1/Today in @bopinion, I talk about the legacy and career of Jim Simons, the founder of Renaissance Technologies, who is stepping down as the hedge fund's

2/Simons' fund beat the market -- consistently, by huge percentages, after fees.

That's an astonishing accomplishment.

https://t.co/uopG6WutzU
3/How did he do it?

Basically, by being relentlessly smarter and better-managed than the competition.

https://t.co/p6ZTd7POfQ
4/So does Simons' success mean markets are inefficient?

Yes and no.

Obviously yes, since Renaissance could (and can) beat the market. But there are a few key caveats...
5/First of all, RenTech's most eye-popping and consistent returns are in its flagship Medallion Fund.

But most investors can't invest in that fund. It doesn't take your money.

https://t.co/sTXUzl09Lc
6/In fact, the Medallion Fund doesn't even take *its own* money. It makes regular profit distributions, so that the fund's total size remains small -- around $10 billion or so.

https://t.co/bhqE71eSdH
7/This means that the Medallion Fund's famous 39% annualized return (after fees) doesn't compound.

If it did, Medallion would be worth far more than all the rest of the hedge funds in the world combined, by now!
8/So a fund like Medallion isn't really comparable to, say, the return of the S&P. One compounds, the other does not.

Why? Because the market inefficiencies Medallion exploits are limited in size. And thus, Medallion's profit opportunities are limited in size.
9/To address this, Renaissance made a bunch of other funds that do different things than Medallion, and whose strategies scale up more. These have done generally well, but they're no Medallion...

https://t.co/ZsXQ4NNUI8
10/Even as Medallion racked up huge gains in 2020, Renaissance's other funds largely tanked.

This shows that consistently beating the market AT SCALE is incredibly hard, even for the smartest and best-managed people on the planet.

https://t.co/oowJd3k8GH
11/That's no knock against Renaissance, of course. They're the best in the biz.

But it does mean that Renaissance's existence doesn't prove that stock markets are inefficient. Indeed it shows us just how not-so-hugely-inefficient they are!

(end)

https://t.co/uopG6WutzU

More from Noahtogolpe 🐇

Bloomberg Ideas conference now starting! I will be live-tweeting it. You can watch on our Facebook or Twitter pages (links below)!


Our first panel is about cryptocurrency! We have @matt_levine, @tylercowen, @eiaine, @nirkaissar, and Camilla

Ou: Crypto will be useful for the unbanked.

Cowen: Crypto has to compete against a bunch of other emerging payments technologies. Bitcoin is too inflexible.

Cowen: I'll bet on the payments companies over crypto.
Yes, we have been more divided than we are now. Within living memory.


Labor disputes used to kill hundreds of people!

In 1932 Douglas MacArthur called in tanks on protesting veterans, injuring over a thousand people!

In 1967 there were 159 race riots in cities across

In 1921, rioters used airplanes to bomb black businesses in Tulsa, Oklahoma! Hundreds were killed in the riot!
When Republicans started to believe in racial bloc voting - when they stopped believing that nonwhite people could ever be persuaded to vote Republican - they started to see immigration as an invasion.

This explains why immigration is now at the center of partisan conflict.


Of course, the belief in ethnic bloc voting becomes a self-fulfilling prophecy.

When a slight Dem tilt among Hispanics and Asians caused the GOP to turn against them, Hispanics and Asians shifted more toward the Dems. Etc. etc. A self-reinforcing cycle.

Bush's 2006 amnesty attempt, and the 2013 intra-GOP fight over immigration reform, were two moments when the GOP could have turned back to the approach of Reagan, and courted Hispanics and Asians.

But they decided against this, and...here we are.

What will disrupt this bad equilibrium, and save American politics from being an eternal race war?

Either:
A) More white voters will grow disgusted with the GOP approach and defect, or
B) The GOP will find some non-immigration-related issues to attract more Hispanics and Asians.

As long as both parties see elections in terms of racial bloc voting - where the only way to win is to increase turnout among your own racial blocs or suppress turnout by the other party's racial blocs - American politics will not improve, and the country will decline.

(end)

More from Government

You May Also Like