The Importance of Patterns: Jim Simons’ Renaissance Technologies & a 2-time Oscar Nominated Screenwriter
As someone who built a database over 10-ish years, I find that people generally fall into one of two categories when you tell them that you believe in the power of patterns & data: super interested or extremely dismissive. You rarely find someone lukewarm on the issue.
To the above end, this post is addressed to liberal arts people, who may not have the appreciation for the power of patterns. Hopefully at a high level, I can demystify in English why no matter the sector you work in, patterns are a competitive advantage & the word “data” is not an antonym to artistic inspiration.
One of the most successful hedge funds of all time is Renaissance Technologies. In plain English what they have done is the following:
- They did not take any shortcuts and acquired an enormous amount of raw data without any built-in preconceived assumptions.
- They built a fantastic infrastructure to test hypotheses & went in with an open-mind and no legacy “this-is-the-way-it’s-done” preconceived notions.
- They looked for anomalies in the structures of the data, and the competitive advantage did not come from one enormous finding, but rather the collective of many small anomalies that worked together to be a significant competitive advantage.
The real takeaway from the story of Renaissance is that even in the most competitive of sectors, with people who are academic superstars (hedge funds are filled with MBA’s and Ivy Leaguers etc.), the power of patterns allowed a bunch of scientists, with no Wall Street background, to beat the pants off of fundamental traders (so-called domain experts in the field of finance).
Interestingly sectors like finance are easier for people to accept that patterns matter. Where the strongest advocates against patterns usually come from are sectors where they are more liberal arts oriented, usually sectors like writing books, film, etc.
So at a high level, let’s talk about how artistic inspiration & the power of patterns are not mutually exclusive enemies, but rather one and the same.
My grandfather was a 2-time Oscar nominated screenwriter. He advocated that the best way to get good at writing was (i) read a lot ; (ii) write a lot. So at its heart, he advocated studying the space he wanted to get good at (“raw data” / literature, whether novels or screenplays) & then actually practicing (aka testing) in an iterative process until he outputted a piece of work that got him the results he wanted.
While Jim Simons took a stringently scientific method approach & my grandfather took a more chaotic approach, the approaches are actually the same. The key difference is my grandfather was letting his unconscious mind & disorganized brain work through “data/informational patterns.”
In writing, think about how they teach about “archetypes” — recurring themes that seem to come up in stories throughout the ages, whether it’s a hero’s quest from Antiquity, or a hero’s quest from Native American lore. That’s a pattern.
In screenwriting, many teach a very specific formula, with inciting incidents, plot points etc. (note this writer disagrees with this stringent framework as the sole method of screenwriting, but it’s the point here that matters).
I think that data analysis — whether in hedge funds or screenwriting — should be thought of more as a way to organize information & then the individual/company can make the choice as to how to use that information.
If you were able to study the patterns in great writers whether that be Homer or Jim Cameron, wouldn’t that be an advantage to your own personal journey if you’re stated goal is to get better as a writer?
Look at JJ Abrams who even trumpets his “mystery box” as a vehicle that he uses as a recurring theme in his work. Pattern.
And to be clear — no one, or at least not me, believes that an algorithm can write a great novel or output a great piece of art. But if you substitute the word data & patterns for “information organization” and those tools can accelerate your understanding of historical information — no matter the arena you want to study or the sector you want to conquer — then doesn’t it follow that patterns/information (data) are important no matter the objective or no matter the space you’re playing in.
And finally it’s important to note that even at Renaissance, human decision making is paramount. Just like there is no substitute for the novelist who puts pen to paper, any tool (including algorithms) requires human monitoring and interpretation.
Data analysis & patterns are tools, not replacements for the most sophisticated computer of all: the human brain. But the human brain in all its imagination still has information limitations, which databases do not.
So if you’re a screenwriter who keeps a notebook by your bed at night in order to “remember when inspiration strikes” because you’re trying to work out Act II, well that’s your “database” of information as you organize your thoughts around Act II.
Wouldn’t it be great to have spent time compiling information on Act II for all the great writers you respect, so when you encounter a problem, you can have a resource to study to again draw inspiration from?
I am firmly on the side of the artist and 110% agree that computers/data do not replace whatever that intangible quality is (call it the soul) that goes into artistic inspiration.
But I disagree with any artist who hears the word “data” and immediately sees it as an affront to their process. If tools exist that can help you digest information and learn faster so you can get better at what you do, shouldn’t those tools be part of your tool belt as you create?
After all, it took human decision making to build Renaissance & it takes human brains to continue to hone what the evolving nature of Renaissance’s competitive advantage is.
Patterns matter and they are fantastic tools to work in conjunction with the human brain in order to output inspired work: whether that’s beating the S&P 500, or figuring out Act II.