Jon Simons is one of the greatest investors of modern times. Since 1988, his Medallion Fund has had an average annual returns of 66%, or 39% net of fees. (Source Bloomberg.com).
His firm Renaissance Technologies LLC, has done by creating complex computer algorithms that eliminate human emotion from trading. Simon's role in helping to invest by quantitative trading has made him a billionaire many times over.
Yet in a recent biography about Simons, the author Gregory Zuckerman tells the following story : Late last year Simons and his wife were vacationing over the Christmas Holidays, the stock market started to tank. Simons began to grow anxious - so much so that he called his family office advisor. "Should we be selling short" Simons asked. His advisor suggested that they try to ride it out and wait for the market to calm. Which it soon did. The irony, as Zuckerman notes, is the man who took emotion out of trading still acted emotionally when he saw the market falling. If he can't rein himself in, what hope is there for the rest of us?
His firm Renaissance Technologies LLC, has done by creating complex computer algorithms that eliminate human emotion from trading. Simon's role in helping to invest by quantitative trading has made him a billionaire many times over.
Yet in a recent biography about Simons, the author Gregory Zuckerman tells the following story : Late last year Simons and his wife were vacationing over the Christmas Holidays, the stock market started to tank. Simons began to grow anxious - so much so that he called his family office advisor. "Should we be selling short" Simons asked. His advisor suggested that they try to ride it out and wait for the market to calm. Which it soon did. The irony, as Zuckerman notes, is the man who took emotion out of trading still acted emotionally when he saw the market falling. If he can't rein himself in, what hope is there for the rest of us?
Emotions are contagious but perhaps necessary.
The classical literature in psychology describes relationship between anxiety and performance including mental performance in terms of an upside U.
At the peak of the invested U is the optimal relationship between anxiety and performance. But too little anxiety - the first side of U - brings about apathy - while too much anxiety - the other side of the U - sabotages any attempt to do well.
So the problem is not with emotionality but the appropriateness of emotion and its expression.
And therein lies the fear and greed balance so very important in investing.
(Disclaimer : For information purposes only.)
