I finished reading about Sam Zell’s journey. Sam was a colorful person, and his autobiography captures this. He published this book in 2017, when he was 75, and passed away last year at age 81.

What Was Unique about Sam’s Upbringing?

Sam grew up in a middle-class family, but his upbringing was unusual. His parents left Poland’s familiarity and spent almost two grueling years migrating to the United States. When they made it, they started from nearly zero and built a prosperous life (and learned a new language). His parents thought and acted differently than his schoolmates’ parents. Recognizing you’re in the wrong situation, taking action to get to the right situation, and successfully rebuilding from zero highlights the immigrant mentality ingrained in Sam’s parents.

That mentality was the reason Sam’s parents weren’t killed by the Nazis, and they instilled that mindset in their children. Sam’s comfort in going against conventional wisdom, ability to repeatedly change strategies, and dogged work ethic resulted from being raised by parents who embraced the immigrant mentality.

How Did Sam Become So Successful?

Sam embraced capital leverage throughout his career. He often used two forms of capital leverage simultaneously. He borrowed from banks and raised money from investors to purchase investments, which is common in real estate. When he invested using leverage, he could invest in opportunities that exceeded the capacity of his capital and magnified the returns when deals were successful. Conversely, leverage magnified painful periods for him.

Sam also invested when the prices were so low that his downside risk was significantly reduced while his upside potential was massive. For example, in real estate, he purchased when properties were selling below replacement cost, meaning that any new competitors would be forced to charge higher rental rates than Sam. 

Buying at the bottom and using capital leverage significantly reduced his probability of being crushed by leverage and magnified his gains.

Sam was a macro thinker. He could understand the implications of a macro change, such as a new law, and what micro actions to take to capitalize on it. Thinking top-down and being right about micro implications is extremely difficult, and executing on such understanding consistently is extremely difficult and rare. Sam had this gift and drew on it to invest in more than just real estate.

Sam recognized the value of having access to liquidity when using capital leverage in the business. He understood that the stock market is the only reliable source of liquidity. Even when times are tough, people are still buying and selling in the market. Sam spent time mastering the IPO process and learning how to run a company in a manner that met public-market investor expectations.  

What Kind of Entrepreneur Was Sam?

Sam was an entrepreneur, not a founder. He wasn’t focused on a specific problem or solution. He was always looking for an opportunity to make money. Finding creative and intellectually stimulating ways to make money excited him. He had no interest in focusing intensely on a single problem for an extended period.

Sam enjoyed the art of deal-making, although he doesn’t appear to have been a zero-sum thinker. He wanted everyone to win so he could do more deals with them in the future and not take every penny for himself.

Sam was a high-level strategic thinker. Operational details didn’t interest him at all. He understood this and leaned into it. He was at his best when partnered with someone operationally minded, such as Bob Lurie.  

What Did I Learn from Sam’s Journey?

The immigrant mentality is a powerful force and can change one’s life trajectory. This mindset comes with risks, but if consistently applied, it will likely put you in a better situation.

Being driven and intense exacted a price. Sam was married three times.

Thinking in terms of supply and demand is a simple way of evaluating opportunities. There’s no substitute for limited competition. Thinking about when supply and demand curves will intersect and the opportunity that will be created stuck with me.

Risk evaluation—constantly evaluating the downside and upside of every situation and acting only when downside is limited—is something to keep top of mind.

Simple tools can have a big impact. Sam used outlines to organize his thinking and cut to the heart of complex issues. When he was in trouble, he made lists and zeroed in on the tasks to accomplish each item on his list. This helped him from being overwhelmed.

Capital leverage make it difficult and stressful to weather the inevitable rough periods in the business cycle. When you’re at the top of a cycle, upside potential is reduced and downside risk increases. This is a great time to reduce or eliminate your capital leverage.

Finally, Sam was eccentric and did things his way, but he did everything at a high level and to the best of his ability. Because he did everything at a high level, he won more than he lost. Because he won more than he lost, people embraced his eccentricity. If you’re excellent at what you do, people will accept you for who you are, regardless. Everybody loves a winner!

Sam was an amazing entrepreneur. In his autobiography, Sam provided specific details on some of his biggest deals. Anyone interested in buying companies, entering new businesses, or using frameworks when investing can benefit from reading his book.

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Sam Zell was riding high in the 1980s. According to his autobiography, the early 1990s were one of his most difficult periods. His partner of twenty years, Bob Lurie, died of cancer in his 40s, which rocked Sam. He was in denial about the severity of the situation until Bob sat him down and told him he needed to prepare for Bob to die. To make matters worse, his second marriage ended in divorce in 1994.

While Sam navigated those challenges, the economy went into a recession. Sam’s companies couldn’t refinance their debt and struggled to make payroll. Sam was on the brink of default and failure.

Listing his companies publicly on the stock market was his only option for raising cash. Sam dove into learning everything about this process and, in 1991, completed his first IPO for a portfolio company. Learning how to run the IPO process would be a valuable skill. During this period, Sam listed seven of his companies for about $2 billion in total.  

Sam recognized he wasn’t the only one struggling. Many companies had too much debt and were desperate to raise capital. In 1990, Sam created a $1 billion fund to invest in distressed companies; he bought ownership stakes at discounted prices.

Sam also spotted a structural change in real estate:

• Easy money from Japan lent to US developers caused overdevelopment
• The savings-and-loan crisis eliminated a key source of lending to real estate
• The Tax Reform Act of 1986 reduced tax benefits for syndicate investors (such as Sam’s father), which reduced the capital these investors allocated to real estate

With most real estate using 80% to 90% borrowed money, Sam recognized that these factors, plus a recession reducing rental demand, would make it impossible for property owners to service their debt loads. This would lead to a real estate crisis worse than the Great Depression.

Sam was right. Commercial real estate lost 50% of its value. Losses were estimated at $80 billion. Between 1989 and 1996, Sam raised four funds for $2.1 billion and went on a buying spree.

In 1992, Morgan Stanley created a new real estate investment trust (REIT) structure called an umbrella partnership real estate investment trust (UPREIT), which allowed property owners to contribute property to REITs listed on the stock market and gain liquidity without triggering a tax event. Property owners could turn illiquid buildings into liquid holdings that generated predictable cash flow (UPREITS must distribute at least 90% of taxable income to shareholders annually). Sam leveraged his decade of taking companies public in 1997 by taking his four real estate funds public as a UPREIT and named it the Equity Office Properties (EOP) Trust.

Ten years later, in 2007, Sam perfectly executed a competitive bidding process between Blackstone Group and Vornado Realty Trust and sold EOP to Blackstone for an eye-popping $39 billion. Sam’s timing was impeccable—the Global Financial Crisis was approaching.

Sam also leveraged his experience investing where populations grew and started investing in real estate in emerging markets. He created Equity International in the late 1990s and began partnering with developers in emerging markets who were great operators. Sam provided the capital and best practices on financial discipline and strategies and helped prepare the developers for public-market investors.

This period was a wild journey full of ups and downs for Sam. But two things stood out to me. Sam had an uncanny ability to recognize macro events and understand how they impacted the supply and demand of real estate and capital available to companies. He masterfully positioned himself to take advantage of these insights before others appreciated them. Sam also did a great job identifying and learning skills that could be helpful in the future. He could have relied on investment bankers to run his IPO processes, but he decided to learn the skill himself because he knew it would be valuable in the future given that public markets are the most constant source of liquidity.

In the next post, I’ll share my takeaways from Sam’s journey.

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In the 1970s, Sam Zell refined his business principles to the following:

• If an opportunity has a large downside and minimal upside, steer clear—and if it has a minimal downside and large upside, go after it
• Make sure you’re getting paid sufficiently for the risk you take
• Never risk what you can’t afford to lose
• Keep it simple: the more steps, the more opportunities to fail

He also refined his thinking on supply and demand:

• Opportunity is embedded in the imbalance between supply and demand
• Both rising demand against flat or diminishing supply and flat demand against shrinking supply create opportunistic imbalances

According to his autobiography, Sam’s refined thinking led him to realize that his thesis of investing in high-growth second- and third-tier cities had run its course. Other investors had recognized the opportunity, so more capital was chasing these properties, increasing prices and reducing returns. By 1973, Sam realized that the supply/demand imbalance in commercial real estate was getting extreme. Easy money had led to more development and too much supply, which Sam predicted would decrease rental rates. At the same time, a recession was beginning, which would reduce demand. In short, supply was increasing rapidly and demand was about to start decreasing.

Sam sold his properties and started stashing cash to take advantage of the crash he thought was inevitable. He also launched First Property Management Company to focus on managing distressed properties. Until the market crashed twelve months later and Sam was buying properties at 50% discounts, everyone thought he was insane.

Between 1974 and 1977, Sam used a creative strategy to purchase $4 billion worth of properties with $1 down per property. He borrowed at a roughly 6% fixed interest rate while inflation was 9% or higher—so he was making 3% the second the deals closed. He realized the real money in real estate is made from borrowing at a long-term fixed rate in an inflationary environment, which increases property value and rents and depreciates the value of the loan.

Sam became known as the grave dancer because he bought at deeply discounted prices when others were afraid. But he viewed it as an opportunity to resurrect properties with potential. His low entry price drastically reduced his downside risk and increased his upside potential. This perspective gave him the conviction to bet heavily and be contrarian.

In the 1980s, Sam saw overdevelopment in real estate again but believed the sector had structurally changed. He realized that his business principles and focus on supply and demand could be applied to companies, too, not just real estate. Setting a goal to have 50% of his investments not be in real estate by 1990, he bought distressed companies that had borrowed too much but owned lots of assets like plants and machinery. A weakening economy provided him with ample businesses that fit his criteria and that other investors didn’t want to invest in. He went on a deal spree. In the book, Sam discusses the deals for several public companies he bought entirely or partially.

During this period, Sam also learned that businesses reliant on borrowing benefit from understanding the motivations of their lenders and their methodologies for issuing loans. Doing so led to companies Sam owned offering financing to buyers. At that time, having these loans on their books allowed Sam’s companies to borrow more from banks, which was counterintuitive.

During this period, Sam sharpened his understanding of risk, business, and supply and demand, which led to his transition from real estate investor to investor. When asked what he did for a living, Sam began confidently saying, “I’m a professional opportunist.”

This new outlook would profoundly affect the rest of his career, but first, he’d have to survive some challenging times.

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When Sam Zell returned to Chicago, he was rejected by 43 law firms. When he finally landed a job at a small law firm, he lasted four days. Reviewing contract details all day was painful. When he quit to start doing deals again, the firm made him an offer: if he would stay, they’d do his legal work for him and give him a 50% commission on any legal business he brought in.

According to his autobiography, Sam did so well bringing in new business that he made three times as much money as the junior partners. The firm cut his commission to 25%. What he brought to the table wasn’t being valued, so he quit, which was risky given that his wife was pregnant. Sam was 25 and didn’t want to be held back by anyone else’s rules. He wanted to control his own destiny.

He started his own investment firm focused on investing in small, high-growth cities with limited competing capital. Colleges were growing, so he focused on buying apartments in cities with universities. In 1966, he closed his first major deal, a $1 million apartment building, with his father as an investor. Sam predicted it would yield 19% annually, while his father thought it would yield 8%. It ended up generating 20% annually. Sam expanded to Tampa, Orlando, Jacksonville, and Reno.

He tried to develop properties from scratch, but mistakes with Lake Tahoe and Lexington, Kentucky, projects burned Sam. He learned that development was complex and risky. Things outside of your control can change and doom a project between the idea and completion stages. Sam couldn’t stomach that level of risk.

In 1969, Jay Pritzker, part of the family that founded Hyatt Hotel Corporation, tried to hire Sam to scout deals for him. Sam declined, but Jay became a mentor and co-investor with him. Sam’s relationship with Jay elevated his thinking as an investor. Sam learned to understand risk, that most deals depend on one or two things, and that you can organize your thinking to cut to the heart of something complex by breaking it into pieces and creating an outline.

Around 1970, Bob Lurie rejoined Sam in Chicago at the firm, now called Equity Group Investments. Bob complemented Sam and they worked well as partners. Bob stayed in the office, viewed things pessimistically, and focused on details. Sam was Mr. Outside, an optimistic salesman who hated details. They had a team of 10 in the 1970s and encouraged everyone to wear what they wanted, believing that if you dress funny and are great at what you do, you’re eccentric. They wanted to attract eccentric who would do a phenomenal job, not mediocre people who could dress the role. Early on, Bob and Sam reinvested everything in deals and their business, so they were cash poor and ran the company on a shoestring budget.

In the 1970s, Sam and Bob met a brilliant dealmaker named Arthur Cohen, and they learned a valuable lesson from Cohen’s struggles. Cohen acquired an offshore mutual fund that offered daily redemptions to investors, but it held real estate, which couldn’t be sold quickly. When the market turned sour, the combination of long-term assets and daily investor redemptions put pressure on Cohen to raise cash quickly. Sam and Bob took advantage of Cohen’s predicament and bought several of his properties at attractive prices because they could decide and close quickly.

Things were going well for Sam until 1976. Then, partners at a law firm he used to craft tax-advantageous deals were indicted. One partner, Sam’s brother-in-law, was convicted. Sam was indicted, too, but the case was dropped. The stain of an indictment on his record would follow him for years. Sam learned how important reputation is when people began to question his.

Sam was in control of his own destiny, but being in control didn’t mean things were always smooth. Sam learned painful lessons, most notably how to understand and minimize deal and reputational risk. A focus on risk would play a critical role throughout his career, but especially in the next phase of his journey, a period when Sam was known as the Grave Dancer.

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I finished reading Sumner Redstone’s autobiography, A Passion to Win. The book gave me insight into Redstone as a person. It describes how Redstone took National Amusements, Inc. (NAI) from a family-owned, drive-in theatre business to a publicly traded media empire worth tens of billions of dollars. At the time of the book’s publication in 2001, Redstone’s empire included cable channels, movie theatres, radio stations, broadcast stations, and much more.

Redstone recognized that he needed to be in the content business. Drive-in theatre growth was slowing because of cable, and he was tired of fighting studios. If he couldn’t beat them, he would own them—partially at least. He used NAI’s cash flow to buy substantial ownership in publicly traded movie studios such as Disney and MGM. Redstone scored profits of tens of millions of dollars each on several investments. He profited by $26 million—a roughly 100% return—when Coca-Cola bought Columbia Pictures in 1982. Redstone’s ownership in studios was profitable, educated him on the business, and deepened his industry relationships.

When the leveraged-buyout craze began in the 1980s, Redstone found himself battling with raiders and others who were trying to buy public companies he owned at valuations he thought were too low. In 1986, at age 63, he found himself in a battle over Viacom International, a cable and television programming business that owned MTV, Lifetime, and other assets. After digging into the company’s potential, he decided to buy it outright. He learned to raise debt and fought ferociously to secure the deal (crazy story in the book!). In 1987 he closed the deal. After spending $3.4 billion, he was finally in the content business.

The deal proved lucrative. MTV ended up being a cultural force with a young audience. The channel was the cornerstone of Viacom, “providing more than 50 percent of Viacom’s cashflow” annually in the 1990s. The Cosby Show was another amazing asset. In 1989, its syndication sales were $4 million for each of its 125 episodes. The syndication of that show brought in $500 million to Viacom that year, a record at the time.

Redstone took things further in 1994. He acquired Paramount Pictures for over $10 billion after a brutal battle against Barry Diller and John Malone (another crazy story!) while simultaneously acquiring Blockbuster Video. At roughly age 71, he was in the business of creating movies and producing broadcast television shows (e.g., MacGyver). He owned a library of almost 800 classic films, including The Godfather and the Indiana Jones movies. He also owned the leading video rental company, which would quickly become a thorn in his side.

In 1999, at age 76, Redstone acquired CBS Broadcasting Inc. for $32 billion. CBS was an advertising powerhouse offering radio, cable, and broadcast channels and outdoor advertising (billboards). Surprisingly, this mega deal didn’t involve any battles.

He was number one in radio, cable programming, and outdoor advertising and “would own the number-one audience deliverer both nationally and locally in television.”

Sumner was “the king of content as well as king of distribution.” He had finally won.

Read my first and second parts of this series on Sumner Redstone here and here.

Note: If you’re interested, the book provides granular specifics on negotiations and financials for each deal mentioned above.

Prefer listening? Catch audio versions of these blog posts, with more context added, on Apple Podcasts here or Spotify here!

I’ve finished rereading Ed Thorp’s autobiography, A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Market.

My last two posts covered Thorp’s rise from living in a house with fourteen people to academia to founding the hedge fund Princeton Newport Partners (PNP). PNP turbocharged his life’s trajectory, but then it encountered problems it would never recover from.

Jay Regan, Thorp’s partner, ran the Princeton, New Jersey, office, while Thorp ran the Newport Beach, California, office. In late 1987, Rudy Giuliani, US Attorney for the Southern District of New York, was after Michael Milken and Robert Freedman. Regan was friends with both of them and did business with them through PNP’s Princeton office. The office was raided by federal authorities, and Regan and four other leaders in that office were charged with various crimes. They were convicted, but years later their convictions were reversed on appeal; all charges were eventually dropped. Authorities never questioned anyone at the Newport Beach office, and Thorp and his office weren’t aware of what allegedly was happening in Princeton. They learned the details from PNP’s lawyers and news reports. The ordeal resulted in PNP winding down.

After leaving PNP, Thorp reflected on his next steps. He had more money than he could spend and decided to optimize his time for travel, time with his wife and kids, and exploring interesting problems.

Thorp went through a “period of adjustment,” he said. He consulted for an institutional investor, which led to his uncovering Bernie Madoff’s Ponzi scheme in 1991. He restarted his hedge fund operations with only four team members and focused narrowly on hedging Japanese warrants and investing in other hedge funds. In 1990, Ken Griffin was trading options and convertible bonds from his Harvard dorm room. Thorp recognized Griffin’s potential, shared PNP’s secrets with him, and became the first investor (i.e., limited partner) in Griffin’s new Citadel Investment Group. Thorp also came close to seeding David Shaw, founder of DE Shaw, the hedge fund that Jeff Bezos quit to start Amazon.com.  

In 1992, Thorp restarted his statistical arbitrage operations, choosing to manage a single large account for a large institution. In 1994, he launched Ridgeline Partners to manage his and others’ money. Between the two, he managed over $450 million (PNP’s peak had been $272 million). Thorp’s staff at PNP had been roughly eighty people across both offices. To run Ridgeline and the managed account, he had six people. He’d figured out how to run his new hedge fund in a way that suited the life he wanted to live.

In 2002, Thorp decided to wind down Ridgeline. More hedge funds were using statistical arbitrage strategies, which reduced the number of investable opportunities and thus his firm’s returns. More importantly, he wanted to have more time to enjoy his children and grandchildren and his wife. When she died of cancer in 2011, Thorp was thankful he’d prioritized time with her over making more money.

PNP’s demise was “traumatic” and likely destroyed future wealth in the billions for Thorp. Thorp wisely used that event to transition to the third phase of his life—one centered on spending time with people he cared about, not wealth accumulation. He continued to invest and solve interesting problems in a way that best served his new way of living. Thorp had created his ideal life.

Prefer listening? Catch audio versions of these blog posts, with more context added, on Apple Podcasts here or Spotify here!

I’ve reread two-thirds of Ed Thorp’s autobiography, A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Market.

After profiting from playing blackjack and the royalties from his book detailing his card-counting system, Thorp lost money investing in the stock market. He decided to learn his way out of the problem and spent the summers of 1964 and 1965 reading books on economics, finance, and the markets—all while still losing money.

Thorp’s two summers of learning established a foundational understanding of markets, and he absorbed practical lessons about anchoring and other pitfalls. He eventually discovered a pamphlet describing common stock warrants. A warrant is a derivative security. It gives the owner the right to purchase a company’s stock during a specific time window at a specified price. It’s basically a call option issued by the company. Thorp realized that math could be used to value warrants and to offset any risk by hedging. Thorp had found his way to beat the stock market.

In the fall of 1965, Thorp joined the University of California Irvine’s Math Department, where he learned that economist Sheen T. Kassouf had written his PhD thesis on warrant valuation and hedging. Together, Kassouf and Thorp refined their methods, invested their own capital, and published what they learned in Beat the Market: A Scientific Stock Market System in 1966.

Additionally, Thorp devised a formula to identify the precise worth of a warrant, option, or convertible bond. This formula increased his returns, confidence, and investable opportunities. He began managing accounts for friends and coworkers, one of whom introduced him to a thirty-eight-year-old Warren Buffett. Buffett ran a $100 million hedge fund, Buffett Partnership, Ltd., and invested in warrants, too. Thorp decided to mirror Buffett’s partnership structure to simplify managing his $400,000 in assets in a single account.

Jay Regan read Beat the Market and cold-called Thorp. The two agreed to start a hedge fund based on Thorp’s methods. Thorp would manage the research team in Newport Beach, California, while Regan managed traders and back-office administration in Princeton, New Jersey.

Princeton Newport Partners (PNP) launched in November 1969 with $1.4 million in assets. Thorp split his time between PNP and his professorship. A decade later, PNP had $28.6 million in assets and achieved an average annual return of 14% after fees, far superior to the S&P 500’s average annual return of 4.6%. In the 1980s, PNP expanded to statistical arbitrage, a “fund of hedge funds,” and other strategies. At its peak in 1987, the firm managed $272 million. From 1979 to 1987, PNP generated average annual returns of 18.2% after fees; the S&P 500, 11.5%. PNP had no losing years or losing quarters.

Thorp was 55 years old and managing roughly 40 people at PNP full-time. He was making millions annually. His life had reached heights he’d never imagined because of his curiosity about the markets, love for math, and willingness to share what he learned with others (before PNP, at least).

The good times wouldn’t last forever.

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Jim Simons’s biography mentioned another notable investor, Ed Thorp. I’d read Thorp’s biography, A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Market, but I started reading it again.

This quote sums up Thorp’s life:

“In the abstract, life is a mixture of chance and choice. Chance can be thought of as the cards you are dealt in life. Choice is how you play them. I chose to investigate blackjack. As a result, chance offered me a new set of unexpected opportunities.”

Thorp was a college professor, started two quantitative hedge funds, and created a blackjack revolution. He’s ninety-one now and still doing chin-ups and push-ups.

Where he started, the distance he traveled, and his choices along the way are all notable.

He was born during the Depression to struggling parents. Ten relatives lived in his home, and he attended one of the worst-ranked high schools in his city. Seeing how the Depression and World War I had shaped his father’s future, he vowed to do better.

Thorp shrewdly recognized that he could use math and science to change his life if he ranked first in the state’s chemistry exam. He finished fourth but took the physics exam the next year and ranked first. He received a full scholarship to UC, Berkeley (and transferred to UCLA for financial and social reasons). His decision to focus on acing state exams did indeed change his life’s trajectory.

While working toward his master’s in physics and PhD in mathematics at UCLA, he wondered if math could improve the odds of winning at blackjack and roulette. While on a teaching assignment at MIT and with the help of Claude Shanon, the “father of information theory,” he proved that they could, in both games. He shared his blackjack findings in an academic paper and a bestselling book, sending armies of blackjack players to Las Vegas. His curiosity about gambling led to unexpected highs and lows. He was introduced to the underworld of Las Vegas and was nearly killed. But book royalties and gambling winnings gave him his first financial cushion.

Thorp reflected on the type of life he wanted to live. He didn’t want to live in casinos and deal with shady people. He wanted to follow his curiosity, solve math problems, and work with smart people. He became a professor at New Mexico State University and began investing his savings—but his investments lost money. He wondered if math could improve his odds as an investor. He began looking for a link between math and the market. His curiosity—about the stock market this time—would change the trajectory of his life . . . again.

Thorp was dealt a tough hand, but he was able to change his life through good decision-making. His curiosity and love for math led to breakthrough discoveries in gambling and to working with the brilliant Claude Shanon. His decision to share that knowledge led to more opportunities and improved his finances. By age 29, his life had drastically improved. His next decision would propel his life to unimaginable heights.

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I’m finishing up reading The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution by Gregory Zuckerman. The book gives readers insights into Jim Simons’s life and how he built Renaissance Technologies into a $130 billion investment firm.

As I shared yesterday, Simons racked up accomplishments early in his career. He was an Ivy League professor and started a manufacturing company in Colombia, among other things. When he started RenTech in 1978, Simons was forty. His success at RenTech was anything but up and to the right.

Simons knew that to succeed, he had to build an environment of original thinking and exploration and also one of collaboration and great ideas that could serve as a foundation for other people’s future ideas.

To do this, he recruited mathematicians, let them develop mathematical models, and gave them capital to trade using their models. Some worked for RenTech, and others Simons seeded as independent firms. He encouraged everyone associated with RenTech to collaborate and share learnings.

Simons closely monitored the models’ progress and returns. Some took several years to reach production and longer to become profitable. Simons merged the most promising models into a single model at his flagship Medallion fund. And once a model was incorporated into the fund’s model, it was part of RenTech’s core investment approach and something others could continually improve upon.

Navigating this journey was far from easy for Simons. He went through a divorce, two of his sons died in separate freak accidents, and he struggled with self-doubt. Professionally, he endured crushing losses at times. Some key employees and fund managers whom he’d seeded jumped ship. Simons pushed through.

In 1990, twelve years after launching, RenTech was finally on solid footing. A reliable statistical model that could generate above-average returns was in place. RenTech had only $30 million in assets but generated a pre-fee profit of $23 million that year (the year before, it was $0). Three years later, the firm had $122 million in assets and generated $66 million in pre-fee profits. By 1998, the firm had $1.1 billion in assets and generated $628 million in pre-fee profits.

Simons’s early career was characterized by rapid success and many accolades. Then he became a founder. Twelve years of pain followed before he saw consistent and accelerating results. Every founder’s journey is different, but Simons’s reminds us that sometimes things take longer than we planned: persistence is key. You have to stay in the game long enough to win!

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Jim Simons was the founder of Renaissance Technologies, a $130 billion hedge fund. It’s a private partnership that usually invests in public markets. When I read an article about Simons passing earlier this month, I decided to read the biography I’d purchased months ago.

The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution by Gregory Zuckerman details Simons’s life and journey to build RenTech. Simons generated incredible returns for his investors and created a personal fortune worth over $30 billion.

Simons was a gifted mathematician. He taught at MIT and Harvard, worked at the Institute for Defense Analyses (IDA), and cracked coded Soviet Union messages. He chaired and built the math department at Stony Brook University from scratch. He received the American Mathematical Society’s Oswald Veblen Prize in Geometry. By age 40, he was accomplished by any standards.

What motivated him to become a founder? Why did he build a hugely successful investing firm from nothing? I learned that his motivations were like those of many founders.

Outsider

In an interview for the book, Simons shared, “I’ve always felt like something of an outsider, no matter what I was doing.” “I was immersed in the mathematics,” he said, “but I never felt quite like a member of the mathematics community. I always had a foot [outside that world].”

Simons didn’t enjoy the community at Harvard. He had interests that other academics didn’t have. He’d traded soybean futures and loved the thrill of being in the markets. After teaching at MIT, he started a company in Colombia with a college buddy manufacturing vinyl flooring and PVC piping.

Simons needed a place that embraced everything he enjoyed: entrepreneurship, markets, and math. He didn’t feel comfortable in a standard box.

Control

As an academic, Jim didn’t have much money. He borrowed to invest in the Colombian manufacturing company. To pay his debts, he secretly moonlighted, teaching classes at Cambridge Junior College.

He took the job at IDA partly because it doubled his salary. Even at IDA, Simons searched for ways to make more money to pay debts. A failing attempt to launch iStar, an electronic stock trading and research firm, was one effort.

Jim realized he wasn’t in control of his destiny when IDA fired him for opposing the Vietnam War in a Newsweek article. With three children, he was rocked by the abrupt firing. He uprooted his family to Long Island, New York, and took a job at Stony Brook University.

These and other experiences reinforced his need to control his destiny. He realized that money equated to control and power. “He didn’t want people to have power over him.”

Founders are a different species. They don’t fit in standard societal boxes. To be the best version of themselves, they need environments where they feel in control. These worlds don’t exist, so they need to create them. Founders are world builders. So, in 1978, Simons created his own world, RenTech.

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