that. 0:12:40.720 --> 0:12:43.120 So I think, if you're Jim Simons, this guy's writing 0:12:43.120 --> 0:12:46.000 a three fifty page book about you and your life. Um, 0:12:46.320 --> 0:12:49.680 if they were glaring dumb errors, it would have bothered him, 0:12:49.800 --> 0:12:51.720 really would have would have said him, said him off. 0:12:52.160 --> 0:12:56.920 Let's talk a little bit about um, the book and 0:12:56.960 --> 0:13:00.679 what's revealed in it. I've kind of been Jim Simon's 0:13:00.679 --> 0:13:04.160 groupie for a few decades. I think I know about 0:13:04.280 --> 0:13:10.040 everything that was public about him and Renaissance technologies and 0:13:10.080 --> 0:13:13.080 who worked there and there their approaches. But I found 0:13:13.080 --> 0:13:17.120 the book filled with so many surprises and so many 0:13:17.400 --> 0:13:21.280 unknown things in the past. Um, tell us what you 0:13:21.440 --> 0:13:25.480 thought was the most surprising thing you learned, and how 0:13:25.559 --> 0:13:30.920 much of this is fresh new information that was never 0:13:31.440 --> 0:13:35.360 publicly known before. Sure, So I've read everything that's been 0:13:35.360 --> 0:13:39.040 written about Jim and his firm. I've watched every interview 0:13:39.320 --> 0:13:42.320 on YouTube. Are a few here and there. Uh, And 0:13:42.360 --> 0:13:45.920 I would say about nine of what's in my book 0:13:46.000 --> 0:13:48.199 is fresh and new. I think that's about right. I 0:13:48.520 --> 0:13:51.880 felt like almost everything, like every now and then I 0:13:51.880 --> 0:13:54.640 would recognize something. Oh, I kind of knew that, but 0:13:55.240 --> 0:13:57.559 every page it was a new revelation that was something 0:13:57.640 --> 0:13:59.920 previously unknown to me. And as a writer, that's sort 0:14:00.000 --> 0:14:02.040 of why I did it, to learn I didn't know 0:14:02.200 --> 0:14:04.960 enough about this world and about Jim, and each of 0:14:05.000 --> 0:14:07.600 these characters is potentially a book on their own right. 0:14:07.640 --> 0:14:09.320 There were so many. I think that was one surprise. 0:14:09.640 --> 0:14:12.200 There's so many rich characters at their firm. It's not 0:14:12.240 --> 0:14:14.240 sort of Jim and Okay, you hear a Bob Mercer 0:14:14.280 --> 0:14:20.520 and and Peter Brown. Time after time. I ran into fascinating, accomplished, quirky, 0:14:20.760 --> 0:14:25.680 colorful characters. And the other surprise is how hard it 0:14:25.760 --> 0:14:28.880 is to be a quant So you think of these 0:14:28.880 --> 0:14:32.920 guys are mathematicians, they're scientists. You would think that instinctively 0:14:33.360 --> 0:14:37.040 they would want to pursue a quantitative approach, the scientific method. 0:14:37.320 --> 0:14:39.960 That's where they come from. And yet from the beginning 0:14:40.000 --> 0:14:42.640 from Simons and his early colleagues, guys like Lennie Boum, 0:14:43.240 --> 0:14:46.520 Jim Max, Ellen, Burla Camp others, you see that there's 0:14:46.600 --> 0:14:48.800 they're fighting their instinct there. Really their instinct is to 0:14:48.920 --> 0:14:51.280 kind of just trade like you and I do, just 0:14:51.280 --> 0:14:53.840 sort of look at the news and anticipate where the 0:14:53.840 --> 0:14:56.280 world is going and the markets are going. And they 0:14:56.360 --> 0:14:59.640 sometimes fall back into that pattern, even they that was 0:14:59.680 --> 0:15:02.520 shot can. Uh. The early parts of the book describe 0:15:02.600 --> 0:15:06.520 Jim Simons as the derogatory term I use. He's a 0:15:06.560 --> 0:15:12.280 macro tourist. He's like every day trader, watching TV, looking 0:15:12.280 --> 0:15:15.600 for news, trading in and out of stuff, doing good 0:15:15.640 --> 0:15:19.240 some days, losing money the other days. But there's nothing 0:15:19.480 --> 0:15:23.160 special or unique about that. He was every newbie trader, 0:15:23.320 --> 0:15:26.440 wasn't he listen? He had unique approaches what he thought 0:15:26.440 --> 0:15:29.520 were unique approaches. I get into them. At one point 0:15:29.520 --> 0:15:34.920 he consulted with this early economist named Alan Greenspan, and Uh, 0:15:34.960 --> 0:15:37.400 they had different ways. They thought they had an edge, 0:15:37.400 --> 0:15:39.000 but no, they didn't have an edge. Not only that, 0:15:39.120 --> 0:15:41.760 but it tore him up inside and made it literally 0:15:42.160 --> 0:15:44.600 physically made him ill. That he'd come into the office 0:15:44.800 --> 0:15:48.360 just unsure of himself. Um, some days up, some days down. 0:15:48.640 --> 0:15:50.440 They made a lot of money. At one point the 0:15:50.560 --> 0:15:53.120 name gave back a lot of money. They were fallings 0:15:53.120 --> 0:15:55.240 out with different types of people. But it's not just 0:15:55.440 --> 0:15:59.120 early days. Even last year. End of last year. The 0:15:59.160 --> 0:16:04.720 market is loading, as we recall and Q four exactly. 0:16:04.720 --> 0:16:07.760 And Jim Simons and I write the story. I tell 0:16:07.760 --> 0:16:10.600 this anecdote in the book. He's on vacation on his 0:16:10.800 --> 0:16:15.120 huge ship somewhere and he starts panicking about the market 0:16:15.160 --> 0:16:17.520 and he calls his wealth manager. The guy's managing his money. 0:16:17.520 --> 0:16:19.640 I mean, Jim Simmons were twenty three billion dollars, so 0:16:19.680 --> 0:16:23.000 he's quite the portfolio. And he's like, maybe we should 0:16:23.000 --> 0:16:26.680 be buying some insurance here. That's like me panicking in 0:16:26.680 --> 0:16:30.600 the markets down? Hey, should I be selling? Like like, 0:16:30.720 --> 0:16:32.560 that's a big deal. I guess when it's twenty three 0:16:32.600 --> 0:16:34.960 billion dollars, it is a big deal. It is. But 0:16:35.440 --> 0:16:38.600 he's a guy who made his twenty three billion dollars 0:16:38.600 --> 0:16:42.120 on the scientific approach on, not on testing ideas and 0:16:42.440 --> 0:16:46.960 having systematic approach to investing, not on these narratives and 0:16:47.320 --> 0:16:51.040 nervousness and reacting all these behavioral mistakes that we all make. 0:16:51.280 --> 0:16:54.720 He was about to make too. So even an eight 0:16:54.840 --> 0:16:57.120 year old, the genius, the guy who solved the market, 0:16:57.200 --> 0:17:00.560 as I call it, he is apt to um to 0:17:00.720 --> 0:17:03.800 trade like everybody else. And the point being, it's not 0:17:03.880 --> 0:17:06.560 easy being a quant You have to fight your instincts 0:17:06.560 --> 0:17:09.360 to some extent, even when you're a scientist and a mathematician. 0:17:09.800 --> 0:17:12.520 So let's talk about that a sec. In the early 0:17:12.640 --> 0:17:17.400 days when renaissance was starting to become who Who, they 0:17:17.440 --> 0:17:22.639 eventually become their big secret. They were really big data. 0:17:22.760 --> 0:17:26.280 Before big data was a thing, before crisp Ereuters or 0:17:26.400 --> 0:17:32.880 Dow Jones or Bloomberg made commercial database of market prices available, 0:17:33.480 --> 0:17:37.720 they were effectively assembling their own. That was fairly unique, 0:17:37.760 --> 0:17:40.399 wasn't it. That's exactly right, and that was one of 0:17:40.440 --> 0:17:43.560 the early edges. And frankly, they were collecting data when 0:17:43.600 --> 0:17:45.680 no one cared about it, no one saw a need 0:17:45.760 --> 0:17:49.200 for it. This is pre Bloomberg, pre everything else. They 0:17:49.200 --> 0:17:53.160 were going down to the Fed collecting obscure pieces of data, 0:17:53.240 --> 0:17:57.359 economic and other. They were going back in history, so um, 0:17:57.400 --> 0:17:59.080 it was a several years later, but they were collecting 0:17:59.119 --> 0:18:02.200 stuff from like the late eighteen hundreds and they didn't 0:18:02.240 --> 0:18:04.520 really have a purpose for a lot of that data 0:18:04.720 --> 0:18:08.720 at the time. They had this instinct instinct that maybe 0:18:08.720 --> 0:18:12.119 it's because they were scientists, that the more data the better, 0:18:12.200 --> 0:18:15.000 and any kind of data could be helpful and maybe 0:18:15.000 --> 0:18:17.640 not right now, but at some point down the road. 0:18:17.720 --> 0:18:20.080 And yet that gave them a complete advantage because then 0:18:20.080 --> 0:18:21.919 they could test, they could create models, they could do 0:18:21.960 --> 0:18:25.240 scenarios that others couldn't. And the way I like in 0:18:25.320 --> 0:18:27.240 it is too a little bit like if you wanted 0:18:27.280 --> 0:18:31.639 to create a library, Um, how long would it take you? Okay, 0:18:31.720 --> 0:18:34.000 like your public library or local library probably take you, 0:18:34.040 --> 0:18:35.680 I don't know, a few months to collect all the books. 0:18:35.760 --> 0:18:38.040 But what if you wanted to create the Library of Congress. 0:18:38.119 --> 0:18:40.439 It would be pretty impossible. Some of that stuff you 0:18:40.480 --> 0:18:42.880 just can't get your hands. And that's what Renaissance still 0:18:42.920 --> 0:18:46.560 has today and and it does help them. So the 0:18:46.720 --> 0:18:50.840 cost of building that database, and they were fastidious about 0:18:50.880 --> 0:18:54.120 making sure the data was clean and up to date 0:18:54.200 --> 0:18:58.800 and accurate. How to be substantial. The typical hedge fund 0:18:58.920 --> 0:19:03.879 charges too, and twenty two percent management feed of the profits. 0:19:03.920 --> 0:19:07.119 But Simon thought the cost of the database needs to 0:19:07.160 --> 0:19:10.800 be passed along. Two investors. So instead of charging two 0:19:10.800 --> 0:19:16.200 and twenty, he charged brace yourself five and forty four. 0:19:17.000 --> 0:19:19.880 Who the hell would pay that sort of fee when 0:19:19.960 --> 0:19:23.520 you're making a lot of money and LP how will 0:19:23.760 --> 0:19:27.439 have pay that kind of fee? And they their their returns, 0:19:27.640 --> 0:19:31.040 which for the first time ever have been released, because 0:19:31.040 --> 0:19:34.240 it's only always been a rumor. You're appendix one or 0:19:34.240 --> 0:19:37.120 Appendix B, I don't remember which. The end of the book, 0:19:37.200 --> 0:19:44.359 you note since the medallion has averaged annual returns of 0:19:44.560 --> 0:19:48.879 sixty but that's before those five and thirty six or 0:19:48.880 --> 0:19:53.640 five and forty four fees. Afterwards, it's only thirty nine 0:19:53.680 --> 0:19:57.160 point one percent a year for thirty years. Those are 0:19:57.240 --> 0:20:02.919 just eye popping astonishing returns, right uh, and right as 0:20:02.960 --> 0:20:06.080 you suggest, you will pay for those kind of returns. 0:20:06.080 --> 0:20:08.159 You pay almost any feed. They kept raising the fees 0:20:08.720 --> 0:20:12.760 partly to discourage investors from sticking in the funds, and 0:20:12.800 --> 0:20:15.040 eventually they kicked out all the investors. And that's part 0:20:15.040 --> 0:20:17.880 of their secret to that they kept it. They kept 0:20:17.960 --> 0:20:20.960 medallion as they realized it couldn't return these sort of 0:20:21.040 --> 0:20:24.119 numbers beyond what is it, seven billion or eight billion 0:20:24.160 --> 0:20:26.600 dollars seven eight billion a year, So you know, you 0:20:26.720 --> 0:20:28.679 got to give Jim Simons all kinds of credit and 0:20:28.720 --> 0:20:31.320 his colleagues, and they are the greatest modern day investors 0:20:31.320 --> 0:20:34.240 in history. But you also want to um note that 0:20:34.320 --> 0:20:36.480 they didn't they weren't able to grow it, and they 0:20:36.560 --> 0:20:39.199 knew they couldn't grow it beyond what it is right now, 0:20:39.200 --> 0:20:41.880 we're talking about the Medallion Fund ten billion dollars, So 0:20:42.240 --> 0:20:45.760 it's not like they kept growing its fifty billion dollars. 0:20:45.760 --> 0:20:48.000 They knew they could not get those kinds of returns 0:20:48.080 --> 0:20:52.359 and and they currently keep the Medallion funds or actually 0:20:52.440 --> 0:20:55.399 it's been that way for fifteen twenty years. Is that 0:20:55.440 --> 0:21:00.560 about right for just Simon's and the employees of Renaissance, right, 0:21:00.560 --> 0:21:04.800 Which is a wonderful way of keeping talent, recruiting in retention. Yeah, 0:21:04.840 --> 0:21:06.800 you don't even have to pay people there. I mean, 0:21:06.800 --> 0:21:10.120 they do pay nicely, but just the ability to invest 0:21:10.200 --> 0:21:14.560 in Medallion retains top talent. It also makes them so 0:21:14.680 --> 0:21:17.080 wealthy quite frankly, that a lot of these guys when 0:21:17.119 --> 0:21:19.320 they leave, and the few women they're working there, when 0:21:19.359 --> 0:21:21.720 they leave, they're not going to another Wall Street firm. 0:21:21.760 --> 0:21:24.080 They've made so much money, they're doing philanthropy, They're going 0:21:24.119 --> 0:21:27.800 back to academia other interesting things. So it's a it's 0:21:27.840 --> 0:21:30.280 a great way to retain talent, and it's also a 0:21:30.280 --> 0:21:32.879 great way to make sure people aren't gonna quit and 0:21:32.880 --> 0:21:36.120 start rivals. So let's talk a little bit about one 0:21:36.119 --> 0:21:40.520 of the most significant people in the book other than 0:21:40.640 --> 0:21:44.000 Jim Simons, and that would be Bob Mercer. He uh. 0:21:44.080 --> 0:21:48.119 By the time he joins Renaissance, Simmons has figured out 0:21:48.320 --> 0:21:50.600 how to trade bonds, how to trade currencies, how to 0:21:50.680 --> 0:21:56.439 trade commodities, but he hasn't cracked equities. So Renaissance is 0:21:56.480 --> 0:22:01.199 a small, unimportant firm generating some nice returns, helping to 0:22:01.240 --> 0:22:07.040 make Simon's conventionally rich, not a billionaire, but rich. But 0:22:07.160 --> 0:22:11.280 Mercer comes along, how important to see to the Renaissance story. 0:22:11.600 --> 0:22:18.640 That's exactly right. So around nine Renaissance was okay, middling 0:22:18.880 --> 0:22:21.840 kind of firm, respected by those who knew it. Most 0:22:21.880 --> 0:22:24.400 people had no clue who they were. They were doing 0:22:24.480 --> 0:22:28.240 nicely as you suggest, in commodities and currencies, uh futures, 0:22:28.280 --> 0:22:31.680 but couldn't make it happen in equities. And for some 0:22:31.720 --> 0:22:33.840 of the people internally that was fine. They were getting 0:22:33.880 --> 0:22:37.479 wealthy who cares, but no scale, no influence. No, they 0:22:37.520 --> 0:22:39.600 don't leave a mark on Wall Street. And that's what 0:22:39.640 --> 0:22:41.600 Simon's wanted. You want to leave a mark on the 0:22:41.600 --> 0:22:45.320 world broadly and make a lot of money use that money. 0:22:45.320 --> 0:22:48.520 And you couldn't do that unless they could crack equities because, 0:22:48.560 --> 0:22:52.160 as we know, um equities, you can manage much more 0:22:52.240 --> 0:22:55.520 money um in the in the equity world and relative 0:22:55.600 --> 0:22:58.360 to the other types of world's fixed income in commodities, etcetera. 0:22:58.640 --> 0:23:00.840 So they were frustrating, and there were a bunch of 0:23:00.880 --> 0:23:05.159 turning points within the Renaissance story. They almost fell apart 0:23:05.240 --> 0:23:07.240 a number of times, more than I would have expected. 0:23:07.280 --> 0:23:10.720 That's another kind of surprise from my research. There were 0:23:10.760 --> 0:23:13.320 several times where they really it was it was touch 0:23:13.400 --> 0:23:15.280 and go whether they would keep going or not. So 0:23:16.440 --> 0:23:18.880 there were people within the firm and said give it up, Jim, 0:23:19.119 --> 0:23:22.520 stop trying to figure out equities. And they almost gave 0:23:22.600 --> 0:23:24.960 it up. And then this guy's you suggest. Bob Mercer 0:23:25.000 --> 0:23:29.640 came along and Peter Brown to speech recognition experts from IBM, 0:23:29.680 --> 0:23:33.400 and they built an improved equities trading system, much improved. 0:23:33.760 --> 0:23:37.000 The engineering that technologies was much better. They combined all 0:23:37.160 --> 0:23:40.280 kinds of different signals and factors into one system, which 0:23:40.359 --> 0:23:42.480 is one of their great advantages too, as opposed to 0:23:42.480 --> 0:23:45.240 different models. A lot of different quant firms have multiple 0:23:45.280 --> 0:23:47.520 different models. They have one system and it's hard to 0:23:47.520 --> 0:23:49.280 pull that off. And that's what it took somebody like 0:23:49.320 --> 0:23:51.200 Bomb Mercer to figure that out. So so one of 0:23:51.240 --> 0:23:54.360 the things we haven't talked about, it would be important 0:23:54.400 --> 0:23:59.080 to bring this up. Simmons isn't recruiting people from Wall Street. 0:23:59.160 --> 0:24:03.720 He's not rating Morgan Stanley or Goldman Sachs. He's rating 0:24:03.800 --> 0:24:08.800 the IBM Watson team. He's rating academic math and computer 0:24:08.880 --> 0:24:13.399 science and physics department. He's taking former ns A codebreakers 0:24:13.760 --> 0:24:17.320 and hiring them. This is not the usual team of 0:24:17.359 --> 0:24:22.200 wool Street whiz kids. These are really brilliant scientists, academicians 0:24:22.200 --> 0:24:25.880 and others, but no one is coming out of of 0:24:26.400 --> 0:24:30.399 Lower Manhattan. They're They're really a different cud, aren't they, Barry. 0:24:30.440 --> 0:24:34.000 That speaks to the paradox of the whole Jim Simons 0:24:34.040 --> 0:24:38.679 and Renaissance story. The very people who figured out the market, 0:24:38.720 --> 0:24:41.520 who conquered the market are pretty much the last people 0:24:41.560 --> 0:24:43.879 you would have expected, because they were people that didn't 0:24:43.920 --> 0:24:47.000 know anything about the market. It's about you didn't know 0:24:47.040 --> 0:24:48.760 the white investing, not only that some of them were 0:24:48.760 --> 0:24:51.840 aren't even capitalists internally when you talk to them. So 0:24:51.920 --> 0:24:54.320 let's let's let's stick with that issue. We'll come back 0:24:54.320 --> 0:24:59.040 to the academic nature. I'm kind of fascinated by Bob Mercer. 0:24:59.680 --> 0:25:02.960 The uxtaposition with him is, here's a guy who by 0:25:03.000 --> 0:25:10.239 all measures, brilliant, rational, completely mellow and even tempered, just 0:25:10.320 --> 0:25:15.480 a data driven mathematician professionally. But then I guess that's 0:25:15.520 --> 0:25:19.080 his uh Dr Jekyl. But the Mr Hyde is his 0:25:19.200 --> 0:25:23.840 personality when it comes to his personal politics is the 0:25:23.880 --> 0:25:29.200 polar opposite. He's a wild eyed conspiracy theorist. He trolls 0:25:29.400 --> 0:25:34.840 the other Renaissance Technology employees. Simons is a big democrat. 0:25:35.080 --> 0:25:38.720 A lot of the other academics at Renaissance are certainly 0:25:38.840 --> 0:25:42.800 left of center, if not Democrats, or or even further left. 0:25:43.600 --> 0:25:48.399 How does Bob Mercer play in that environment? Yeah, so, 0:25:48.480 --> 0:25:53.879 Bob Mercer as a scientist who demanded internally that everyone 0:25:53.960 --> 0:25:57.560 stick to the scientific method, and it's a data driven firm. 0:25:57.600 --> 0:26:02.200 Everything has to be approved ever, no intuition exactly. And yet, 0:26:02.240 --> 0:26:05.280 as you suggest, when it comes to his personal beliefs, 0:26:05.840 --> 0:26:10.960 he believes every insane conspiracy theory out there. It's so 0:26:11.040 --> 0:26:14.640 shocking compared to who he is professionally. What I'm really 0:26:14.640 --> 0:26:21.240 trying to emphasize is how different personally his beliefs are. Yeah, 0:26:21.240 --> 0:26:27.680 I mean, everything he argues against doing professionally he does personally. 0:26:28.280 --> 0:26:31.639 It seems just so odd. He demands proof when it 0:26:31.640 --> 0:26:34.080 comes to work and not so much outside of work. 0:26:34.119 --> 0:26:35.960 I mean, for a long time he was treated as 0:26:35.960 --> 0:26:39.600 a curiosity within Renaissance. He again to go into the 0:26:39.680 --> 0:26:43.879 lunch room get under people's skin by talking, by sharing 0:26:43.920 --> 0:26:47.080 some of these conspiracy theories about Hillary or somebody else, 0:26:47.440 --> 0:26:50.480 and people weren't sure internally whether he really believed in 0:26:50.520 --> 0:26:52.440 it or not. He was the boss, they didn't want 0:26:52.440 --> 0:26:54.119 to challenge him too much, so for a while they 0:26:54.160 --> 0:26:55.960 didn't take him seriously. They didn't think they needed to. 0:26:56.280 --> 0:26:58.359 And then lo and behold as he as the firm 0:26:58.520 --> 0:27:01.960 grew and he became a multi billionaire, they realized that 0:27:02.000 --> 0:27:05.639 he was funding all kinds of causes that many people, 0:27:05.640 --> 0:27:09.199 if not most people at Renaissance are really uncomfortable with, 0:27:09.359 --> 0:27:11.520 unhappy about, and they were they were stuck. They don't 0:27:11.520 --> 0:27:13.600 know what to do. We're talking about everything from Brexit. 0:27:13.640 --> 0:27:16.840 He was helpful in terms of Brexit. Bright bart he 0:27:16.920 --> 0:27:20.159 was funding bright bart Um and then he got behind 0:27:20.280 --> 0:27:23.160 the Trump campaign. He's the one who put Kelly Anne 0:27:23.160 --> 0:27:26.240 Conway and Steve Bannon in the Trump campaign. And one 0:27:26.240 --> 0:27:28.760 can argue, and people have said that there may not 0:27:28.880 --> 0:27:31.640 have been a Trump presidency were it not for this guy, 0:27:31.680 --> 0:27:35.800 Bob Mercer, which made everyone internally uncomfortable. And and let's 0:27:35.800 --> 0:27:38.959 set the stage for that. It's August of two thousand 0:27:38.960 --> 0:27:42.919 and sixteen. The Trump campaign is in the midst of imploding. 0:27:42.920 --> 0:27:45.840 There have been a series of scandals. Back when scandals 0:27:45.920 --> 0:27:50.360 actually resonated, the whole Access Hollywood tape comes out. I mean, 0:27:50.480 --> 0:27:54.080 the Trump campaign was circling the drain before Robert Mercer 0:27:54.160 --> 0:27:57.480 stepped in with a few handpicked people and a little 0:27:57.480 --> 0:28:00.720 bit of cash. Right. So what happened was Bob Mur's daughter, 0:28:00.760 --> 0:28:04.000 Rebecca Mercer, who kind of runs the political side of 0:28:04.000 --> 0:28:07.000 things in the family, she ran up to to Trump 0:28:07.600 --> 0:28:10.760 at an event campaign event and say you better turn 0:28:10.840 --> 0:28:14.479 things around or else we're done. And they've been funding 0:28:14.560 --> 0:28:18.439 him financially. First they were Cruise, they were backing Take Cruise, 0:28:18.480 --> 0:28:22.200 and they after a lunch between Avanca and Rebecca Mercer. 0:28:22.840 --> 0:28:26.160 The Mercers switched gears and also CRUs lost. He got 0:28:26.160 --> 0:28:28.800 out of the race. Then they switched gears. They became 0:28:28.880 --> 0:28:30.560 one of the top funders. I think that they eventually 0:28:30.680 --> 0:28:33.960 hime the top funder for for Trump. Sobca Rebecca Mercer 0:28:34.040 --> 0:28:37.960 runs up to Donald Trump at an event says you're 0:28:37.960 --> 0:28:41.600 gonna lose unless you drastically change things, and Trump kind 0:28:41.600 --> 0:28:43.840 of acknowledge. He's like, yeah, what do I do? And 0:28:43.880 --> 0:28:46.400 Rebecca said, You've got to work with this guy, Steve Bannon. 0:28:46.760 --> 0:28:48.920 So Steve in Trump's like, all right, I'll meet with him. 0:28:48.960 --> 0:28:51.480 So Steve Bennon goes out to the the country club 0:28:51.480 --> 0:28:54.240 in New Jersey to talk to Trump, has to wait 0:28:54.440 --> 0:28:58.000 through Trump goes through a couple of hot dogs, Um 0:28:58.160 --> 0:29:02.920 ice cream Sunday, Um, plays golf and and you know, 0:29:03.040 --> 0:29:06.120 Bannon's waiting and waiting, and finally he gets an audience 0:29:06.240 --> 0:29:10.280 with Trump and he lays out strategically what he should 0:29:10.280 --> 0:29:13.120 be doing, and Trump listens to him. To his credit 0:29:13.280 --> 0:29:15.440 and the rest of this history. So if we're not 0:29:15.480 --> 0:29:17.640 for Rebecca Mercer and Bob Mercer, it's not clear Trump 0:29:17.640 --> 0:29:20.000 would have won. I can't get a good read on 0:29:20.240 --> 0:29:23.600 Rebecca Mercer in the book. She's really very minor character 0:29:24.040 --> 0:29:27.600 relative to all these other scientists. Who is she and 0:29:27.600 --> 0:29:31.000 and and what was she doing before the election. So 0:29:31.120 --> 0:29:35.840 Rebecca Mercer, like her father, is very conservative. Rebecca homeschools 0:29:35.840 --> 0:29:41.840 her children and believes in small government, low taxation, hates 0:29:41.880 --> 0:29:46.080 the Clintons like Bob Mercer um and but they also 0:29:46.120 --> 0:29:49.080 believe in data. And they also believe in the fact 0:29:49.120 --> 0:29:53.080 that they got really frustrated with mainstream Republicans and they 0:29:53.080 --> 0:29:55.200 didn't think anybody was going to shake things up like 0:29:55.240 --> 0:29:57.920 they thought it should be shaking up. And frankly, as 0:29:57.960 --> 0:30:00.080 an outsider, as a writer, I look at these two 0:30:00.080 --> 0:30:02.960 bowl and I see too that people that never really 0:30:02.960 --> 0:30:06.200 contributed to broader society. It's not like I volunteered their 0:30:06.200 --> 0:30:10.280 time to do something to run to support to fund 0:30:10.720 --> 0:30:14.560 um broader society. By Mercer spent his whole life trying 0:30:14.600 --> 0:30:16.440 to make money, or was first first trying to do 0:30:16.520 --> 0:30:19.360 science and then trying to do to make money. Is 0:30:19.440 --> 0:30:21.280 nothing wrong with that, But then all of a sudden 0:30:21.640 --> 0:30:23.440 he becomes he and his daughter become the ones who 0:30:23.520 --> 0:30:27.040 really have such a remarkable shift on society, on you 0:30:27.120 --> 0:30:30.640 and I I I find that a little distasteful. Frankly, Now, 0:30:30.680 --> 0:30:33.560 weren't they though, on a bunch of philanthropic boards in 0:30:33.600 --> 0:30:35.960 the Museum and Natural History in New York and elsewhere? 0:30:36.160 --> 0:30:38.160 But they had to be throwing some money around. Yes, 0:30:38.280 --> 0:30:41.120 that that was That was pre election though, wasn't it. Uh, 0:30:41.160 --> 0:30:43.200 that's a good question, Wenkley, go on the board. I mean, 0:30:43.720 --> 0:30:45.680 come back to that, because it was only after the 0:30:45.720 --> 0:30:48.840 election that the pressure started coming up to put Wait, 0:30:48.920 --> 0:30:51.520 he's a climate denialist and he's on the board of 0:30:51.520 --> 0:30:56.560 the Natural Museum of Is is she on? Am my? Confusing? 0:30:56.720 --> 0:30:59.160 Who's on which board? Rebecca was on the board of 0:30:59.520 --> 0:31:03.280 Natural um boar of of Museum and National History in 0:31:03.320 --> 0:31:08.360 New York, But she's also a climate denial Yes, Mercer 0:31:08.400 --> 0:31:12.320 is a climate denialist. Um. They he believes that nuclear 0:31:12.400 --> 0:31:15.320 war may not be as harmful as we all believe. 0:31:15.520 --> 0:31:18.640 Less should get past the radioactive cloud. It's really not 0:31:18.720 --> 0:31:22.560 that bad. That's the argument. There you go. Um again, 0:31:22.640 --> 0:31:25.320 not based on science. There's like some stray he picked 0:31:25.360 --> 0:31:29.720 up on some stray he sees on a stray scientific 0:31:29.720 --> 0:31:33.320 paper that was since discredited. Um, which is again goes 0:31:33.360 --> 0:31:35.920 back to the irony that a guy who demands science 0:31:35.960 --> 0:31:37.920 when it comes to his day to day work, when 0:31:37.960 --> 0:31:41.840 it comes to his personal outside interests, he's less demanding. 0:31:42.280 --> 0:31:45.640 And and then the other question that's so interesting is 0:31:46.400 --> 0:31:50.400 how is Robert Mercer forced to step down as CEO 0:31:50.560 --> 0:31:53.560 at Renaissance Technologies and and what is his role currently. 0:31:54.080 --> 0:31:58.440 So Bob Mercer was at Renaissance throughout the campaign through 0:31:58.480 --> 0:32:02.640 the election, and many internally were unhappy about that, but 0:32:02.760 --> 0:32:05.520 not everyone. Others thought he was a good leader. He 0:32:05.880 --> 0:32:10.600 formed a really impressive partnership with a guy named Peter Brown. 0:32:11.120 --> 0:32:15.520 Peter Brown is tempestuous, He's always got great, crazy, interesting ideas. 0:32:15.720 --> 0:32:18.640 Some work, some don't, and Bob Mercer was the calm 0:32:18.720 --> 0:32:20.640 one that was being in the yang and they worked 0:32:20.680 --> 0:32:23.680 really well together. So internally some people were like, what 0:32:23.720 --> 0:32:25.720 do we do here? Our CEO is still doing a 0:32:25.760 --> 0:32:28.640 great job, We're still making six a year in the market. 0:32:28.880 --> 0:32:33.200 But for the destroying democracy thing, he's fantastic and society 0:32:33.240 --> 0:32:37.160 potentially um and even Jim Simons was was torn. So 0:32:37.280 --> 0:32:40.400 Jim Simons was the largest, one of the largest funders 0:32:40.560 --> 0:32:43.960 of Hillary Clinton and his top employee, he Bob Mercer, 0:32:44.080 --> 0:32:47.920 was the top funder for for Donald Trump, so he 0:32:48.080 --> 0:32:51.440 was in a bind. Jim Simons, he couldn't fire his 0:32:51.520 --> 0:32:54.320 employee for his political beliefs, and he also liked him. 0:32:54.320 --> 0:32:56.760 He likes some one individual basis. And to Simon's credit, 0:32:56.840 --> 0:32:58.960 he says in the book, who am I to tell 0:32:59.080 --> 0:33:00.880 him how to spend his own money? It's not my 0:33:01.000 --> 0:33:04.080 decision exactly. And many were torn internally, but it got 0:33:04.080 --> 0:33:07.640 to the point where morale was being affected and they 0:33:07.640 --> 0:33:10.440 were worried about their ability to recruit. And that's the 0:33:10.480 --> 0:33:14.000 lifeblood for that of that place. What what about outside investors? 0:33:14.320 --> 0:33:17.320 A lot of big institutions are not especially happy with Trump. 0:33:17.400 --> 0:33:22.160 How were they dealing with Bob Mercer as CEO of Renaissance. 0:33:22.200 --> 0:33:25.480 So by then, um they had started a few outside 0:33:25.800 --> 0:33:28.880 hedge funds for institutions and others. They still had them dwing, 0:33:29.000 --> 0:33:31.840 which is only for internal employees. But right by the 0:33:31.880 --> 0:33:35.560 time the election, they had outside investors and many were unhappy. 0:33:35.600 --> 0:33:38.160 But that said, the returns were still really good. So 0:33:38.280 --> 0:33:40.320 it wasn't clear to me that how many we're really 0:33:40.320 --> 0:33:44.200 gonna pull out over Bob Mercer's politics. The bigger issue 0:33:44.240 --> 0:33:46.680 is that they were worried about their ability to keep 0:33:46.680 --> 0:33:49.120 attracting talent, and that's what they worry about. That is 0:33:49.160 --> 0:33:52.680 their biggest concern because they're not competing necessarily with PDT 0:33:53.120 --> 0:33:56.920 and two Sigma only, they're also competing with Google and Facebook. 0:33:56.960 --> 0:34:00.320 These are scientists who could go work somewhere else, and 0:34:00.440 --> 0:34:04.160 they were concerned about their ability to keep recruiting them. 0:34:04.360 --> 0:34:07.200 And at some point Jim Simons said, Bob, we've got 0:34:07.200 --> 0:34:09.400 to talk. And I talked about that scene. I described 0:34:09.440 --> 0:34:12.640 that scene in the book, and it was difficult for 0:34:12.680 --> 0:34:15.759 both of them. Bomb Mercer was effectively told to step down, 0:34:16.200 --> 0:34:19.160 and Jim Simons was telling his old friends who who 0:34:19.239 --> 0:34:22.320 helped make him a multibillionaire, that he could no longer 0:34:22.360 --> 0:34:26.640 help run the firm. The secret source of anything is 0:34:26.680 --> 0:34:32.360 that ability to attract incredible talent from all manner of 0:34:32.360 --> 0:34:35.840 of academia and technology and science, isn't it. They have 0:34:35.880 --> 0:34:40.319 a lot of sauces that are secret and impressive. Um 0:34:40.600 --> 0:34:44.239 the collaborative. They're much more collaborative than most firms. They 0:34:44.239 --> 0:34:46.839 don't try to predict where the market is going. It's 0:34:46.880 --> 0:34:49.600 all relationships. It's groups of stocks versus groups of stocks. 0:34:49.640 --> 0:34:52.480 Four thousand or so long, four thousands or so short UM. 0:34:52.520 --> 0:34:56.320 They have many but among the most impressive. Most impressive 0:34:56.600 --> 0:34:59.720 things about that firm is they still can recruit almost 0:34:59.760 --> 0:35:03.000 any one for any area, and they get superstars from 0:35:03.080 --> 0:35:07.520 academia and other places. Quite fascinating. One of the things 0:35:07.560 --> 0:35:11.279 I found so fascinating from the book that I did 0:35:11.360 --> 0:35:16.160 not previously put together in my head but should have, 0:35:17.840 --> 0:35:21.640 but the book made it clear. Jim Simons is really 0:35:21.840 --> 0:35:27.400 an outstanding builder of teams. He was deputy director at 0:35:27.440 --> 0:35:33.040 the subdivision of the UM National Security Agency Code Group. 0:35:33.080 --> 0:35:35.319 I'm I'm during a blank on their name c RD, 0:35:35.400 --> 0:35:38.120 it was called at the time CRD. Then at sunny 0:35:38.160 --> 0:35:42.480 Stony Brook, he takes what was essentially a modest state 0:35:42.560 --> 0:35:46.560 school in New York, builds it into a powerhouse mathematics department, 0:35:46.800 --> 0:35:49.640 like a world class math department, filled with Nobel laureates 0:35:49.640 --> 0:35:55.080 and others. And then at Renaissance he builds another spectacular team. 0:35:55.280 --> 0:35:58.840 Is it fair describe to describe him as an architect 0:35:59.200 --> 0:36:02.479 more than anything? I think that's fair, So listen. Jim 0:36:02.480 --> 0:36:05.719 Simons has his faults. UM, He's not a perfect individual, 0:36:06.120 --> 0:36:09.160 but he's quite impressive in his ability to both do 0:36:09.360 --> 0:36:13.120 the math and the science, and when he wants through 0:36:13.120 --> 0:36:15.480 a needs two. He can do the algorithms, but more 0:36:15.520 --> 0:36:19.560 importantly his ability to manage talents. And someone internally said 0:36:19.560 --> 0:36:22.320 to me, Greg, it's not his genius, but his ability 0:36:22.560 --> 0:36:25.160 to manage genius, which is not easy to do. It's 0:36:25.239 --> 0:36:29.320 really not easy. And you think about these really quirky personalities, 0:36:29.400 --> 0:36:31.319 which really jumps out of you. I think when you 0:36:31.320 --> 0:36:36.480 read the book, how many unusual, odd headstrong, um stubborn 0:36:37.239 --> 0:36:41.719 um top top scientists they've hired, and you know they're 0:36:41.719 --> 0:36:45.000 pretty wealthy. They could leave and go somewhere else, and 0:36:45.040 --> 0:36:47.920 he was able to create this incentive for them to 0:36:48.000 --> 0:36:50.839 stay and work together. Not just stay there, but they 0:36:50.880 --> 0:36:53.440 work together. And like you suggest, you can see that 0:36:53.480 --> 0:36:56.319 pattern early on in his career. He was great as 0:36:56.320 --> 0:36:59.320 a department chair at keeping people happy, all the different 0:36:59.360 --> 0:37:01.520 personalities and kind of thing. Or you can't really force 0:37:01.560 --> 0:37:04.480 someone who's a professor to do what what you'd like 0:37:04.600 --> 0:37:07.239 them to do. You've got to create incentives. And that's 0:37:07.280 --> 0:37:09.840 exactly what he's done at Renaissance. And I think in 0:37:09.880 --> 0:37:12.399 some ways you can learn management skills from him as 0:37:12.480 --> 0:37:15.040 much as you can learn how to create algorithms. So 0:37:15.080 --> 0:37:18.920 one of the interesting parts of the development of Renaissance 0:37:19.680 --> 0:37:23.759 was um what took place in the mid nineties. So 0:37:23.840 --> 0:37:27.960 he's uh, Mercer and Brown, Peter Brown are working on 0:37:28.000 --> 0:37:31.640 the equities portion. Uh, and they're not making a whole 0:37:31.640 --> 0:37:35.799 lot of progress. It's expensive, it's time consuming, and it's 0:37:35.880 --> 0:37:40.799 simply not delivering the sort of returns that everybody has 0:37:40.840 --> 0:37:45.560 hoped for. And so in Simon says to Brown and Mercer, quote, 0:37:45.680 --> 0:37:48.080 get your system to work in the next six months, 0:37:48.520 --> 0:37:51.759 or I'm pulling the plug unquote. How close was the 0:37:51.960 --> 0:37:58.680 entire equities portion of Renaissance to um never becoming what 0:37:58.760 --> 0:38:01.799 it became. Oh, it was very close. And one has 0:38:01.800 --> 0:38:05.360 to also call or remember or note that Jim Simons 0:38:05.400 --> 0:38:09.520 had remarkable patience. So he has this optimism that most 0:38:09.600 --> 0:38:13.319 most people don't share. He encourages his people. People were 0:38:13.320 --> 0:38:16.520 giving up internally about trying to figure out equities. People 0:38:16.520 --> 0:38:19.839 were saying, it's a waste of our resources. Stopped distracting us, 0:38:20.080 --> 0:38:24.000 and Simmons kept encouraging his team. And yet, as you know, 0:38:24.480 --> 0:38:27.759 even he was at his wits end and ready to 0:38:27.800 --> 0:38:30.800 move on and gave his employees, his staff, Bomb Mercer 0:38:30.840 --> 0:38:33.080 and Peter Brown a matter of months to figure it 0:38:33.080 --> 0:38:35.640 out because they had tried and failed over and over again, 0:38:36.040 --> 0:38:38.920 and there was a quirk, there was um, there was 0:38:38.960 --> 0:38:40.759 an error in the code. There was an error in 0:38:40.800 --> 0:38:44.400 the code that a guy named David Magerman, who's colorful, 0:38:44.640 --> 0:38:47.040 and you have to tell so, so let's I was 0:38:47.080 --> 0:38:50.400 fascinated by that part of the book. So everything seems 0:38:50.440 --> 0:38:53.440 to make sense substractly, but it's losing money. It's not 0:38:53.480 --> 0:38:56.640 making money. And one day one of the more junior 0:38:56.680 --> 0:39:00.359 guys decides to literally go through the algorithm, him through 0:39:00.400 --> 0:39:03.680 the actual lines of code, line by line by line 0:39:03.680 --> 0:39:07.759 by line, and ultimately finds an error where one of 0:39:07.800 --> 0:39:11.239 the SMP prices is fixed, meaning it's supposed to update 0:39:11.280 --> 0:39:14.600 automatically and it doesn't. It's a it's an entry number 0:39:14.719 --> 0:39:18.879 instead of a variable that pulls the data inaccurately. That's 0:39:18.880 --> 0:39:22.160 exactly right. So this guy, David Maggerman, was had just 0:39:22.239 --> 0:39:25.839 been hired a few years earlier from IBM. Early on 0:39:26.000 --> 0:39:29.880 he got some had some accomplishments, and got some respect internally, 0:39:29.920 --> 0:39:32.120 but then he blew it. He made a series of 0:39:32.280 --> 0:39:36.400 dumb error's mistakes. Basically, he was doing things he should 0:39:36.440 --> 0:39:39.400 have been doing. At one point he almost pulled the 0:39:39.400 --> 0:39:42.560 plug on the whole system. It was embarrassing. He was embarrassed. 0:39:42.600 --> 0:39:45.600 He was close to getting h really getting pushed out 0:39:45.600 --> 0:39:47.560 of there. And he's the one who said, you know what, 0:39:47.680 --> 0:39:51.160 maybe I can look at this system and find what 0:39:51.360 --> 0:39:54.600 the bug is. And as you suggest, there was it 0:39:54.640 --> 0:39:57.400 was static. They were there, it wasn't updating, and the 0:39:57.440 --> 0:40:01.680 system wasn't updating incorporating the new way SMP five hundred prices, 0:40:01.680 --> 0:40:04.240 which sort of you know, it's a surprise in itself. 0:40:04.280 --> 0:40:07.720 You think of these top giants in science, they should 0:40:07.719 --> 0:40:10.120 have made this kind of dumb mistake and thousands of 0:40:10.239 --> 0:40:12.840 lines of code. Those mistakes happen, right, Yeah, but you 0:40:12.880 --> 0:40:16.040 think a Renaissance and Medallion and Jim Simmons, and who 0:40:16.080 --> 0:40:18.000 are they? They're like you and I, or at least 0:40:18.000 --> 0:40:21.000 not like this was before they became Renaissance. This was 0:40:21.040 --> 0:40:23.759 really when they were also rents. Yes, but you know 0:40:23.800 --> 0:40:26.239 it also is a reminder that even the giants make 0:40:26.360 --> 0:40:31.000 dumb right. And yes, so magerman Um picked up on 0:40:31.040 --> 0:40:35.120 the mistake. Internally, he finally got some respect because he 0:40:35.200 --> 0:40:37.600 brought her over to bomb Mercer and it was Mercer's math. 0:40:38.080 --> 0:40:39.799 He kind of got it wrong, and he kind of 0:40:39.800 --> 0:40:43.120 to to his credit by Mercer, there's some appealing aspects 0:40:43.120 --> 0:40:45.040 to his personality as well. He said he owned up 0:40:45.040 --> 0:40:46.839 to it and said, yeah, I screwed this up. Let's 0:40:46.880 --> 0:40:48.960 fix it, and they're off to the races. It Literally, 0:40:49.000 --> 0:40:51.560 as soon as that's fixed, the things becomes a money 0:40:51.560 --> 0:40:55.560 printing machine. It's remarkable. And they went from managing Medallion 0:40:55.600 --> 0:40:57.879 was about eight hundred million dollars or so at the time, 0:40:57.920 --> 0:41:02.399 and Equities was like thirty four million dollars to ten 0:41:02.440 --> 0:41:06.920 billion dollars of the greatest hedge fund in man's mankind 0:41:06.960 --> 0:41:10.280 modern financial history. So there was a small, tiny error 0:41:10.280 --> 0:41:13.560 that he picked up on and the rest is history. 0:41:13.600 --> 0:41:16.719 So other firms that are in the quant space, like 0:41:16.880 --> 0:41:20.560 d E. Shaw, they had a big head start over Renaissance. 0:41:21.120 --> 0:41:24.440 What was it about Jim Simons that allowed him to 0:41:24.600 --> 0:41:27.719 catch up to people like David Shaw? There are a 0:41:27.719 --> 0:41:30.160 lot of things they do better. Renaissance does a lot 0:41:30.200 --> 0:41:33.080 of things better than everybody else. There's a certain urgency 0:41:33.280 --> 0:41:35.279 within the firm that you feel when you're there and 0:41:35.320 --> 0:41:38.840 you talk to people that you don't really necessarily get elsewhere. 0:41:38.840 --> 0:41:42.719 There's a collaboration that you see internally. One model that 0:41:42.760 --> 0:41:46.799 other firms don't share. There's a sense of humility. They 0:41:46.840 --> 0:41:50.560 don't um They don't take too much risk. They pull 0:41:50.640 --> 0:41:54.280 back risk during crisis, when things are are even internally 0:41:54.320 --> 0:41:56.000 when people are saying heads put on more risk, they 0:41:56.040 --> 0:41:59.800 generally speaking pull back. They use leverage. They use heavy leverage. 0:42:00.040 --> 0:42:02.319 People don't really focus on how much leverage. But they 0:42:02.320 --> 0:42:04.319 are a ten billion fund that can get over a 0:42:04.360 --> 0:42:08.239 hundred billion dollars when they see the opportunities. Um, I 0:42:08.280 --> 0:42:10.160 could go on and on. They really have the best 0:42:10.320 --> 0:42:13.200 trading ability to see what their impact on the overall 0:42:13.280 --> 0:42:16.240 market is, meaning they have the ability to execute trades 0:42:16.360 --> 0:42:19.560 without moving prices. That and they know when they'll move 0:42:19.600 --> 0:42:21.600 the prices and when they won't, so they can play 0:42:21.640 --> 0:42:24.200 with their signals and try to make them uh and 0:42:24.440 --> 0:42:26.839 try to make sure their activity isn't picked up on 0:42:27.040 --> 0:42:29.640 by rivals. They have some signals that they are internally 0:42:29.640 --> 0:42:32.800 are proud of and think people aren't aware of. And 0:42:32.800 --> 0:42:36.080 and there's sophisticate stuff where these are mathematical relationships. And 0:42:36.120 --> 0:42:38.320 it's one thing that one thing I think everyone should 0:42:38.320 --> 0:42:40.720 realize that it's not like they've got some secret sauce 0:42:40.760 --> 0:42:44.000 about you know, when IBM goes up every day. These 0:42:44.040 --> 0:42:48.680 are mathematical relationships between groups of stocks and and their 0:42:48.719 --> 0:42:52.080 relationship to indexes, relationships to each other, relationships to factors. 0:42:52.280 --> 0:42:56.800 It's complex, complicated stuff, um, but they have certain unique 0:42:56.800 --> 0:43:00.160 insights that others don't. Just like seeing the world just 0:43:00.200 --> 0:43:03.120 a little bit with a better um with glasses when 0:43:03.120 --> 0:43:05.799 everybody else isn't isn't wearing them. They can see things 0:43:05.800 --> 0:43:10.120 that others can quite interesting. There's a quote from one 0:43:10.160 --> 0:43:14.480 of the researchers. Am I pronouncing this right? Panific? I 0:43:14.520 --> 0:43:17.960 love this quote. Quote. Our entire premise was that human 0:43:18.000 --> 0:43:20.840 actors will react the way humans did in the past, 0:43:21.280 --> 0:43:24.320 and we have learned to take advantage of that. How 0:43:24.440 --> 0:43:29.440 much of that is reflected in their algorithms? Yes, so 0:43:29.680 --> 0:43:32.440 almost all of what they do is based on predictive 0:43:32.480 --> 0:43:39.400 models that incorporate historic returns, historic moves in the market, 0:43:39.480 --> 0:43:41.520 and they could be recent returns, they could be from 0:43:41.560 --> 0:43:44.080 the late eight They don't usually use those, but they're 0:43:44.080 --> 0:43:45.880 there if they want them to. So they've gotten the 0:43:45.920 --> 0:43:48.439 better data, and it's cleaner than other people, and they 0:43:48.440 --> 0:43:50.719 were cleaning it way before anybody else, and they cared 0:43:50.719 --> 0:43:54.080 about this stuff more. But right, the genius of renaissance 0:43:54.320 --> 0:43:59.840 is that we as investors, our behavior is somewhat repetitive, 0:44:00.040 --> 0:44:02.600 and it maybe and it rhymes. Now, it's not clear 0:44:02.640 --> 0:44:05.560 going forward whether that will continue. So things have changed. 0:44:05.600 --> 0:44:08.800 We've got as we all know, um, passive investing is changing, 0:44:08.800 --> 0:44:11.319 is dominating the market. Active investors don't play the same 0:44:11.400 --> 0:44:16.359 role factor investing, etcetera. So will Medallion's models. Will renaissances 0:44:16.440 --> 0:44:20.000 models continue to trounce the market even internally. They're not 0:44:20.840 --> 0:44:24.880 sure and most of what they they're doing, they're not 0:44:25.000 --> 0:44:29.239 high frequency traders. They're not long term investors. But they'll 0:44:29.280 --> 0:44:32.680 buy and sell almost a pair, trade in groups of 0:44:32.719 --> 0:44:35.720 stocks and hold it for days or weeks. That's pretty 0:44:36.080 --> 0:44:38.080 that's a good way to look at it. Generally speak 0:44:38.160 --> 0:44:40.520 on average is about a two day holding period, but 0:44:40.560 --> 0:44:43.640 they'll get two weeks too. They'll do fast trading. They'll 0:44:43.680 --> 0:44:46.799 do what looks like high frequency but really isn't. In 0:44:46.920 --> 0:44:49.400 that they're doing that usually to break up their trade, 0:44:49.440 --> 0:44:52.440 so the rapid fire within seconds. But they're not in 0:44:52.520 --> 0:44:57.360 and out necessarily. No, they're not flashboys. Their medium frequency 0:44:57.440 --> 0:44:59.960 is what people call it in the industry. They frankly, 0:45:00.000 --> 0:45:02.879 their technology is good, but it's not great. You would 0:45:02.880 --> 0:45:04.480 think they would have the best of everything, and they 0:45:04.480 --> 0:45:06.960 sort of poke fon it at each other internally that 0:45:07.000 --> 0:45:09.880 they've got good technology, but it's not cutting edge necessary. 0:45:09.920 --> 0:45:12.120 They're not co locating and all that kind of stuff. 0:45:12.120 --> 0:45:14.040 Well they don't have to though. They're not sniffing out 0:45:14.160 --> 0:45:18.360 other trades and front running them. They're executing their own strategies. 0:45:18.400 --> 0:45:20.480 That's exactly right. So people do get them confused with 0:45:20.600 --> 0:45:23.600 kind of the flashboys. But yeah, generally speaking about two 0:45:23.680 --> 0:45:25.799 days or so as a holding period, And and we 0:45:25.920 --> 0:45:29.439 talked about in the early days, Jim Simons was sort 0:45:29.440 --> 0:45:34.680 of a macro tourist. He still occasionally overrides the system. 0:45:34.800 --> 0:45:37.759 Tell us about when that happens and and why does 0:45:37.800 --> 0:45:42.359 he think his flawed human instinctual judgment is better than 0:45:42.400 --> 0:45:45.160 the system. It is unusually a little bit surprising. They 0:45:45.200 --> 0:45:48.759 generally speaking never override their models, and they take they 0:45:48.800 --> 0:45:52.759 never can. We generally speak exactly in times of crisis. 0:45:53.080 --> 0:45:56.000 The firm will pull back when they're not sure, when 0:45:56.000 --> 0:45:58.560 they're worried, and that's part of that humility. So they 0:45:58.600 --> 0:46:02.160 don't have this arrogance that our models will survive. The 0:46:02.320 --> 0:46:05.000 ltc M kind of things. They're not. They're not you 0:46:05.080 --> 0:46:08.920 know John mary um Weather and that team at all. Right, 0:46:09.000 --> 0:46:11.919 they get scared like you and I. And even though 0:46:11.920 --> 0:46:14.680 internally there are people that say, don't ever mess at 0:46:14.719 --> 0:46:17.000 the models. People like Simons. He doesn't run things day 0:46:17.000 --> 0:46:19.480 to day. But in terms of crisis I describe in 0:46:19.520 --> 0:46:22.080 the book there were there's panic. There was panic. They're 0:46:22.160 --> 0:46:24.439 like any other kind of trading firm. And in those 0:46:24.520 --> 0:46:28.759 kind of times he overruled his colleagues and he said, yes, 0:46:29.040 --> 0:46:31.880 we'll probably make money here if we stick with our models, 0:46:32.080 --> 0:46:34.520 but I'm worried about surviving. And if you think about it, 0:46:34.560 --> 0:46:37.280 they also borrow a lot of money, so they've got lenders, 0:46:37.320 --> 0:46:40.440 banks and others, and those banks get nervous if they 0:46:40.440 --> 0:46:42.760 pull back on them. That will affect things. So Simon's 0:46:42.880 --> 0:46:45.200 that's part of Simon's his genius that again he can 0:46:45.400 --> 0:46:48.440 manage really well too, and and and deal with investors 0:46:48.440 --> 0:46:51.440 and borrowers as well. How much leverage do they use, 0:46:51.920 --> 0:46:54.520 It depends. It ranges if they're excited about the market 0:46:54.600 --> 0:46:56.920 and opportunities if they're not. But they can do ten 0:46:56.960 --> 0:47:00.600 times or even more. It depends what opportunities and times 0:47:00.880 --> 0:47:03.960 sounds like a lot. Long term capital management was a 0:47:04.040 --> 0:47:07.920 hundred x. The big Wall Street banks in in the 0:47:08.080 --> 0:47:11.200 sub prime era were fort x, so ten x almost 0:47:11.200 --> 0:47:14.560 sounds modest. Also, you gotta remember they're long and short 0:47:14.600 --> 0:47:17.239 all the time. Everything is hedged, and they're long again 0:47:17.280 --> 0:47:21.560 about four thousand and short about four thousand on average equities. 0:47:21.840 --> 0:47:24.160 So them leveraging up is not like you and I 0:47:24.520 --> 0:47:28.080 going along Microsoft and leveraging up. It's it's different. It's 0:47:28.080 --> 0:47:31.520 pretty balanced than the odds are against anything untoward happening. 0:47:31.840 --> 0:47:34.879 And the thing to remember about renaissance is they only 0:47:34.920 --> 0:47:38.759 get right barely more than fifty of the time, and 0:47:38.800 --> 0:47:41.200 they're aware of that. So on the one hand, their 0:47:41.200 --> 0:47:45.080 sharp ratio is crazy great, which allows them to leverage 0:47:45.200 --> 0:47:48.279 up and borrow this money, and it's pretty impressive in 0:47:48.280 --> 0:47:51.080 its own right, but also as a reminder, they realize 0:47:51.120 --> 0:47:53.959 they're they're not they're not hitting home runs every single day. 0:47:54.280 --> 0:47:58.360 It's like a casino. They're making small amounts all the time, 0:47:59.080 --> 0:48:02.880 quite quite interest in and it's sort of laughable today. 0:48:02.920 --> 0:48:07.120 But you listed in the book a number of fairly 0:48:07.360 --> 0:48:12.239 famous UH investors and hedge fund managers today who in 0:48:12.280 --> 0:48:17.640 the early days of renaissance. Jim Simons went saying, Hey, 0:48:17.640 --> 0:48:19.600 I'm raising this fund and I'd like to have you 0:48:19.640 --> 0:48:23.759 being an investor, and they pretty much across the board 0:48:23.800 --> 0:48:26.800 said no, left him out of the office. Bruce Covernor 0:48:26.920 --> 0:48:31.200 pulled Tutor Jones, who else famously said not to Simon's 0:48:31.480 --> 0:48:33.759 Donald Sussman is the key one. Donald Sussman is one 0:48:33.800 --> 0:48:37.440 of the most respected investors on Wall Straight. He backed 0:48:37.520 --> 0:48:41.680 the Shaw, He's backed a lot of um famous investors 0:48:41.719 --> 0:48:44.719 over the years, and he's a really well impressive guy 0:48:44.719 --> 0:48:46.839 in his own right, got a great track record. And 0:48:46.920 --> 0:48:51.080 Simmons came to him, hat in hand saying I think 0:48:51.080 --> 0:48:53.840 I've got it, I think I've figured it out. I'd 0:48:53.840 --> 0:48:58.560 like some backing from you. And it wasn't that Sussman disagreed. 0:48:58.600 --> 0:49:01.719 It wasn't that he was necessary really skeptical of Jim Simons, 0:49:01.920 --> 0:49:04.279 but he had already invested in d SHAW. I didn't 0:49:04.320 --> 0:49:07.839 want to invest in a competitor, and there wasn't much 0:49:07.840 --> 0:49:11.560 of a track record at that point. Is really when 0:49:11.600 --> 0:49:16.080 they decided to go all in on quantitative investing UM, 0:49:16.200 --> 0:49:19.920 using big data, using algorithms as opposed to using some 0:49:20.080 --> 0:49:23.640 of the instinctive intuition type trading, and so there wasn't 0:49:23.719 --> 0:49:26.919 much of a track record in when Jim Simons went 0:49:27.000 --> 0:49:29.160 to speak to Donald sssman, So you can't blame him 0:49:29.200 --> 0:49:31.520 too much. But yeah, there were a number of pretty 0:49:31.560 --> 0:49:34.359 well respected investors I talked about in the book who 0:49:34.400 --> 0:49:37.480 had an opportunity to invest in Medallion and passed on it. 0:49:37.800 --> 0:49:40.920 And then a few years later, or maybe it's fifteen 0:49:41.000 --> 0:49:47.160 years later, Simmons goes to the outside Medallion investors and says, hey, 0:49:47.160 --> 0:49:50.319 thanks for the capital, but here, we're gonna give this 0:49:50.400 --> 0:49:53.000 back to you. We we can't use it anymore. What 0:49:53.680 --> 0:49:57.120 a What was the thinking there? And be what was 0:49:57.200 --> 0:50:00.440 the reaction of the investors. They must have been pretty 0:50:00.640 --> 0:50:06.319 you know, stunt. So they again have these remarkable models 0:50:06.360 --> 0:50:09.279 that allow them to know how much they can make 0:50:09.840 --> 0:50:13.759 in certain size, how much they impact the market, pretty sophisticated, 0:50:13.960 --> 0:50:16.439 and they realized that a ten billion or more they're 0:50:16.440 --> 0:50:18.359 going to really not be able to have those kind 0:50:18.360 --> 0:50:20.640 of returns. Now, you and I would probably say fine, 0:50:20.680 --> 0:50:22.919 instead of being up sixty six percent a year, will 0:50:22.960 --> 0:50:25.200 be up thirty five percent a year, and we'll grow this, 0:50:25.239 --> 0:50:27.319 say U m here and make the money. But no, 0:50:27.480 --> 0:50:30.319 they wanted this hedge funds to be just for them 0:50:30.400 --> 0:50:34.440 and to have these outstanding, remarkable returns. So they proceeded 0:50:34.440 --> 0:50:36.799 to kick, as you suggest, kick their LPs out, kick 0:50:36.840 --> 0:50:39.560 their investors out. And they were not happy. They weren't 0:50:39.640 --> 0:50:41.520 they weren't thrilled. Some of them said, you know, I 0:50:41.600 --> 0:50:44.279 stuck with you, Jim, through the difficult times, and here 0:50:44.320 --> 0:50:46.360 you are kicking me out. And he kicked out his 0:50:46.440 --> 0:50:49.280 friends too. He kicked everybody out, really, and he basically 0:50:49.360 --> 0:50:52.000 was just a little cold. You know, Jim Simmons is 0:50:52.280 --> 0:50:55.840 uh an fascinating guy. He's a scientist, he cares about society, 0:50:56.200 --> 0:50:59.040 he's a huge philanthropist, um does all kinds of really 0:50:59.080 --> 0:51:02.680 interesting things in education and science. He also really really 0:51:02.719 --> 0:51:06.719 loves money and he as a tool for what it 0:51:06.760 --> 0:51:09.040 can do, or just loves it. Let's not go overboard here. 0:51:09.040 --> 0:51:12.520 Look for an academic that it comes across that he 0:51:12.760 --> 0:51:18.400 is much more motivated by accumulating cash than the typical academy. 0:51:18.480 --> 0:51:21.720 Oh my god, it's no comparison. Quite honestly. He always 0:51:21.719 --> 0:51:23.640 had one foot in the world of academia and one 0:51:23.680 --> 0:51:26.560 foot out. He was always doing businesses and they're quite interesting. 0:51:26.600 --> 0:51:28.760 I read about him in the book. He pursued trading 0:51:28.800 --> 0:51:32.359 and business, not full time, and it never really worked 0:51:32.360 --> 0:51:34.799 out completely, but he always had his outside interest. So yeah, 0:51:34.840 --> 0:51:39.080 he always really was focused on getting rich and he 0:51:39.200 --> 0:51:41.120 wanted to change the world with that money. But he 0:51:41.160 --> 0:51:43.839 also just playing like getting wealthy. So here they were 0:51:44.200 --> 0:51:47.120 with staring at the possibility of seeing the return slow down, 0:51:47.480 --> 0:51:50.719 and he said, I'd rather kick out my investors than 0:51:51.280 --> 0:51:55.719 risk the possibility of our returns. Uh dropping. And you 0:51:56.160 --> 0:52:01.360 described earlier lots of colorful characters in the book, Simmons 0:52:01.480 --> 0:52:05.400 is really one of the most colorful characters of everybody. 0:52:05.719 --> 0:52:10.240 He's a chain smoking two packs of Merits a day. 0:52:10.280 --> 0:52:15.960 There's a hilarious story about a group of institutional investors 0:52:16.000 --> 0:52:21.240 from a healthcare company that are there for some um, 0:52:21.560 --> 0:52:26.279 just kicking guitars to give Renaissance money. And there's also 0:52:26.360 --> 0:52:29.840 a birthday kick involved. Tell that story. Sure, that's the 0:52:29.960 --> 0:52:34.200 Robert Wood Johnson Foundation there, dedicated to public health, and 0:52:34.239 --> 0:52:38.520 they came by Renaissances Long Island Offices to talk about 0:52:38.680 --> 0:52:41.799 investing in Reef. That's one of their outside funds. This 0:52:41.920 --> 0:52:43.920 was early on when they were raising money for it. 0:52:44.320 --> 0:52:47.400 They were impressed. They were having a nice launch. People 0:52:47.440 --> 0:52:50.760 around the table. Simon's comes in to finish off the sale. 0:52:50.920 --> 0:52:54.560 Everyone's all excited. The salesman at Renaissance can see their commissions. 0:52:54.560 --> 0:52:56.279 They can imagine how much they're gonna be making from 0:52:56.280 --> 0:53:00.440 this big investment. And Simmons, as you suggest, is change smoking. 0:53:00.520 --> 0:53:03.279 He doesn't care. He doesn't care. He's smoked, always a 0:53:03.480 --> 0:53:06.920 cigarette in his hand. And he's also, you know, almost 0:53:06.960 --> 0:53:09.920 eighty two, so it hasn't really impacted his life. So 0:53:09.960 --> 0:53:14.400 he's in this meeting and Simons looks around the no ashtras. 0:53:14.440 --> 0:53:16.000 He's looking for an ash tray, but he needs to 0:53:16.040 --> 0:53:20.040 ash somewhere, and he sees this big fancy cake that 0:53:20.080 --> 0:53:24.080 have been wheeled in uh to to to end the dinner, 0:53:24.160 --> 0:53:26.520 to the lunch, and everyone's gonna have a piece of it. 0:53:26.840 --> 0:53:30.840 So he reaches over and he sticks his cigarette deep 0:53:30.880 --> 0:53:33.839 into that cake and he's Jim time. He just gets 0:53:33.920 --> 0:53:38.319 up and raves goodbye, and that thing is sizzling as 0:53:38.400 --> 0:53:41.080 he exits the room, and everyone just looking at each other. 0:53:41.200 --> 0:53:46.560 And the Renaissance salesman are just um dumbfounded, apoplectic because 0:53:46.560 --> 0:53:48.800 they've lost their commission. They're sure these are this is 0:53:48.840 --> 0:53:52.960 the Robert Johnson Foundation dedicated to public health. So obviously 0:53:53.080 --> 0:53:57.480 this guy just ashed and a sizzling vanilla cake right 0:53:57.560 --> 0:53:59.359 in front of them. They're not gonna write a check. 0:53:59.400 --> 0:54:04.440 But they did nonetheless speak for themselves, right. And in 0:54:04.480 --> 0:54:08.120 the book, I was shocked to read this. Someone says 0:54:08.160 --> 0:54:10.960 to Simon's your scientists, don't you know about the dangers 0:54:11.000 --> 0:54:14.640 of smoking? What was his response? He said to them, 0:54:14.680 --> 0:54:17.320 it's not clear. This his tongue in cheek. It probably wasn't. 0:54:17.360 --> 0:54:22.520 But he researched his genes and according to his his work, 0:54:22.600 --> 0:54:26.080 his research, he was is one of these unique people 0:54:26.160 --> 0:54:30.719 that can actually withstand um, all the chain smoking that 0:54:30.800 --> 0:54:33.200 he does, he inflicts on his body. He claims his 0:54:33.400 --> 0:54:38.399 predisposition is to not get lung cancer. Genetically, he has 0:54:38.440 --> 0:54:42.520 the lucky whatever it is gene that that means you 0:54:42.560 --> 0:54:45.920 can smoke without ill effects. Yes, and he fooling himself 0:54:45.960 --> 0:54:48.600 a little bit like bom Mercer with his pseudo signs 0:54:48.600 --> 0:54:50.960 outside of the office. Um. And that's one thing that's 0:54:51.000 --> 0:54:52.480 kind of jumped out in the book, that these guys 0:54:52.480 --> 0:54:54.560 are like you and I in so many ways. They've 0:54:54.600 --> 0:54:58.000 got their foibles and they get emotional Um. In their lives, 0:54:58.000 --> 0:55:00.720 and they get fights with their wives and scream matches 0:55:00.719 --> 0:55:03.880 with their colleagues. And Jim Simmons, yes, has convinced himself 0:55:04.280 --> 0:55:06.839 that he won't be impacted by smoking in it into 0:55:06.880 --> 0:55:09.560 his credit. It hasn't impacted him, so you know, once 0:55:09.600 --> 0:55:12.719 again he may be right. Uh, Greg, can you stick 0:55:12.719 --> 0:55:15.120 around a bit? I have a bunch more questions. Happy, 0:55:15.440 --> 0:55:18.560 We have been speaking with Greg Zuckerman, author of the 0:55:18.560 --> 0:55:22.080 Man Who Solved the Market? How Jim Simon's launched the 0:55:22.239 --> 0:55:26.480 quant revolution. If you enjoy this conversation, be sure and 0:55:26.600 --> 0:55:29.279 come back for our podcast extras. Will we keep the 0:55:29.280 --> 0:55:34.200 tape rolling and continue discussing all things renaissance technologies related. 0:55:34.640 --> 0:55:39.200 You can find that at iTunes, Google podcast, Stitcher, Spotify, 0:55:39.280 --> 0:55:43.240 wherever your finer podcasts are sold. We love your comments, 0:55:43.280 --> 0:55:46.520 feedback and suggestions. You can write to us at m 0:55:46.560 --> 0:55:49.400 IB podcast at Bloomberg dot net or give us a 0:55:49.440 --> 0:55:53.160 review over at Apple iTunes. Check out my weekly column 0:55:53.160 --> 0:55:56.520 on Bloomberg dot com. Sign up for my daily reads 0:55:56.640 --> 0:55:59.560 at Rid Halts dot com. Follow me on Twitter at 0:55:59.640 --> 0:56:03.279 Rid Halts. I'm Barry Retults. You're listening to Masters in 0:56:03.320 --> 0:56:09.759 Business Radio. Welcome to the podcast. Greg, thank you so 0:56:09.840 --> 0:56:12.879 much for doing this. I have to tell you I 0:56:12.960 --> 0:56:15.719 really really enjoyed the book, not just because I'm a 0:56:16.239 --> 0:56:19.880 you know, fascinated by Renaissance and I've had a handful 0:56:20.120 --> 0:56:24.719 of dealings with Jim Simon's without his involvement. He he no, 0:56:24.840 --> 0:56:28.200 I have never met, but um, when I was a 0:56:28.280 --> 0:56:30.000 high school student trying to figure out where to go 0:56:30.080 --> 0:56:34.000 to school, like towards Stony Brook, and there goes the 0:56:34.040 --> 0:56:39.080 outgoing math uh department chairman. If you would have met him, 0:56:39.120 --> 0:56:41.319 you would never have given him a penny. The joke 0:56:41.360 --> 0:56:43.680 about all these people who passed on him. He had 0:56:43.680 --> 0:56:47.800 the scruffy beard and you know, yellow fingers from nobody. 0:56:47.920 --> 0:56:50.160 I could see how people wouldn't have taken him seriously. 0:56:50.520 --> 0:56:52.680 But I have to tell you why I um. And 0:56:52.719 --> 0:56:56.080 there's a funny story that I can't verify about the 0:56:56.120 --> 0:56:59.759 alumni department. It's Stony Brook. Um. I can't even share 0:56:59.760 --> 0:57:01.960 publicly because I don't know if it's true, but if 0:57:01.960 --> 0:57:05.080 it is, it's pretty hilarious. I really enjoyed the book. 0:57:05.160 --> 0:57:08.000 I normally take a ton of notes, and the books 0:57:08.000 --> 0:57:11.680 are always marked up and underlined and with post its, 0:57:11.719 --> 0:57:14.520 and oh, here's the question, and here's the topic. There 0:57:14.640 --> 0:57:17.880 really is zero writing in the book because I read 0:57:17.920 --> 0:57:22.800 it like a thriller. It's a fascinating tale about really 0:57:23.520 --> 0:57:27.240 an amazing story with really interesting people. You did really 0:57:27.320 --> 0:57:30.760 nice job on this, um, thank you. What What was 0:57:30.840 --> 0:57:33.600 the process like writing this? This gotta be quite quite 0:57:33.600 --> 0:57:36.320 a monstrousity to put together. It's hard, the hard thing 0:57:36.320 --> 0:57:39.080 I ever did in my life. Really, I could. I 0:57:39.120 --> 0:57:42.480 could totally see that the challenges We're getting people to talk, 0:57:42.520 --> 0:57:45.320 and even when they started talking, understanding what they were 0:57:45.320 --> 0:57:47.360 telling me, and I'm not a math guy, I had 0:57:47.360 --> 0:57:50.040 to understand this is a different language quant to some extent, 0:57:50.240 --> 0:57:52.800 and even at that point, trying to make it into 0:57:52.800 --> 0:57:55.040 a narrative, as you suggest, I tried to appeal. I 0:57:55.040 --> 0:57:57.400 want to try to appeal to everyone, um, the quantity 0:57:57.440 --> 0:58:04.440 type people, mathematicians, scientists, but also just the average nonfiction readers. 0:58:05.320 --> 0:58:07.960 I did. There were there were a few times where 0:58:08.000 --> 0:58:11.000 I'm working all night in my basement and I hear 0:58:11.040 --> 0:58:13.640 some sound upstairs and I'm like, oh, my kids left 0:58:13.680 --> 0:58:15.720 the TV on again, And then I go up to 0:58:15.760 --> 0:58:17.480 turn it off and there's no TV on. Then I 0:58:17.520 --> 0:58:20.480 realized that sound, those sounds are the birds getting up 0:58:20.480 --> 0:58:23.360 in the morning, went through the night. And part of 0:58:23.360 --> 0:58:26.880 it is because I was fascinated by the story myself, 0:58:26.920 --> 0:58:30.040 and these characters are interesting and intriguing and what they accomplished, 0:58:30.080 --> 0:58:32.280 and the challenges they overcame, and the drama behind the 0:58:32.320 --> 0:58:35.160 scenes that I wasn't aware of. So it was the 0:58:35.160 --> 0:58:38.040 hardest thing ever did, but also it was rewarding and 0:58:38.080 --> 0:58:41.080 fascinating to me in the In the early phases of this, 0:58:41.200 --> 0:58:44.200 did you ever reach a point where you said, uh, 0:58:44.480 --> 0:58:47.080 this is just going now, where I have to pull 0:58:47.080 --> 0:58:49.880 the plug on this? Many times? I came close too 0:58:49.920 --> 0:58:52.200 many times? He really, Yeah. I mean I wasn't close 0:58:52.280 --> 0:58:55.200 to given up, but I couldn't figure out how I 0:58:55.240 --> 0:58:57.560 was going to make it happen. And then I would 0:58:57.600 --> 0:59:00.360 have a breakthrough. Someone would be kind enough to share 0:59:00.400 --> 0:59:02.200 with me and and talk to me. Maybe would maybe 0:59:02.200 --> 0:59:04.320 be on the record, maybe it wouldn't, but that would 0:59:04.400 --> 0:59:06.439 keep me going now, would give me encouragement and deal 0:59:06.520 --> 0:59:10.200 with all the people slamming the door on my face subsequently, 0:59:10.480 --> 0:59:13.600 because then there'll be somebody kind enough to to share 0:59:13.840 --> 0:59:17.400 right after that. When you spoke to people off the record, 0:59:18.240 --> 0:59:20.880 how do you use that if you're telling somebody. I'm 0:59:20.920 --> 0:59:22.360 not gonna quote you. I'm not going to use this. 0:59:22.840 --> 0:59:25.080 How do you work that into the story. Does it 0:59:25.200 --> 0:59:28.760 just give you enough background? Or what do you do 0:59:28.880 --> 0:59:33.120 with off the record um conversations and with Simon's on 0:59:33.280 --> 0:59:35.120 or off the record with you? Right? So I don't 0:59:35.160 --> 0:59:37.000 do off the record. Off the record the way we 0:59:37.040 --> 0:59:38.880 define at the Wall Street Journal means you can't use 0:59:38.920 --> 0:59:41.160 that information. But I was up front with with all 0:59:41.200 --> 0:59:43.160 these people and saying, I'd like to use your information 0:59:43.200 --> 0:59:46.600 on background, meaning use it, right, but I won't name you, 0:59:46.640 --> 0:59:49.680 won't quote you, won't cite you. And I um, I said, 0:59:49.720 --> 0:59:51.160 you know, I've been around a little bit, so I 0:59:51.240 --> 0:59:53.120 have a certain reputation. And I said, I'm not gonna 0:59:53.120 --> 0:59:54.680 burn you. There's no incentive for me to burn you. 0:59:54.680 --> 0:59:56.680 I'm not gonna name you. I'm not gonna tell anybody 0:59:56.760 --> 0:59:59.920 Rento Science that we're talking. UM. So I got people 1:00:00.120 --> 1:00:05.400 sufficiently comfortable, and Jim Simons was pretty darn open and 1:00:05.520 --> 1:00:08.200 frank and transparent. I have to tell you about what 1:00:08.320 --> 1:00:10.400 he wanted to speak about. Again, I want to make 1:00:10.400 --> 1:00:12.760 clear that he wasn't opening the kimono and telling me 1:00:12.760 --> 1:00:14.320 all his signals. I had to get that stuff on 1:00:14.360 --> 1:00:17.200 my own, uh and his and how he dealt with 1:00:17.240 --> 1:00:19.360 certain things, and the setbacks and the narrative and the 1:00:20.160 --> 1:00:24.400 drama behind the scenes. But he was quite cooperative about 1:00:24.480 --> 1:00:26.680 other things, and I have to thank them for that. 1:00:27.000 --> 1:00:32.080 So the early cancelations, the Cosa Nostra, Simon's don't say 1:00:32.080 --> 1:00:35.400 anything after you speak with Simmons? Do you circle back 1:00:35.440 --> 1:00:38.320 with the early cancelors And were they a little more 1:00:38.360 --> 1:00:40.920 open at that point? No, they still wouldn't talk to me. 1:00:41.000 --> 1:00:43.600 So I had to keep even after Simon says, all right, 1:00:43.640 --> 1:00:45.360 I'll finally talk to you. You know why there because 1:00:45.360 --> 1:00:48.040 they were even concerned about the possibility that Jim might 1:00:48.080 --> 1:00:50.439 get angry with him. Oh yeah, well you say that 1:00:50.520 --> 1:00:52.400 Jim is talking to you about How do I know 1:00:52.480 --> 1:00:55.720 that's true? Jim? Yeah, But it just got too busy. 1:00:55.760 --> 1:00:57.560 This guy's it's got a lot going on, and you're 1:00:57.560 --> 1:00:58.800 not gonna call him up and say, can I talk 1:00:58.880 --> 1:01:01.080 to Greg? Already? Did you told me I can't talk 1:01:01.120 --> 1:01:03.280 to Greg? But now can I talk to Greg? It 1:01:03.360 --> 1:01:05.240 wasn't worth their while. So I had to keep finding 1:01:05.600 --> 1:01:07.600 other people and and quite honestly, a lot of the 1:01:07.600 --> 1:01:10.280 people early on at the firm and in his life 1:01:10.640 --> 1:01:14.560 were old and um, and you're eighty something, You're like, 1:01:14.600 --> 1:01:16.280 I'll say, who I what I want to who I 1:01:16.280 --> 1:01:18.240 want one. They've accomplished a lot in their own right. 1:01:18.280 --> 1:01:21.360 I mean, these these are scientists that are big names, 1:01:21.360 --> 1:01:23.800 hollid names, and some of these fields. It's harder. You 1:01:23.800 --> 1:01:25.360 have to you have to focus on the fact that, 1:01:25.720 --> 1:01:28.320 even setting aside when it came to Wall Street and investing, 1:01:28.320 --> 1:01:30.920 these people are really accomplished in their own right. So 1:01:30.960 --> 1:01:32.840 they're proud of what they've done. And some of these 1:01:32.880 --> 1:01:36.160 people don't mind talking. Huh that that's really that's really 1:01:36.240 --> 1:01:40.360 quite fascinating. UM. I have a quibble with you. Is 1:01:40.440 --> 1:01:43.680 Jim Simons really the man who solved the markets? Or 1:01:43.840 --> 1:01:46.840 is he the guy who just figured out, here's how 1:01:46.880 --> 1:01:51.280 to apply mathematics as a way to extract profits from 1:01:51.280 --> 1:01:55.880 the markets. I didn't get the sense that he figured 1:01:55.920 --> 1:01:59.360 out the markets. The markets are just an a means 1:01:59.400 --> 1:02:01.520 to an end for him. Yeah, to the extent that 1:02:01.600 --> 1:02:08.680 he's um recorded these remarkable to that extent he saw 1:02:08.760 --> 1:02:14.200 the market. But right, there's no hidden understanding that jumps 1:02:14.200 --> 1:02:15.680 out of you that he knows that you and I 1:02:15.760 --> 1:02:18.360 don't know he's as flum mixed by the day to 1:02:18.440 --> 1:02:21.040 day moves as anyone else. What he does and his 1:02:21.040 --> 1:02:25.520 his colleagues really UM do understand is that what impacts 1:02:25.760 --> 1:02:28.280 prices is a lot more than you and I are 1:02:28.320 --> 1:02:32.080 aware of. Now They've got whole levels of factors that 1:02:32.400 --> 1:02:34.240 aren't included in the a q R s and the 1:02:34.280 --> 1:02:36.520 stuff that you can buy off the shelf, etcetera. So 1:02:36.800 --> 1:02:39.240 they are they have a better understanding of the market, 1:02:39.280 --> 1:02:43.200 I would argue than anyone else, But maybe it's overstated 1:02:43.240 --> 1:02:46.640 to say they completely solved it. So the other thing 1:02:46.720 --> 1:02:49.960 that I thought was really intriguing UM in the book 1:02:50.960 --> 1:02:55.560 is despite these guys making boat tons of money, just 1:02:55.880 --> 1:02:58.960 so much compared to what they would have made had 1:02:59.000 --> 1:03:03.480 they stayed either IBM or Academia, they're making four and 1:03:03.560 --> 1:03:06.200 five and ten x plus whatever the Medallion Fund is 1:03:06.240 --> 1:03:12.160 strowing off some of the um squabbles about money, especially 1:03:12.200 --> 1:03:16.280 in the later history of the firm. So I described 1:03:16.320 --> 1:03:21.640 the firm as having four phases. The early macro tourism phase, 1:03:22.280 --> 1:03:27.000 then there's a later phase where they figure out um 1:03:27.120 --> 1:03:31.440 how to trade currencies, commodities and futures uh, and then 1:03:31.480 --> 1:03:35.600 when Mercer and Brown cracked the equity code is the 1:03:35.640 --> 1:03:37.840 third phase, and then the fourth phase they started bringing 1:03:37.880 --> 1:03:44.400 a lot of UM Russian computer scientists and other UM academicians. 1:03:45.600 --> 1:03:51.280 This like fourth generation of of the company really degenerates 1:03:51.280 --> 1:03:57.080 into this petty, jealous, backbiting envy to the point where 1:03:57.080 --> 1:03:59.560 a bunch of them go to Simon's and say, you're 1:03:59.640 --> 1:04:02.880 making too much money. We demand some of it. How 1:04:03.080 --> 1:04:05.480 the hell did does anyone get away with that? Yeah, 1:04:05.600 --> 1:04:08.720 they were people telling Jim Simmons he made too much money. 1:04:08.760 --> 1:04:10.680 There were people saying he should step down. There were 1:04:10.720 --> 1:04:13.760 people it was something of a coup. They tried to 1:04:13.960 --> 1:04:16.640 how does he not just say you you and you 1:04:16.640 --> 1:04:19.800 you're fired. Go back to making nine dollars as a 1:04:19.840 --> 1:04:22.960 teaching assistant. Because I keep coming back to the point 1:04:23.000 --> 1:04:27.280 that Jim Simmons loves money, and they were really valued employees, 1:04:27.320 --> 1:04:29.680 so they could have been jerks, but he gets past that, 1:04:29.680 --> 1:04:31.960 and he's a great manager. He wasn't insulted by that. Listen, 1:04:32.000 --> 1:04:34.520 if you're gonna hire some of the top scientists in 1:04:34.560 --> 1:04:37.720 the world, you're gonna get the personalities that come with that, 1:04:37.920 --> 1:04:41.720 and he embraced that, so he wasn't insulted. He doesn't 1:04:41.720 --> 1:04:44.560 take himself so seriously, and he actually gave back some 1:04:44.640 --> 1:04:47.080 equity and he and he said, maybe you guys are 1:04:47.200 --> 1:04:49.880 right and I'm talking too much of a cut. And 1:04:49.880 --> 1:04:52.200 I give him credit for that. So it was amazing. 1:04:52.640 --> 1:04:56.040 In the book, I'm like, I just don't know, because 1:04:56.120 --> 1:05:01.000 normally employees like that are so cancerous they could destroy 1:05:01.080 --> 1:05:07.000 a company with the sort of petty, envious jealousies that 1:05:07.000 --> 1:05:09.520 that you described in the book. I found that to 1:05:09.640 --> 1:05:13.800 be just completely shocking. Um and his I guess he 1:05:13.880 --> 1:05:18.840 resolved in a way that was pretty uh, pretty reasonable. Yeah. Um. 1:05:19.120 --> 1:05:21.560 He again has a great instinct when it comes to people. 1:05:21.640 --> 1:05:25.560 So it's not he's not just like this um quant 1:05:26.040 --> 1:05:30.240 uh focused on money and numbers and algorithms. He understands 1:05:30.280 --> 1:05:33.360 people and what what drives them. And he thought he 1:05:33.360 --> 1:05:35.960 could work with some of the people leading the coup. Yes, 1:05:35.960 --> 1:05:40.000 they were headstrong and tempestuous and difficult, but they had 1:05:40.040 --> 1:05:43.920 potential as managers and he was right. He actually created 1:05:43.960 --> 1:05:47.360 he turned them into pretty good managers. So, for for 1:05:47.400 --> 1:05:50.120 whatever reason, he's got these talents on both sides the equation. 1:05:50.240 --> 1:05:53.320 So who's running Renaissance Technologies Now, it's not Jim Simon's 1:05:53.320 --> 1:05:56.120 the CEO, and it's not Robert Mercer who's running the 1:05:56.160 --> 1:05:59.080 day to day. It's Peter Brown, who's a former IBM 1:05:59.120 --> 1:06:02.560 scientists just to work closely with Mercer and was considered 1:06:02.680 --> 1:06:06.800 the more wild of the two. Yes, and when he 1:06:06.840 --> 1:06:10.040 took over, when Bob Mercer stepped down, people internally were 1:06:10.080 --> 1:06:14.680 concerned because, as I said, Peter Brown is a little 1:06:14.680 --> 1:06:18.600 bit tempestuous and gets emotional sometimes. I describe a couple 1:06:18.600 --> 1:06:21.960 of scenes in my book where he panicked, he got nervous, 1:06:21.960 --> 1:06:23.520 and he got scared. This was years ago, and he 1:06:23.600 --> 1:06:27.520 learned from those lessons, and later on when main market difficulties, 1:06:27.560 --> 1:06:30.280 he didn't react that same way. But people worried about 1:06:30.280 --> 1:06:33.480 Peter Brown taking over. And to his credit, he's aware 1:06:33.520 --> 1:06:36.400 of his flaws and his weaknesses, and he's been leaning 1:06:36.440 --> 1:06:38.400 and we're talking the last few years, last couple of years, 1:06:38.440 --> 1:06:41.080 he's been leaning on his colleagues, his senior colleagues, much 1:06:41.120 --> 1:06:44.200 more than anyone had expected, and it's worked out nicely. 1:06:44.360 --> 1:06:49.080 I imagine Brown is Mercer without the politics, um at 1:06:49.160 --> 1:06:52.960 least in actuality, because he's still working closely with Mercer. Yeah, 1:06:53.040 --> 1:06:56.520 but very different person now. Um, Bob Mercer is this 1:06:56.640 --> 1:06:59.400 cool customer. You don't really can't read him. Even his 1:06:59.520 --> 1:07:02.760 colleagues don't really understand. He's so on emotional. They don't 1:07:02.800 --> 1:07:05.320 stand where he stands on certain issues. You do not 1:07:05.760 --> 1:07:08.680 wonder when it comes to Peter Brown. So in some 1:07:08.720 --> 1:07:11.840 ways they offset each other. They worked really melded, and 1:07:11.840 --> 1:07:14.480 they messed really well together. And what is Jim Simon's 1:07:14.560 --> 1:07:18.640 doing today day to day at Renaissance? So he barely 1:07:18.680 --> 1:07:20.560 goes in the office and yet he makes about a 1:07:20.600 --> 1:07:24.080 billion and a half dollars a year gig. Yeah, but 1:07:24.160 --> 1:07:26.400 really he's But it's not to say he's not very 1:07:26.440 --> 1:07:29.880 hard at work. He runs a foundation and it's really active. 1:07:29.920 --> 1:07:33.000 One of the biggest supporters of science in the country. 1:07:33.040 --> 1:07:35.480 They're very active when it comes to things like autism research, 1:07:35.840 --> 1:07:38.120 and they're cutting edge the back all kinds of cutting 1:07:38.200 --> 1:07:43.040 edge approaches. Um he supports, he funds. He he subsidizes 1:07:43.080 --> 1:07:46.000 the salaries of high school math and science teachers in 1:07:46.040 --> 1:07:48.360 New York City, ten thousand of them because he doesn't 1:07:48.360 --> 1:07:52.480 want so many leaving. What does that to subsidize, Well, 1:07:52.480 --> 1:07:54.919 it depends how many each year, but oh yeah, it's huge, 1:07:55.000 --> 1:07:57.120 like millions of dollars. I mean, he's worth twenty three 1:07:57.160 --> 1:07:59.640 billion dollars. But to his credit, he's on the cutting 1:07:59.680 --> 1:08:01.920 edge of all kinds of different approaches when it comes 1:08:01.960 --> 1:08:05.560 to science education. UM. They published Planta, which is a 1:08:05.600 --> 1:08:11.120 basic fundamental science and mathematics magazine, which really who else 1:08:11.160 --> 1:08:13.920 covers that sort of stuff. And he's also trying to 1:08:13.960 --> 1:08:16.640 subsidize the work, and he isn't subsidizing the work of 1:08:16.680 --> 1:08:20.120 scientists trying to get at the beginning of life and 1:08:20.200 --> 1:08:24.440 how this world began, in the first moments of our existence, 1:08:24.479 --> 1:08:28.439 of this universe existence. UM. They're trying to build out 1:08:28.439 --> 1:08:32.160 in Chile a UM all kind of massive array exactly 1:08:32.400 --> 1:08:35.240 of of ability to see, UM, go back in history 1:08:35.280 --> 1:08:38.679 and see through the massive telescopes to see what happened. 1:08:38.680 --> 1:08:40.200 So he's on the cutting edge of all kinds of 1:08:40.240 --> 1:08:43.280 different science, and he's just as focused on that as 1:08:43.280 --> 1:08:45.799 he was trying to crank out the sixty six percent 1:08:45.840 --> 1:08:50.040 returns at at the Medallion Fund. The current theory of 1:08:50.080 --> 1:08:53.519 the Big Bang is under assault because some of it 1:08:53.560 --> 1:08:56.360 doesn't seem to work, and some of the work that 1:08:56.479 --> 1:09:00.160 Simon's is doing is to try and figure out if 1:09:00.200 --> 1:09:02.639 not the Big Bang, then then how did the universe 1:09:02.720 --> 1:09:05.600 come into existence? Simons himself isn't a believer in the 1:09:05.600 --> 1:09:08.840 Big Bang, and yet he's funding efforts to test if 1:09:08.880 --> 1:09:11.559 it actually there's some proof to it, because deep down 1:09:11.560 --> 1:09:14.680 inside he's a scientist. And show me the day to 1:09:14.680 --> 1:09:17.240 show me the evidence, and if you can't disprove it, 1:09:17.280 --> 1:09:19.160 then that's the best we have to work with, right 1:09:19.240 --> 1:09:21.640 The Renaissance story, that Jim Simon story really is a 1:09:21.680 --> 1:09:24.840 story about the scientific method. If you think about society 1:09:24.880 --> 1:09:27.040 today and you think about the White House, it's all 1:09:27.040 --> 1:09:29.160 about narratives. And if you think about Wall Street to 1:09:29.400 --> 1:09:33.040 Pharaos and we work and people get carried away with 1:09:33.200 --> 1:09:36.280 the narrative and it leads to problems. It leads to 1:09:36.320 --> 1:09:39.200 real issues. Whereas there's something that he said, I I've 1:09:39.200 --> 1:09:41.920 become a believer in the scientific method, where it's about data, 1:09:41.960 --> 1:09:45.280 it's about proof, and this that is to me one 1:09:45.280 --> 1:09:47.960 of the lessons of the Renaissance. Jim Simon's story quite 1:09:48.040 --> 1:09:50.599 quite fascinating. So we only have you for a finite 1:09:50.600 --> 1:09:54.040 amount of time. Let's jump to our favorite questions. We 1:09:54.080 --> 1:09:56.680 ask this of all of our guests, sort of our 1:09:56.760 --> 1:09:59.799 speed rounds. Tell us the first car you ever owned 1:10:00.080 --> 1:10:03.840 you're making model. Never owned a car at least, grew 1:10:03.960 --> 1:10:06.840 up in Providence, Rhode Allen outside of my dad, taught 1:10:06.840 --> 1:10:10.200 at Brown University. Nothing really going on. The most exciting 1:10:10.240 --> 1:10:12.400 thing was we walked to campus, my high school friends 1:10:12.439 --> 1:10:15.920 and I and try to hit on girls and usually unsuccessfully. 1:10:16.000 --> 1:10:19.600 So that required legs and not automobiles. So yeah, I 1:10:19.600 --> 1:10:22.840 didn't really have a car. What's the most important thing 1:10:23.000 --> 1:10:26.679 people don't know about, Greg Dockerman. I've got this separate 1:10:26.720 --> 1:10:29.080 life where I write books for young people with my 1:10:29.120 --> 1:10:31.400 two sons. So we wrote two books called Rising Above, 1:10:31.479 --> 1:10:35.120 where we've interviewed sports stars who overcame challenges in their 1:10:35.160 --> 1:10:40.439 youth racism, sexual abuse, um, physical abuse, all kinds of 1:10:40.479 --> 1:10:43.240 different emotional and other types of challenges, and we asked 1:10:43.280 --> 1:10:45.479 them how they did it, and to us it was 1:10:45.520 --> 1:10:48.479 really inspirational and we share those stories in our books. 1:10:49.479 --> 1:10:52.080 Tell us who your early mentors were in the field 1:10:52.120 --> 1:10:59.160 of journalism. Uh? Yeah, so I never really had great mentors, 1:10:59.240 --> 1:11:02.160 quite frank, have had a series of bad bosses early 1:11:02.240 --> 1:11:06.760 in my life before gaming. No, now, my my must 1:11:06.880 --> 1:11:09.720 a great early on. I'm talking so early on, I wasn't. 1:11:09.880 --> 1:11:12.280 I stumbled into this profession. Oh really, what were the 1:11:12.320 --> 1:11:14.400 original plans? I was gonna go work on Wall Street. 1:11:15.040 --> 1:11:19.040 I was reading books like Adam Smith and Ray Dirk's 1:11:19.080 --> 1:11:22.680 You just got Ray Dirk's vaguely familiar. He had this 1:11:22.720 --> 1:11:24.519 famous case. It went to Supreme court. He was an 1:11:24.520 --> 1:11:29.840 insurance analyst who UM were shorting and and it was 1:11:29.880 --> 1:11:32.439 a famous case, went Supreme court and he won, and 1:11:32.520 --> 1:11:34.800 he left an impression on me with a book. I 1:11:34.880 --> 1:11:37.280 was buying barrens as. At a young age in camp, 1:11:37.320 --> 1:11:39.760 I was trading stocks. Um, I was a guy was 1:11:39.760 --> 1:11:43.360 gonna go work on Wall Street. And I didn't really 1:11:43.520 --> 1:11:45.200 do any summer kind of job. I was working in 1:11:45.280 --> 1:11:47.559 camps and I didn't have an experience, didn't know any mine. 1:11:47.600 --> 1:11:50.040 My dad was an academic, and I graduated and it 1:11:50.120 --> 1:11:52.000 did well, went to Brandon's University, did well, and I 1:11:52.000 --> 1:11:55.040 couldn't even get an interview on Wall Street. Was nine. 1:11:55.280 --> 1:11:57.479 It was after the market had crashed a couple years earlier, 1:11:57.479 --> 1:12:01.600 and um, I stumbled around. I start some some businesses 1:12:01.640 --> 1:12:04.080 and some work, some didn't. And then I went in 1:12:04.160 --> 1:12:07.840 one day and interviewed to be a financial journalist. I'm like, wait, 1:12:07.880 --> 1:12:10.639 I love writing and I love Wall Street They're gonna 1:12:10.720 --> 1:12:14.760 pay me to write about Wall Street? How great is that? So? 1:12:14.840 --> 1:12:18.400 What writers influenced the way you think about writing, either 1:12:18.600 --> 1:12:23.280 articles or books? So James Stewart first and foremost, Um, everything, 1:12:23.320 --> 1:12:25.960 he's long standing Wall Street Journal reporter, right, and then 1:12:26.240 --> 1:12:27.920 then he went he's at the New York Times. Now 1:12:28.000 --> 1:12:31.320 book author Um Danna Thieves. He wrote a book called 1:12:31.360 --> 1:12:34.559 Follow the Story, which is about writing. And I've read 1:12:34.600 --> 1:12:40.000 and reread that book numerous times, so that guides me. Um. 1:12:40.040 --> 1:12:42.639 There's a editor at the Journal named Mike sikon Alfie 1:12:42.640 --> 1:12:46.200 who I've learned a lot from. He's an investigative editor. 1:12:46.320 --> 1:12:49.160 He had we had a Poulterer a package that we 1:12:49.200 --> 1:12:51.240 won this past year, and he was the editor of 1:12:51.280 --> 1:12:54.320 that group and he has left a big influence on me. 1:12:54.840 --> 1:12:57.040 Since you mentioned a couple of books, tell us about 1:12:57.120 --> 1:12:59.920 your favorite books. What do you enjoy to read Wolf 1:13:00.000 --> 1:13:04.040 Street related or not when you're not researching your own books? Oh? So, 1:13:05.040 --> 1:13:08.800 Paul Auster, Philip Roth, you know the fiction there? Give 1:13:08.840 --> 1:13:11.479 us some titles. When you say Philip Roth, I immediately 1:13:11.520 --> 1:13:13.760 think of Portnoy's Complaint. But what else do you read? 1:13:14.040 --> 1:13:17.679 You know? American pastoral is great? Um, there's really nothing 1:13:17.800 --> 1:13:19.960 much that from him that I don't love and and 1:13:20.000 --> 1:13:23.639 won't read. Um. I'm reading Patti Smith right now, her 1:13:23.640 --> 1:13:27.280 autobiography Kids. Yeah, all right, that's them reading the earlier one. 1:13:27.360 --> 1:13:31.080 But she's brilliant in her own right, Um. Catch her 1:13:31.120 --> 1:13:33.280 in the Ride at a young age left a huge 1:13:33.360 --> 1:13:36.040 influence in me in terms of being an outsider. And 1:13:36.120 --> 1:13:39.160 that's what as a journalist I see myself. My job 1:13:39.240 --> 1:13:41.439 is to kind of polke halls and look at the 1:13:41.439 --> 1:13:46.559 foibles and mistakes and and and accomplishments of others people 1:13:46.640 --> 1:13:48.839 in the world of finance. That's sort of my position 1:13:48.840 --> 1:13:52.960 in some ways. I saw myself in that character, the 1:13:53.040 --> 1:13:55.960 holding coffeil character to some extent. What was the first 1:13:56.000 --> 1:14:00.400 author you mentioned before, Philip Paul Auster. Paul Auster's fiction 1:14:00.400 --> 1:14:02.960 writer who's brilliant in his own way. He's got gets 1:14:02.960 --> 1:14:06.719 into some give us a book to Uh. Brooklyn Diary 1:14:06.800 --> 1:14:10.120 is a good one. He's so many Brooklyn, All right, 1:14:10.160 --> 1:14:12.400 well we'll go with that. Tell us about a time 1:14:12.439 --> 1:14:16.120 you failed and what you learned from the experience. So many. So. 1:14:16.240 --> 1:14:18.720 I got a tip that there was a guy who 1:14:18.760 --> 1:14:22.200 was running a fraud named Bernie Madoff, and that was 1:14:22.800 --> 1:14:25.760 probably two thousand and three. Al right, so there was 1:14:25.840 --> 1:14:30.200 already the Baron story, but nobody really picked up on 1:14:30.240 --> 1:14:32.160 it in a big way. Exactly right when did that? 1:14:33.880 --> 1:14:37.000 Maybe two one? And good source for the tip. It 1:14:37.040 --> 1:14:39.280 was a good source in the industry, but didn't have 1:14:39.360 --> 1:14:42.880 firsthand knowledge. So I started making some calls and it 1:14:42.960 --> 1:14:45.040 was early in the process. I got a call from 1:14:45.280 --> 1:14:48.200 Bernie madoffs right hand person, and they said, he here, 1:14:48.200 --> 1:14:50.000 are you making calls on Bernie? Why don't you come 1:14:50.000 --> 1:14:52.400 in and meet with him? And I was torn. At 1:14:52.400 --> 1:14:54.479 that point. I hadn't done enough research, so I said, 1:14:55.000 --> 1:14:57.000 I want to meet Bernie, but let's do it in 1:14:57.040 --> 1:15:00.160 a week or two. Well, Greg, he travels a there 1:15:00.160 --> 1:15:02.479 aren't gonna be many opportunities. If our you, I'd really 1:15:02.520 --> 1:15:05.479 take advantage. So I went in met with Bernie. Was 1:15:05.520 --> 1:15:08.880 he charming? He was charming, but not convincing. I asked 1:15:08.960 --> 1:15:11.400 him a series of tough questions. I came out of 1:15:11.439 --> 1:15:14.240 it unconvinced that it was legit, but I thought he 1:15:14.280 --> 1:15:17.200 was front running. I didn't think it was a complete fraud, 1:15:17.439 --> 1:15:20.200 not a ponzi, but he was. Because they were a 1:15:20.280 --> 1:15:23.040 legitimate trading operation, weren't they right, and I thought they 1:15:23.040 --> 1:15:25.000 were front running that legitimate trading and that's how you 1:15:25.000 --> 1:15:28.160 get the smooth returns. And I wasn't the only one 1:15:28.200 --> 1:15:30.960 on Wall Street who had that thought. And that's no excuse. 1:15:31.000 --> 1:15:33.240 I should have pursued that story and I blew it. 1:15:33.280 --> 1:15:35.080 I should have kept working on it. So what was 1:15:35.160 --> 1:15:39.040 the lesson? The lesson is to keep pushing and and 1:15:39.120 --> 1:15:41.240 if you've got an instinct, and to keep pursue it. 1:15:41.240 --> 1:15:43.880 And you listen, some of my best stories, quite frankly, 1:15:43.960 --> 1:15:46.880 are those that editors were luke warm on and I 1:15:46.960 --> 1:15:49.680 kind of kept going at it. You know. UM, give 1:15:49.760 --> 1:15:52.479 us an example. I wrote. I wrote a front page story. 1:15:52.520 --> 1:15:54.559 It became a front page story about John Paulson and 1:15:54.720 --> 1:15:58.120 his tremendous trade, uh the sun probably trade. And people 1:15:58.160 --> 1:16:01.719 internally were kind of like, well, um, he must have cheated. 1:16:01.800 --> 1:16:03.439 There's no ray he could have done it in a 1:16:03.520 --> 1:16:07.640 legitimate way. Um. I I wrote it. I broke the 1:16:07.680 --> 1:16:10.920 story on the London Whale. And even internally they're like 1:16:11.240 --> 1:16:14.240 Jamie Diamond, JP Morrigan, there's no way they could have 1:16:14.280 --> 1:16:16.960 that kind of embrace that kind of risk. Um. I 1:16:17.240 --> 1:16:21.040 did a story about a family, about a brother of 1:16:21.120 --> 1:16:23.920 a of a woman in cancer FitzGeralds who died on 1:16:24.040 --> 1:16:26.920 nine eleven, and I wanted to tell the story of 1:16:26.960 --> 1:16:29.559 how he wanted to tell the story how his his 1:16:29.680 --> 1:16:32.960 sister died on nine eleven. And I started researching, and 1:16:32.960 --> 1:16:35.360 people like you're never gonna find out exactly how she died. 1:16:35.800 --> 1:16:38.120 And you know what, you work hard enough, and that's 1:16:38.120 --> 1:16:40.960 the lesson. Sometimes you can actually piece things together. All right. 1:16:41.000 --> 1:16:44.400 So let's go back to our our speed round. Um, 1:16:44.439 --> 1:16:46.280 what do you do for fun when you're not researching 1:16:46.320 --> 1:16:48.120 and writing books? What what do you do to kick 1:16:48.160 --> 1:16:51.120 back and relax? I obsess over the New York Yankees 1:16:51.360 --> 1:16:54.479 with my son Eli, and play a lot of sports. 1:16:54.479 --> 1:16:57.719 So I'm on a softball team, I'm on a basketball team. Um, 1:16:57.720 --> 1:17:01.560 still playing basketball? Yeah, not as well as I used to. 1:17:01.680 --> 1:17:05.080 I've learned to come off the bench. It's been humbling. Yeah, 1:17:05.680 --> 1:17:08.760 I'm a short, Like forty is where that all goes 1:17:08.800 --> 1:17:10.519 to hell, right at the point where you have a 1:17:10.520 --> 1:17:12.880 good run, workout and you're kind of happy about that. 1:17:12.920 --> 1:17:15.880 But I'm pretty competitive, so you listen. If I can contribute, 1:17:16.120 --> 1:17:18.880 then I'm proud. At this point, I don't need to 1:17:18.920 --> 1:17:22.840 start and dominate like I was a quick, good past, 1:17:22.960 --> 1:17:25.720 first point guard back in the day. And if I 1:17:25.720 --> 1:17:28.040 can come off the bench and help, that's fine. Today 1:17:28.280 --> 1:17:30.920 that that's kind of kind of fun. Let's talk about 1:17:31.000 --> 1:17:34.439 journalism a little bit. What are you most optimistic about today? 1:17:34.520 --> 1:17:36.920 And what are you most pessimistic about? I'll start with 1:17:36.920 --> 1:17:40.000 the most pessimistic. It's an easy question, right, I guess 1:17:40.080 --> 1:17:43.840 it's a difficult time in some ways for journalists. We're 1:17:43.840 --> 1:17:46.960 in a time where it's more, um, it's open season 1:17:47.080 --> 1:17:49.080 some extent. You can criticize, you can be opening your 1:17:49.479 --> 1:17:52.639 your criticism. So I wrote a story about Jeff Gunlack 1:17:52.920 --> 1:17:56.280 a couple of years ago, Double Line fastest growing mutual 1:17:56.320 --> 1:18:00.439 funds UM ever, two hundred billion dollars um, the new 1:18:00.520 --> 1:18:03.479 bond Kings. People don't know who he is. And my 1:18:03.640 --> 1:18:07.080 story was sort of obvious. It was they had piqued 1:18:07.120 --> 1:18:10.559 in a m they lost some money. People were coming out. 1:18:10.600 --> 1:18:12.879 It wasn't like a flood of money, and the returns 1:18:13.160 --> 1:18:16.080 were good, but they're no longer great. And I wrote 1:18:16.120 --> 1:18:19.960 the story and they were. They came back hard at me, 1:18:20.439 --> 1:18:24.480 both privately and publicly. So he gets on this conference 1:18:24.520 --> 1:18:29.880 call and he starts insulting me, he calls. He says, um, 1:18:30.000 --> 1:18:34.040 um mother zucker. He calls me publicly mother mother Zucker. 1:18:34.080 --> 1:18:36.760 It was kind of amusing. Yeah, I kinda like, yeah, 1:18:36.760 --> 1:18:39.320 I gotta like that. Um So, so there won't be 1:18:39.479 --> 1:18:43.240 the greatest bond trader ever. The man who solved the 1:18:43.479 --> 1:18:46.080 bond markets not coming anytime. So through that book, sure, 1:18:46.120 --> 1:18:48.559 if he does something special, I have a new challenge. 1:18:48.560 --> 1:18:50.840 I like the challenge. Um but I do think there's 1:18:50.840 --> 1:18:54.880 a new freedom that people have again not just on 1:18:54.960 --> 1:18:58.880 Wall Street but in society, to be critical of the 1:18:58.920 --> 1:19:02.439 media and and and me included. The flip side is 1:19:02.760 --> 1:19:06.120 there's a new appreciation to there's a new appreciation of 1:19:06.160 --> 1:19:08.800 what we do. And I sense that as well. Readership 1:19:08.840 --> 1:19:10.920 is up both at the Wall Street Journal where I am, 1:19:10.960 --> 1:19:14.400 and elsewhere Washington Post, New York Times, all the Atlantic, 1:19:14.479 --> 1:19:17.080 New York or all their subscriptions are through the roof 1:19:17.200 --> 1:19:20.400 because they've been covering the new new thing, which is 1:19:21.040 --> 1:19:24.240 the Trump administration calling journalists the enemy of the people. 1:19:25.000 --> 1:19:27.439 And and to some extent, he's right. We are going 1:19:27.479 --> 1:19:29.880 to miss him. He brings news, He creates news every 1:19:29.880 --> 1:19:33.559 single day. It's exhausting, it's emotionally draining for us but 1:19:33.680 --> 1:19:36.360 it does sell papers and we are going to miss that. 1:19:36.800 --> 1:19:41.839 So we had an interesting conversation about politics and the election, 1:19:42.400 --> 1:19:45.479 and a bunch of people were talking about what could 1:19:45.560 --> 1:19:51.040 lead to Trump losing his reelection campaign, and my position 1:19:51.120 --> 1:19:55.320 was Trump fatigue. You know, I was praying after the election, 1:19:55.560 --> 1:19:57.880 all right, now that's over, we can get back to normal. 1:19:58.240 --> 1:20:02.519 I think it's used exhausting. People just want to get 1:20:02.560 --> 1:20:05.760 back to normal. It's it's never ending, and it's too much. Yes, 1:20:06.080 --> 1:20:08.000 whether you agree with it or disagree with it, it's like, 1:20:08.040 --> 1:20:09.920 you know what I'd like to go through a day 1:20:09.960 --> 1:20:15.040 where the president is not three front page stories every day. Yeah. 1:20:15.040 --> 1:20:16.960 The question is do people feel that way in the 1:20:17.000 --> 1:20:20.799 swing states? And in our country it's Pennsylvania and Ohio, 1:20:21.600 --> 1:20:28.200 basically even Ohio. I don't think. I think Trump's got Ohio. Florida, Pennsylvania, Wisconsin, 1:20:28.200 --> 1:20:32.160 and Michigan are going the other way. It's Pennsylvania, Ohio, 1:20:32.360 --> 1:20:34.920 and I'm sure maybe a toss up at this point, small, 1:20:35.000 --> 1:20:36.920 but it doesn't mean it's But if you look at 1:20:37.000 --> 1:20:40.920 he won three states by seventy seven thousand votes and 1:20:40.960 --> 1:20:43.360 that put him over the top. So whatever we talk 1:20:43.400 --> 1:20:46.120 about nationally is a relevant. How how those three states 1:20:46.120 --> 1:20:50.400 going to vote? That's Pennsylvania, Ohio, Florida, plus Michigan and Wisconsin. 1:20:50.400 --> 1:20:52.800 The real question to me is if he loses, what 1:20:52.840 --> 1:20:57.000 does he do and what happens? Um does he leave 1:20:57.280 --> 1:21:00.160 and what happens with Oh no, So my wife is 1:21:00.160 --> 1:21:03.080 in the same camp as you. There's no way on 1:21:03.120 --> 1:21:07.520 God's green earth he stays if he loses and PS 1:21:07.840 --> 1:21:10.280 I think the Secret Service would march him out of 1:21:10.280 --> 1:21:12.400 the White House. Our job is to protect you, but 1:21:12.479 --> 1:21:16.640 also to uphold the constitution, and most people agree with you. 1:21:16.680 --> 1:21:19.200 I agree. I don't do that straight talk to people 1:21:19.200 --> 1:21:20.400 in d C. I was just down in d C. 1:21:20.720 --> 1:21:26.360 I think that's a really far fetched threat. I know 1:21:26.400 --> 1:21:28.639 people there's there are a bunch of people who wonder 1:21:28.720 --> 1:21:31.800 that something to listen. If you're a macro tourist as 1:21:31.920 --> 1:21:35.880 as I am, and someone extend looking at world of politics, right, 1:21:36.040 --> 1:21:39.120 you've got to at least consider all kinds of possibilities 1:21:39.160 --> 1:21:43.840 nowadays more than ever, right to to say the just, 1:21:43.920 --> 1:21:45.719 to say the least, and and what are you most 1:21:45.760 --> 1:21:49.559 optimistic about with journalism? I just spoke to a group 1:21:49.640 --> 1:21:53.800 down in the DC area students, and it's easier to 1:21:53.880 --> 1:21:56.479 have a voice. You can start a podcast, you can 1:21:56.520 --> 1:21:59.800 start a blog, you can break news locally, you can 1:22:00.080 --> 1:22:06.479 on Twitter, right right, you can do any of those things. Yeah, 1:22:06.439 --> 1:22:09.360 there are new ways ways to have a voice that 1:22:09.400 --> 1:22:11.320 in the past there weren't. You don't have to be 1:22:11.320 --> 1:22:14.200 in the mainstream meeting necessarily to have influence and have 1:22:14.240 --> 1:22:17.120 an impact. So and you still can't have impact and 1:22:17.800 --> 1:22:20.160 improve things and write about people. And that's one thing 1:22:20.200 --> 1:22:22.599 I always tell journalists. Focus on the people. You can 1:22:22.640 --> 1:22:26.640 get at important themes through the individuals, and they make 1:22:26.680 --> 1:22:28.680 for the most memorable stories, at least the way I 1:22:29.080 --> 1:22:31.120 look at it. You know, we didn't talk about the 1:22:31.240 --> 1:22:35.680 John Paulson trade at all, So I'm gonna move this 1:22:35.800 --> 1:22:38.479 back to the earlier part. This will be the last 1:22:38.560 --> 1:22:42.160 question of the regular discussion, but I want to bring 1:22:42.200 --> 1:22:45.439 it up here. So you write a book about John Paulson, 1:22:45.520 --> 1:22:49.360 the greatest trade ever. But I find there's some really 1:22:49.439 --> 1:22:53.960 interesting oddities about the trade, not that it's not legit, 1:22:55.439 --> 1:22:58.200 but whether or not it was really John Paulson who 1:22:58.240 --> 1:23:03.680 deserves all the credit. Uh. Polo Pellegrini is his research assistant, 1:23:03.720 --> 1:23:06.200 seems to be the person who comes up with the 1:23:06.280 --> 1:23:09.120 idea brings it to Paulson has to twist his arm 1:23:09.160 --> 1:23:11.960 a little bit to get him behind it. The trade 1:23:12.040 --> 1:23:17.640 makes literally five billion, six billions for the funds Paulson, 1:23:17.800 --> 1:23:19.760 and I don't remember if this was your book or 1:23:19.800 --> 1:23:23.600 your article or somewhere else. It's all a blur. Paulson 1:23:23.800 --> 1:23:29.120 gives Pellegrini a bonus check for two hundred and fifty 1:23:29.160 --> 1:23:32.120 million dollars, and I remembering that correctly? Was it? Was 1:23:32.120 --> 1:23:36.080 it more? It was one seventy five story, hundred seventy 1:23:36.080 --> 1:23:41.439 five million dollars, and Pellegrini's responses, A hundred seventy five million? 1:23:42.000 --> 1:23:45.400 I quit? Is that fair? It wasn't right then? It 1:23:45.439 --> 1:23:47.679 was later on he quit? And how much later was it? 1:23:47.680 --> 1:23:49.479 It was a good six months later, And it wasn't 1:23:49.520 --> 1:23:53.240 necessarily Now he was okay with that hundred million. How 1:23:53.240 --> 1:23:55.720 do you be upset about that? Well, because it's not 1:23:55.920 --> 1:24:00.559 even ten percent of the six billion agreed um. He 1:24:00.680 --> 1:24:02.439 was fine with that. Listen, Paulson was the one taking 1:24:02.479 --> 1:24:04.679 the risk. If the trade had blown up, it would 1:24:04.720 --> 1:24:06.559 have blown up. But if if it hadn't worked out, 1:24:06.600 --> 1:24:08.559 then Paulson would had to close down his fun probably 1:24:08.840 --> 1:24:11.439 so Pellegarian was okay with that. UM. I think the 1:24:11.479 --> 1:24:14.200 big argument is that Paulson to I don't give him 1:24:14.200 --> 1:24:17.160 so much credit for being short housing. There were a 1:24:17.200 --> 1:24:21.280 lot of people, if you recall you probably a lot 1:24:21.280 --> 1:24:23.559 of people that were worried about housing. What I do 1:24:23.720 --> 1:24:26.559 give John Paulson credit for is figuring out a way 1:24:26.600 --> 1:24:30.360 to express that trade, express that bearishness, and that to 1:24:30.439 --> 1:24:33.200 some exent is Paul Pella GREENI I agree Pella GREENI 1:24:33.680 --> 1:24:37.080 told John Paulson, hey, boss, there are these things called 1:24:37.120 --> 1:24:40.240 CDs contracts. Really, what are they? So Paul Paulson had 1:24:40.280 --> 1:24:42.680 no idea what CDs contracts, and that obviously was the 1:24:42.760 --> 1:24:46.240 key to the greatest trade ever. So I give Pellegrini 1:24:46.280 --> 1:24:49.040 a lot of credit in the book and otherwise um 1:24:49.120 --> 1:24:51.040 for coming up with a way to express that trade. 1:24:51.040 --> 1:24:53.720 But I also give John Paulson tremendous credit for he 1:24:53.760 --> 1:24:56.120 was a fifty year old guy who didn't know anything 1:24:56.160 --> 1:24:58.559 about the debt markets, and he threw himself into learning 1:24:58.600 --> 1:25:01.200 about how to express the at trade win. Lots of 1:25:01.200 --> 1:25:04.120 other people were sticking with equities and shorting equities. So 1:25:04.160 --> 1:25:09.480 the postcript to Paulson is two subsequent hedge fund performances, 1:25:10.000 --> 1:25:14.160 Pellegrini launches his own fund quickly raises a billion dollars 1:25:14.479 --> 1:25:17.640 as the guy behind the Pulson trade. I think the 1:25:17.720 --> 1:25:20.000 first year he just shoots the lights out. It's like 1:25:20.120 --> 1:25:25.080 eight some crazy number. The second year they're barely up 1:25:25.160 --> 1:25:28.400 for eight percent, six percent something like that. The third 1:25:28.479 --> 1:25:32.640 year they're negative. They return the money and he basically 1:25:32.680 --> 1:25:36.160 retires to some island in the Caribbean. More or less accurate. 1:25:36.920 --> 1:25:41.479 So that's astonishing. Paulson, on the other hand, the fund 1:25:41.600 --> 1:25:46.040 scales up to forty six billion dollars. He becomes a 1:25:46.040 --> 1:25:50.679 macro tourist in gold and other things. It's a terrible bet. 1:25:50.760 --> 1:25:54.000 He's a big buyer at the peak. The fund puts 1:25:54.080 --> 1:25:57.320 up some pretty crappy numbers for a couple of years, 1:25:57.720 --> 1:26:00.400 and now the fund is back to what in little 1:26:00.439 --> 1:26:03.559 digit billions. It's mostly his money too, so it's become 1:26:03.600 --> 1:26:06.560 a family office. And he proceeded to lose twenty or 1:26:06.600 --> 1:26:10.080 thirty billion dollars, so someone said, and I haven't verified this, 1:26:10.560 --> 1:26:15.519 but career wise, net net, he's a money loser for 1:26:15.600 --> 1:26:18.200 his outside investors. I think it's close, and I would 1:26:18.280 --> 1:26:21.200 argue that he missed the lesson of the greatest trade ever. 1:26:21.240 --> 1:26:22.599 Why is it called why do I call the grad 1:26:22.600 --> 1:26:26.559 strade ever? Because it had limited downside and remarkable upside. 1:26:26.560 --> 1:26:29.280 And frankly, that's what he did his whole career, even 1:26:29.320 --> 1:26:31.519 when he was a risk arb. He was getting into 1:26:31.520 --> 1:26:34.720 positions little riskier than most other risk carbs, but they 1:26:34.760 --> 1:26:37.479 had potential for upside. A new buyer comes in in 1:26:37.520 --> 1:26:40.320 a merger deal and limited downside because I already had 1:26:40.320 --> 1:26:42.720 a deal. His whole career, he was doing those countrades 1:26:42.840 --> 1:26:45.280 until he did the greatest trade ever. And then he 1:26:45.320 --> 1:26:47.719 took on all this new money and he started betting 1:26:47.720 --> 1:26:51.240 on banks and on pharmaceutical companies with and gold lots 1:26:51.280 --> 1:26:53.519 of upside, but also lots of downside. He missed the 1:26:53.960 --> 1:26:57.240 act opposite of what Simons did with medallion. Hey, this 1:26:57.280 --> 1:27:00.240 won't scale, and we want to make sure we're are 1:27:00.280 --> 1:27:06.080 are upside and downside's reward is balanced. The greatest trade 1:27:06.439 --> 1:27:09.439 led to the man who did not solve the market 1:27:10.000 --> 1:27:15.479 the and that basically created what is now ostensibly a 1:27:15.479 --> 1:27:18.000 hedge fund but really a family office for the Paulson 1:27:18.080 --> 1:27:20.559 for Yeah, it's a great point that John Paulson is 1:27:20.600 --> 1:27:22.760 a very good investor, but he got too big And 1:27:22.840 --> 1:27:25.080 how many times have we seen that same store over 1:27:25.120 --> 1:27:28.639 and over over and over? And you know it's these 1:27:28.640 --> 1:27:31.040 guys are fallible like anybody else. You can be smart, 1:27:31.200 --> 1:27:33.240 but take on too much money and then you're going 1:27:33.280 --> 1:27:35.160 with your second best idea and your third best idea, 1:27:35.360 --> 1:27:37.760 et cetera. And he missed that lesson. Everyone thinks I'm 1:27:37.800 --> 1:27:41.080 the exception because I'm I did the greatest trade ever 1:27:41.120 --> 1:27:44.120 and I caught this one before other people and they're wrong, 1:27:44.320 --> 1:27:46.160 and it's tough to take on all that a O M. 1:27:46.360 --> 1:27:49.240 And he's as you suggest, Jim Simons capped at least 1:27:49.240 --> 1:27:51.800 the Medallion Fund. He capped that, so maybe he learned 1:27:51.840 --> 1:27:55.880 that lesson for sure. And our last two questions, what 1:27:56.040 --> 1:27:58.639 sort of advice would you give a recent college grad 1:27:58.680 --> 1:28:02.559 who was interested in either becoming a journalist or a 1:28:02.600 --> 1:28:08.000 book author or covering Wall Street and finance? Well, this 1:28:08.120 --> 1:28:11.879 is a broader recommendation for young people in general. Find 1:28:12.120 --> 1:28:15.760 the people. Find the individuals in whatever area you're interested in. 1:28:16.280 --> 1:28:20.640 Who are the pace setters, who are the key individuals 1:28:20.640 --> 1:28:23.519 people that you are you respect, and reach out to them. 1:28:23.760 --> 1:28:25.479 Send him a note, Hey, I'd love to buy a 1:28:25.560 --> 1:28:28.320 cup of coffee, give twenty minutes of your time. People 1:28:28.360 --> 1:28:30.720 are generous with their time. You'd be surprised. I'm sure 1:28:30.720 --> 1:28:33.320 you found the two people on Wall Street um senior. 1:28:33.400 --> 1:28:35.840 People want to help, want to give back, are much 1:28:35.880 --> 1:28:38.320 more generous with your time than you might think. Don't 1:28:38.320 --> 1:28:41.680 be intimidated. If you've got genuine interest, reach out to them, 1:28:41.680 --> 1:28:44.080 tell them why you're interested in the area, form a 1:28:44.160 --> 1:28:47.960 relationship and learn from them. And our final question, what 1:28:48.160 --> 1:28:50.639 is it that you know about the world of writing 1:28:50.800 --> 1:28:54.439 and journalism today that you wish you knew twenty five 1:28:54.520 --> 1:28:57.120 years or so ago when you were first getting started. 1:28:58.120 --> 1:29:03.120 That your relations tips are the most important thing you've got, 1:29:03.520 --> 1:29:07.400 and you've got to develop them. You've got to be 1:29:07.520 --> 1:29:09.760 kind to people that are kind to you. I always was, 1:29:09.880 --> 1:29:13.360 but it's been reinforced to me. But also the fact 1:29:13.439 --> 1:29:17.400 that our reputations are created and recreated almost on a 1:29:17.479 --> 1:29:20.519 daily basis, so you can be doing poorly at your job. 1:29:20.560 --> 1:29:22.600 I've had times to the Wallstreet Journal where I was 1:29:22.640 --> 1:29:25.559 a low man on the totem pole and people didn't 1:29:25.600 --> 1:29:28.840 really give me good assignments. And you can change that. 1:29:28.840 --> 1:29:30.679 That's the beauty of it. You go break a story, 1:29:31.040 --> 1:29:36.040 you can change, You can your reputation can transform. And 1:29:36.040 --> 1:29:38.240 and if you blow it, you know your reputation is 1:29:38.439 --> 1:29:41.719 impacted too. Is don't make any mistakes, but don't lose hope. 1:29:41.760 --> 1:29:44.719 Just tomorrow is a new day. Go break a story. Huh. 1:29:44.920 --> 1:29:49.519 Quite fascinating. We have been speaking with Gregory Zuckerman, the 1:29:49.640 --> 1:29:52.840 author of The Man Who Solved the Market How Jim 1:29:52.840 --> 1:29:58.200 Simon launched the quant revolution. If you enjoy this conversation well, 1:29:58.280 --> 1:30:00.320 be sure to look up and intro down an on 1:30:00.400 --> 1:30:03.720 Apple iTunes, where you could see any of our previous 1:30:04.080 --> 1:30:08.240 two hundred and fifty eight conversations we've had over the 1:30:08.280 --> 1:30:12.439 past five plus years. We love your comments, feedback and 1:30:12.560 --> 1:30:16.640 suggestions right to us at m IB podcast at Bloomberg 1:30:16.680 --> 1:30:19.599 dot net. Go to Apple iTunes and give us a review. 1:30:20.360 --> 1:30:23.120 I would be remiss if I did not thank the 1:30:23.280 --> 1:30:27.479 crack staff who helps put together this conversation each week. 1:30:27.880 --> 1:30:32.000 Carolin O'Brien is my audio engineer. Attica val Brunn is 1:30:32.000 --> 1:30:35.599 our project manager. Michael bat Nick is my reluctant head 1:30:35.600 --> 1:30:40.200 of research. Mike Boyle is my producer. I'm Barry Ritolts. 1:30:40.560 --> 1:30:44.040 You've been listening to Masters in Business on Bloomberg Radio,