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Medallion Fund's Unrivaled Run - 40% annual avg return after fees

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  • Jul 30th, 2019 2:56 pm
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Mar 9, 2017
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16 upvotes

Medallion Fund's Unrivaled Run - 40% annual avg return after fees

Interesting.. don't hear much about John Simons compared to other successful investors like buffet, soros, ackman. 40% annual avg return is ridiculous.

Simons launched Renaissance Technologies after leaving academia and in 1988 started the Medallion Fund, which through last year generated an unrivaled annual average return of about 40 percent, according to calculations by Bloomberg.

Medallion evokes the greatest mystery. It employs trading strategies to predict price changes in global markets that over three decades no one on Wall Street has been able to replicate.

https://www.bloomberg.com/news/articles ... ivaled-run
12 replies
Member
Sep 18, 2016
237 posts
140 upvotes
goodfella, go and put all your money into it. Report back in 10 years.
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[OP]
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Mar 9, 2017
46 posts
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1Ogiku2 wrote:
Jul 28th, 2019 12:44 pm
goodfella, go and put all your money into it. Report back in 10 years.
its not open to public anymore... just reporting what i thought was pretty neat, as i personally didn't know much about John Simons.

Glad you're enjoying your sunday though :)
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Dec 14, 2010
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Simons is my biggest inspiration to dive into algorithmic trading models.

Simons, an award-winning mathematician that used his skills to decipher Soviet codes for the NSA during the Cold War, founded Renaissance in 1982, a private investment firm based in New York with over $15 billion under management. According to Bloomberg, from 2001 through 2013, the fund’s worst year was a 21 percent gain, after subtracting fees. Medallion reaped a 98.2 percent gain in 2008, the year the Standard & Poor’s 500 Index lost 38.5 percent. The fund has averaged a 71.8% annual return, before fees, from 1994 through mid-2014. The fund has been closed to outside investors since 1993 and is available only to current and past employees and their families.

The fund uses mathematical models to profit from statistical arbitrage carried to the limit and executed extremely well. Basically, portfolios of long and short positions are created that hedge out market risk, sector risk and any other kind of risk that Renaissance can statistically predict. The extreme degree of hedging reduces that net rate of return but the volatility of the portfolio is reduced by an even greater factor. The standard deviation of the value of the portfolio at a future date is much lower than its expected value. Therefore, with a large number of trades the law of large numbers assures that the probability of a loss is very small. In such a situation, leverage multiplies both the expected return and the volatility by the same multiple, so even with a high leverage the probability of a loss remains very small.

But the most important factor to ensure its success is to trust and follow the model, even when it adverse situations happens, since not everything can be modeled:

“At the end of a 10-year run, it was clear to me that this gut wrenching business of fundamental trading . . . you know, if you are doing fundamental trading one morning you come in and you feel like a genius. Your positions are all your way. “God I’m really smart. Look at all the money I made overnight.” Then the next day you come in and they’ve gone against you, and you feel like an idiot. We were pretty good at it, but it just didn’t seem to be a way to live your life.
So by 1988, I decided it was going to be 100% models. And it has been ever since. Some investing firms say “Oh we have models” but what they typically mean is that we have a model which advises the trader what to do. If he likes the advice, he’ll take it, and if he doesn’t like the advice he won’t take it. Well that’s not science. You can’t simulate how you were feeling when you got out of bed 13 years ago when looking at historical simulations. Did you like what the model said or didn’t you like what the model said? It’s a hard thing to backtest.

So if you are going to trade using models, you just slavishly use the models. You do whatever the hell it says no matter how smart or dumb you think it is at that moment. And that turned out to be a wonderful decision. So we built a business 100% based on using computer models, starting with currencies and financial instruments, gradually moving into stocks and finally into anything liquid that moved.”

Below is a great lecture that Jim gave at MIT World in 2010. The video below starts at 29:50, where Jim mentions the text above. I highly recommend watching the whole presentation (Jim enters at 10:50 mark).

Enjoy!




Rod
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Feb 9, 2009
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This should be near the richest man on earth then
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Sanyo wrote:
Jul 28th, 2019 1:20 pm
This should be near the richest man on earth then
Simon retired from the fund in 2009. He still has a networth of $21B.

The company is now run by Peter Brown (after Robert Mercer resigned), both of them were computer scientists specializing in computational linguistics who joined Renaissance in 1993 from IBM Research. Simons continues to play a role at the firm as non-executive chairman and remains invested in its funds, particularly the secretive and consistently profitable black-box strategy known as Medallion. Because of the success of Renaissance in general and Medallion in particular, Simons has been described as the best money manager on the planet.


Rod
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Dec 13, 2005
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Seems like this is being used as a halo product for their other funds, if so, how do they perform in the open market compared to others? Their website seems extremely low on disclosure which is as red flag (heh). If their methods can't be scaled then aren't they of limited use?

Also isn't medallion being investigated by the IRS? I would question the timing of this article.
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May 28, 2012
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ONT
"Medallion Fund's Unrivaled Run - 40% annual avg return after fees"

Didn't Bernie Madoff have something similar?
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mrct1944 wrote:
Jul 29th, 2019 12:19 pm
"Medallion Fund's Unrivaled Run - 40% annual avg return after fees"

Didn't Bernie Madoff have something similar?
How is that related?

You do know that Madoff scheme involved recruiting new investors so that old investors could be paid with that money, right? And that Medallion funds are closed to the outside investors since 1993, so there haven't been new investors for decades, right?


Rod
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Jul 24, 2014
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Simon has over 300 scientists tuning up his "system" day in and day out, and his method is still a mystery, some good guess here and there. But nobody has a definite answer to replicate his success outside his fund

It's probably better not to try "his method"
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rodbarc wrote:
Jul 29th, 2019 1:12 pm
How is that related?
You do know that Madoff scheme involved recruiting new investors so that old investors could be paid with that money, right? And that Medallion funds are closed to the outside investors since 1993, so there haven't been new investors for decades, right?
Rod
INVESTOPEDIA: “Madoff also cultivated an image of exclusivity, often initially turning clients away."
“His principal, public portfolio appeared to stick to safe investments in blue-chip stocks.”

NY POST: “RenTech’s flagship Medallion fund was determined to have avoided up to $6.8 billion in taxes over a 15-year period”
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mrct1944 wrote:
Jul 30th, 2019 2:19 pm
INVESTOPEDIA: “Madoff also cultivated an image of exclusivity, often initially turning clients away."
“His principal, public portfolio appeared to stick to safe investments in blue-chip stocks.”

NY POST: “RenTech’s flagship Medallion fund was determined to have avoided up to $6.8 billion in taxes over a 15-year period”
Although Madoff claimed similar returns as Medallion, one was done via a Ponzi while the other has an actual trading system in place (no need of new funds to generate such return).


Rod
Build a comprehensive portfolio based on Investing and Trading strategies. Check out these threads and join the discussion:

Investing strategy based on dividend growth

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