Why Designing Systems is Superior

Perhaps the greatest systematic trader ever (w/2400%+ lifetime return), Jim Simmons of Ren-Tech on his evolution as a trader :

“I started collecting some data. There’s something to be modeled here.

So I brought in the best modeler in the world, a guy named Lenny.

I persuaded him to come and we’re going to make these models and do great. Lenny started making models with me and we were fooling around, but I kept trading. Lenny seemed to get less and less interested in models and more and more interested in reading the news. He started having opinions about what was going to go up and what was going to go down, and I started listening to him and- and he was right. He was right and he was right enough times to say ok, the hell with the modeling. Lets just make some money.

We had a remarkable run, in 2 years we multiplied our investors money by 12 even after their fees. We were remarkably lucky.

In the back of my mind I was like ok Lenny doesn’t want to build models. But maybe someone else could come in and build models. Jim Axe comes in and he did build some models. The next few years were a combination of fundamental trading, venture capital, invested in all kinds of things. But the models kept being built and working better and better.

And finally at the end of a 10 year run, it was clear to me that this gut-wrenching business of trading, one morning you come in and you feel like a genius. Your positions are all your way and you’re like god I’m really smart. Look at all the money I made. Then the next day, 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. But when building models, you go with the model.

So in 1988 I decided it’s going to be 100% models and has been ever since. Some investing firms say ‘we have models’ and ‘the model tells the trader what to do, and if he likes the advice he takes 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 would do. How were you feeling when you got out of bed 13 years ago… when you’re 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’re going to trade using models, just slavishly use the models. You do whatever the hell it says no matter how you feel about it in the moment.”

James Harris Simons

Lets Experience It Now :

Originally published at gleanusers.vanillaforums.com.

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