The Man Who Outperformed Buffett for the Last 36 Years Has Died

He might not be as famous as Warren Buffett, nor does he have a track record as long, but Jim Simons surpassed Buffett’s returns since 1988 when he started his Medallion Fund, achieving an average annual return of 39.9% compared to Buffett’s 20%. Simons passed away over the weekend at the age of 86.

Forbes estimated Simons’ net worth to be about $31 billion, while Buffett’s is at $136 billion. Given that Simons’ returns are higher, why isn’t he richer and more well-known than Buffett?

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First, Buffett started investing at a much younger age than Simons, giving him more time to compound his money. This underscores the advantage of leveraging time and starting to invest early rather than chasing higher returns at an older age.

Second, Simons recognized that his strategy has a capacity limit; it doesn’t work beyond a certain amount of capital. The capital at Renaissance Technologies is capped at $15 billion, and any excess is returned to the investors. His Medallion Fund does not accept outside money and only trades with its own funds. In contrast, Buffett utilizes the capital markets and runs many businesses that generate increasing cash flows, making his approach more scalable, though he also faces some limits today due to the massive amount of capital he needs to deploy.

Third, Simons rarely gives interviews, while Buffett is a frequent guest on CNBC, writes shareholder letters, and spends hours answering questions at annual general meetings.

There are several valuable lessons we can learn from the life of Jim Simons.

While Warren Buffett is a highly successful stock investor, his method is not the only effective strategy. In fact, over a span of more than 30 years, Simons achieved higher returns by employing a different approach. Instead of searching for businesses with durable competitive advantages, Simons developed trading algorithms that capitalized on market anomalies, employing a quantitative strategy without concern for the underlying businesses of the companies involved.

Many investors regard Buffett’s approach as the pinnacle of investing success and frequently cite his advice. However, when a strategy becomes too popular, its effectiveness can diminish. Even Buffett mentioned at the recent annual general meeting that if he were to start over, he would still scrutinize all stocks but would seek opportunities that others have not yet discovered. Finding market inefficiencies remains a common theme.

Moreover, each investor is unique, and what works for Buffett may not align with another investor’s personality or objectives. This brings us to the first lesson: the importance of forging your own path. While it’s beneficial to draw inspiration from successful figures, investors must develop their own competitive edge in the market.

Jim Simons had no background in finance; instead, he spent his early career breaking codes during the Cold War and later became a mathematics professor. It was only in the latter half of his life that he developed an interest in financial markets, applying his mathematical expertise. He consistently hired individuals who also lacked a traditional finance background.

The second lesson from Simons’ career is that one does not need to come from a finance background to excel in investing. An outsider’s perspective can be advantageous, as it allows one to approach the market without preconceived notions, potentially spotting opportunities that others might overlook. This teaches us to leverage the experience and knowledge we’ve accumulated in other areas of our lives.

Jim Simons didn’t have an easy path to success; it took him about ten years to develop a working trading algorithm and launch Medallion Fund. This goes to show that having a PhD and a brilliant brain doesn’t immediately translate to investment success.

Making consistent money in financial markets is incredibly challenging. IQ alone isn’t sufficient because success in this field also involves a significant element of luck and emotional resilience. It’s easy to confuse the process with the results due to the complex nature of market dynamics, which require extensive experimentation to find a strategy that works—and remains relatively unknown.

The lesson here is not to give up too quickly. Investing should be a field you are passionate about, as this passion is essential for enduring the tough times. If your goal is to make a single investment and achieve great success without much effort, you’re merely gambling. Sustainable success requires identifying and exploiting a market inefficiency over the long term. You don’t need to know why the inefficiency exists, but you do need to find it.

Hopefully, Jim Simons’ story can inspire you. You must have some interest in investing; otherwise, you wouldn’t be here. Bring your experience and knowledge from other areas and see if you can apply them to the markets. Keep tinkering. Don’t give up. Once you find something that works sustainably, you will have discovered a gold mine for yourself.