[shagbag]

Simons doesn't do insider trading.

Arguably he paid long term capital gains on a basket that should have been short term capital gains.

But his system of short term, automated, stat arb / signal detection based trades are clearly not based on classified corporate data.

I suggest you read The Man Who Solved the Market for more info.

[harry8]

Well you don't know that, it's Simon's assertion that he doesn't do insider trading and whether you or I believe him (and I do, fwiw) stating that he doesn't as an incontravertable fact is going too far.

"There's zero evidence that Simons and Renaissance do any insider trading." Is a better way to state it.

[shagbag]

Simons is pretty reclusive, I don't think he's actually made an assertion about insider trading. Either way, you're right that I don't know for sure.

But all evidence points to a system that runs in a mostly automated manner, which would be the opposite of what you'd expect from an insider trader.

Someone who makes "gutsy calls" based on "intuition" like Steve Cohen is what I think most successful insider traders would look like.

[arthurcolle]

Insider trading easily lends itself to automation depending on the level of conspiratorial thinking you're willing to accept.

Consider the stakes - you have a multibillion dollar sub-portfolio (Medallion has current AUM of $118B according to some random site called InsiderMonkey, idk whether its legit or not). In 2016, the AUM was reported at $76B. His returns literally don't make any sense. You can't be right all the time. Anyways, so literally you wanna use a small fraction of that to fund the construction of a small discreet, strategic team that acquires information to gain edge in public markets. Simons has background in signals intelligence, and despite his later work, wouldn't it be an extremely obvious avenue to just forcibly acquire knowledge that is non-public and then place trades accordingly?

Simplest explanation is its definitely illegal. Every couple years, you hire some algebraic geometry PhD and boom, you chalk up all your returns to magic math. Doesn't make any sense.

[sokoloff]

Your accusation makes no sense.

If you simply bought the S&P 500 in Jan 2016 and held until now, you are up 78%. (76 goes to 135)

If you bought in Dec 2016 and held til now, you’re up 49% (76 goes to 113)

I find “they roughly tracked the market over the time cited” to be a far simpler explanation than “they’re definitely doing illegal insider trading and covering it up with math mumbo-jumbo.”

https://dqydj.com/sp-500-return-calculator/

[xibalba]

You've got bias in your sample of the S&P. Medallion has blown away the S&P over a few decade span. They had years of >100% return.

[sokoloff]

I simply picked the timeframe over which the accusation of illegal activity was leveled. (I'm not arguing that those are representative long-run returns; I am arguing that those are returns which are directly comparable to [and easily explain] the growth of AUM for the time period cited.)

[xibalba]

Ah, but your claim of parsimony just isn't. Assume that Renaissance has employed ~500 individuals over its existence, most of whom have become fabulously wealthy. You believe the simplest explanation is that none of those people would have "defected" by telling others about their dirty secret of insider trading?

[codyb]

50% returns in three years? Although 2016 - 2020 has been a pretty bullish market.

Seems like they do well during downturns too?

[arthurcolle]

I read the book. In my opinion, it's just a puff piece oriented towards a slightly more technical audience.

The entire Renaissance org is pretty walled-in, and in my opinion it is pretty obvious that based on returns they must be exploiting an edge that treads the line of legality.

Take a look at their basket options tax strategy (documented by Levine, look for "incantations+Levine" on your favorite search engine).

[iudqnolq]

Can't find it. You're the seventh result for "incantations" "Levine" in my personalized Google, though :). I like reading his newsletter a lot, though, so I'd appreciate a pointer.

[arthurcolle]

Just tried to google this myself and you are right, looks like Google crawlers are as speedy as ever. Here's what I was talking about -

Link to article I was referencing: https://webcache.googleusercontent.com/search?q=cache:4l2vAb...

Here's a pastebin of the content in case you can't access the above: https://pastebin.com/43hjkBQe

[iudqnolq]

Thank you

[arthurcolle]

Anytime, old sport. I'll be here all week.

[arthurcolle]

You literally cannot know this.

It's pretty easy to construct a scenario where "oh yes he is omniscient and thereby he can easily draw returns from a bustling market" but it's even easier to construct a scenario where fraudulent activity is occurring and those same returns are being derived from expert-level fraudulent activity.

No one is accusing a buy-and-hold investor like WB of committing illicit activities. Seriously, no one. OTOH, I think it is quite reasonable to suspect that the premier quant trader of all time, with those stellar YOY returns is extracting alpha via strategies that are "dumb" and "always work", i.e. his primary edge. These strats probably exist in the grey area of financial structuring and trading activity (if not worse).

Seriously. Just look at the yearly returns time series. (Acquiring the yearly financial statements is left as an exercise to the reader).

I mean yeah I think he's awesome too. But thinking he's some kind of market savant in a post-Madoff world is really quite silly, in my opinion.