Smart money is on the science

You may never have heard of him but James Simons is a very, very good mathematician.

October 8, 2007. Source: TheAge.com.au by Burkard Polster and Marty Ross

He has had a long and distinguished career in differential geometry (a modern form of geometry, where calculus is the main tool) and he even has a mathematical object named after him. But the Simons Cone is a seven-dimensional "cone" in eight-dimensional space, so it probably escaped your notice.

Simons is the purest of pure mathematicians. And what does such a pure fellow do after a successful mathematical career? He establishes the most successful hedge fund in the world.

He is founder and president of Renaissance Technologies Corporation, which controls more than $14 billion, and has averaged after-fees returns of 37 per cent in the past 18 years. Simons is a billionaire and has donated much of his wealth to medical research and education.

It may be surprising that a pure mathematician could be so successful at the most applied enterprise of making money. But Simons makes it clear that, much less than being an impediment, the ability and desire to think abstractly is the key to his company's success.

Simons describes his company as a research organization. He treats the financial market as an academic puzzle and he concentrates on hiring young mathematicians, scientists and programmers to help him solve it. He hunts for promising young academics.

Some of this puzzling involves the application of mathematical models, the implementation of sophisticated algorithms and the use of Brownian motion to analyze huge amounts of financial data.

But in the main, scientific and mathematical theories do not apply to financial markets and it is not the primary way Simons chooses his team.

What is important is the sense and the sophistication of doing science, the ability to think theoretically and abstractly about the problem.

Simons and his team prove how pure thought can be most impressively applied.