Investing Lessons from Hedge Fund Star Jim Simons

An article in MarketWatch argues that, while it’s impossible for the typical individual investor to trade like quant legend Jim Simons, “there are lessons every investor can learn from Simons’s successes and failures:”

  • Go long— Since Simons has not been successful at generating hefty profits on long-term bets, the article notes, which “creates an opening for investors willing to hold shares for a year or longer, who don’t need to worry about facing off against Simons and his team.”
  • Keep your cool—Simons does best during market panics, the article notes, adding, “Investors can profit by doing what he does—avoiding panics, picking up stocks for cheap in sudden selloffs and keeping emotions in check, even during volatile markets.”
  • Don’t buy the story—”Simons and his team achieved success by ignoring the sometimes-enticing stories spun by bankers, analysts and others, the kinds that have led to huge losses for even sophisticated investors in recent years,” according to the article, which warns investors to focus on a company’s earnings, revenues and cash flow, not “to succumb to rosy projections and predictions about the distant future.”
  • Focus—While Simons’s successes might suggest that the market is rife with inefficiencies, the article suggests that such a view might be optimistic: “The lesson: Pick your spots, and only invest in areas you have a competitive advantage, perhaps due to a unique industry expertise.”
  • Be humble—Simons’s team is well-briefed on both the market forces and the mathematical relationships that affect stock prices. The average investor, however, doesn’t have this breadth of knowledge or experience.
  • Trust your team—Simons created a “collaborative culture in which employees share projects” and he “pays staffers well and rewards even those who do more mundane, yet important tasks, such as making sure the firm’s data doesn’t have errors.”