The Well-Read Investor

Episode 11: Gregory Zuckerman

20-Year Wall Street Journal veteran Gregory Zuckerman and host, Mike Hanson discuss what investors today can glean from Investment Titans.

We are delighted to have Gregory Zuckerman, a long-time journalist for the Wall Street Journal on the show to discuss his book: The Man Who Solved the Market, the often-dramatic story of how Jim Simons and a group of unlikely mathematicians applied their skillsets to become some of the most successful investors of all time. Simons is a “quant”, which means his strategies use purely data to invest—they don’t read the news, or even look at company earnings much, they just do what their formulas tell them to do. This type of approach is of special interest these days as quants are not only all the rage, but many are finding that data alone is not a panacea for successful investing.

All of this is just a part of what makes Jim Simons so interesting. He and his strategies have always been shrouded in mystery, and Wall Street insiders have always wanted a look in to Simmons’s mind and approach. Greg Zuckerman, who is a 20-year veteran at The Wall Street Journal and three-time winner of the Gerald Loeb award, actually got Simons to open up enough to tell the tale. You can learn more about Greg at gregoryzuckerman.com find him on twitter @Gzuckerman.

Hello and welcome to the latest edition of the Well-Read Investor, the podcast that profits your mind and your money.

Before getting to today’s author, let’s talk for a moment about the US election. We are recording this introduction on the morning of November 3rd, which means the country is out voting today. Regardless of the outcome, a few points worth considering:

  1. It’s my belief that in investing, everyone pays. You can pay with money or with emotion. One way or the other, long term investors must pay the psychological toll put upon them in moments of high stress such as now, or earlier this year as the world first grappled with COVID. The question is not whether the election winners were the ones you wanted (if we even know the outcome yet), but whether you have the fortitude to stick with your investing roadmap in nervous moments such as these. It’s very difficult to do and in fact I’d say it’s the separator between truly successful long term investing and just floundering. Avoid knee-jerk reactions. Be deliberate with your decisions, especially with your money. The markets often swing in adjusting to news, and they’ll probably do that this time too—in the short term. Recall that, for example, the initial reaction to a Trump victory was negative, but swung positive quickly. So much can yet happen.
  2. Realize that while today, whatever the outcome, may seem the most important thing ever, it probably isn’t. Politicians always promise more than they do—and campaigns are the ultimate ground for talk, talk, talk. That’s why we always say at Fisher Investments, “watch what they do, not what they say.” Either candidate will inherit a tight congress—meaning that getting landmark legislation through will be tough.
  3. And if you can’t take it, turn off the tube and read some books. Everyone always thinks THIS election is the most important ever. It’s fun to go back and read how every single generation thought their election WAS the one for all time.

- Lest you think today’s fear and loathing are unique, read Hunter S Thompson’s Fear and Loathing on the Campaign trail 1972, by Hunter S Thompson

- The Righteous Mind: why good people are divided by politics and religion by Jonathan Haidt

- The Three Languages of Politics by Arnold Kling

- What it takes: the way to the White House by Richard Ben Cramer

Ok, let’s get to today’s guest and book. We are delighted to have Gregory Zuckerman, a long-time journalist for the Wall Street Journal on the show to discuss his book: The Man Who Solved the Market, the often-dramatic story of how Jim Simons and a group of unlikely mathematicians applied their skillsets to become some of the most successful investors of all time. Simons is a “quant”, which means his strategies use purely data to invest—they don’t read the news, or even look at company earnings much, they just do what their formulas tell them to do. This type of approach is of special interest these days as quants are not only all the rage, but many are finding that data alone is not a panacea for successful investing.

All of this is just a part of what makes Jim Simons so interesting. He and his strategies have always been shrouded in mystery, and Wall Street insiders have always wanted a look in to Simmons’s mind and approach. Greg Zuckerman, who is a 20-year veteran at The Wall Street Journal and three-time winner of the Gerald Loeb award, actually got Simons to open up enough to tell the tale. You can learn more about Greg at gregoryzuckerman.com find him on twitter @Gzuckerman.

But otherwise let’s get in to this fascinating topic. We hope you enjoy!

Michael Hanson:

So, Greg, thanks again for being on the podcast and for joining us, we've been readers for a very long time.

Gregory Zuckerman:

Great to be here, Michael, and I'm looking forward to the conversation.

Michael Hanson:

Greg, let's start off with your latest book, The Man Who Solved the Market: How Jim Simons launched the quant revolution. One of the things we ask our guests is why should every well-read investor read your book? But I think in your case, there’s really almost no way a reader could know who Jim Simons is or what he’s all about, because he and Renaissance Technologies are just so reclusive and out of the press.

Gregory Zuckerman:

Renaissance is the most secretive firm Wall Street has ever seen. Jim Simons and his colleagues they don't hire from Wall Street. It's hard to find people who were there and left. They don't allow people to talk. They sign these 30-page nondisclosure agreements. And I had meetings set up with people in the industry, competitors of Jim Simons and like the night before I'd get a text. So, Greg, sorry, we have to cancel. What, why are you canceling? Jim asked us not to talk to you. And I'm like, what, wait, he's your competitor? Why do you care? Oh well it’s Jim Simons, you can’t offend Jim Simon So, what happened was I went to California, and I talked to some people who were there at the beginning, like in the seventies and were there at the genesis of this from Renaissance technologies. They had really interesting anecdotes.  They were funny, they were eye opening. I was really struck.

Michael Hanson:

What do you think investors, especially the average investor might be able to glean from someone like a Jim Simons?

Gregory Zuckerman:

I'll tell you four reasons why I did this book. Partly it's the returns. So, he's up 66% on average a year since 1988. And that's before fees after fees, it really drops dramatically to only 39%. So, there are the returns which are kind of crazy and absurd. But it's also the fact that he's a pioneer. So today everything is about predictive algorithms. Be it Amazon, be it Facebook, 10 Cent, everything's models, all these companies, that's the future and Wall Street itself.

Michael Hanson:

So, one of the perineal conflicts in this business is some people do fundamental analysis based on news and earnings and things like that, and other people just do straight quantitative analysis, they call themselves “quants,” and they really don’t look at any of those fundamental things. How did Jim Simons apply that and what does that all mean in his case?

Gregory Zuckerman:

Everyone's trying to marry these two approaches, a fundamental approach with a quantitative approach. But everybody trying to be sort of quantitative, and these guys were doing it back again in the 1980s, it's kind of crazy. And things like AI machine learning, they were doing early version. I wanted to understand how they did it for those reasons as well. They're pioneers. The   larger theme that these people having an outsize effect on society broadly, we're talking billionaires are doing it. And especially Jim Simons and Robert Mercer, the key people in my books, Jim Simons is left leaning guide. Bob Mercer is probably the single handedly that the most important reason why Donald Trump's in office.

Michael Hanson:

One thing that struck me about the book was that Simon's himself, just brilliant mathematician and physicist who still has a legacy that carries on. And yet, he didn't have instantaneous success with making money and quantitative funds, did he?

Gregory Zuckerman:

That's exactly right. And when I speak to investors, especially sort of smaller investors, I was really struck by, not just the difficulty of creating this systematic approach. It's a trading system that in some ways, acts on its own. It is humans help and play a big role. Don't get me wrong, but they developed it over time. They literally started in 1978 in this strip mall in Long Island. And they only really turn the corner in 1990, get even then it was commodities and futures and bonds. It took them years later to get stocks.

Gregory Zuckerman:

So, I too was sort of encouraged by their difficulties in that it gives us all reasons to think that we still can succeed. And frankly, Simon’s succeeded after the age of 50, which I find encouraging I've turned 50 recently. So, for those reasons that's encouraging and, and also, he went back and forth in terms of his approach. So, I always thought he, like you said, he's this famous mathematician. So obviously you would use a quantitative approach, but no, he was reading the newspapers, Hey, I think gold's going high, I'm going to buy gold, kind of thing.

Gregory Zuckerman:

in 2018, the end of the year. The market's collapsing and Jim Simons is on vacation and he starts panicking. And I finally got him to talk to me and it took him forever. Finally, he did open up. And I said, Jim, you're the last person in the world who should be panicking. You're Jim Simons, you’re the pioneering quantitative investor. It's all about models and systems and not using your intuition and judgment. He didn’t really appreciate the irony but yet it was reassuring that even he panics.

Michael Hanson:

My observation is that almost whatever the domain is, whether it's quantitative or fundamental, if you have a value person or a growth person or whatever it is, that there's such a thing as quality. And some people are able to deliver that and others less so, in that there's always one or two really good in each domain ultimately, it seems to me.

Gregory Zuckerman:

Yeah. Tying back to my book. So, when I met with these quants, Jim Simons and his colleagues, people, you know, in their seventies and eighties who have a fortune right now and they invest their own money and I was talking to them and I would have expected them to be invested in other quants. They believe in this they're pioneers. And yet, nah, they're invested in, you know, David Einhorn and fundamental investors. I was really struck by that. So, I don't that's shows that there is hope for fundamental investors or maybe these guys can help themselves, going back to our other themes. I'm not sure what that says, but I was struck by that.

Gregory Zuckerman:

There's only one guy that's still always two steps ahead, David Tepper, the hedge fund manager. And he doesn't take outside money. I'm always amazed by him. But increasingly I come away disappointed by the approaches and the thesis of not always, not always in the still really impressive and smart people, but it's just harder. I think for fundamental investing. That said, I don't think the world is going entirely towards a quantitative approach. The returns haven't been that much better for a lot of quants. So, it's that balance and that challenge and in this world where information just flies so quickly, do you need to be a much longer-term investor? I think maybe that's the solution. But can intuition and judgment still work in this day and age? I'm not sure I'm struggling with that.

Michael Hanson:

You have this ability to get to these stories and this one in particular is sort of famously difficult to get towards. One of the ways I know you is just from reporting on some of the most sensational stories of the era. Tell us a little bit about your career path, the trajectory, some of the things you've seen, where you started out and where you are today.

Gregory Zuckerman:

I didn't ever think about being a journalist, a reporter, a book writer, I stumbled into this career. I was a guy who always loved investing. And then I graduated. I went to a liberal arts school, Brandeis University, outside of Boston. I did well, traveled for a year then said, all right, I'm going to go work on Wall Street. I have these good grades, went to a good school. I couldn't even get an interview, let alone a job. And it was partly because it was a tough time on Wall Street. And then one day I saw an ad in the newspaper and it was for a trade publication. And I went in there and I had no clips to show them. I hadn’t worked at my college newspaper, high school or anything like that. So they said, okay, we'll give you a leak document. A pretend document. Citibank is merging with, I don’t know, somebody else. And I'm supposed to write an article about that. And I remember it distinctly sitting there, the typewriter writing an article about this leaked document, and I'm like, wait, they're going pay me to write about Wall Street.

Gregory Zuckerman:

I love Wall Street. And I love writing. And I loved Newspapers. I was a big obsessive newspaper reader and it never crossed my mind that I could write about something I loved. So, I got that job and turns out that my writing wasn't great. I thought it was really good. I thought I aced the test and I was doing the opposite of what you're supposed to do. In an academic paper, you do like a pyramid where you give like your thesis at the beginning, right? And then your conclusion is really good. So, you should have seen them. The end of my article was really good, but we do the opposite in the world of newspapers, where you do a reverse pyramid, because most people don't read the end of the article. As part of the test, they had me interview someone. The guy I interviewed was my future boss. He was testing how I am on the phone. And it turns out that I'm really good at talking to people and getting them to open up and share information. So, I was there for a while. Then I went to the New York post for about nine months. Then I got a job for the Wall Street Journal. And what’s different about me, I think is that I happen to love investing.

Gregory Zuckerman:

And that's sort of why a lot of what I write, I think it has some emotion because I understand those emotions when you're feeling on top of the world and everything's going right, and you’re making money. And, and the flip side, when everything goes wrong and you feel like an idiot and you don't know what you're going to do. And I try to get at those emotions to some extent. I'm also a sports guy. So, a lot of what I try to do a lot of what I end up writing about are home runs and strikeouts. And I think there's a lot of drama with those. And I think there are a lot of lessons too. So, I’m learning and I want my audience to learn. So, you can learn from the mistakes of the greats and they're not so great. And also, from their home runs as well.

Michael Hanson:

Yeah. It's so interesting to hear you frame that that way. One of the reasons I recommend your books frequently is because this industry is so full of drama. And there are great stories to be told nonfiction stories, there really are. I think your book with John Paulson was also similar to that and it just gets you excited about these things. It is interesting. It's amazing. These are titans.

Gregory Zuckerman:

I agree. And also, you're dealing with themes that are important themes. Where's the world going? Where's the economy going? How are we creating more jobs? What’s the future for different industries? One of the reasons why I've done my well in my career is just because I really enjoy business. So, when I'm having drinks with someone or coffee or, dinner or something with, you know, a banker or investor or somebody like that, I'm genuinely interested in what they have to say. I'm not kind of going through the motions. And I just enjoy the subject matter because it has relevance to us all, this is, it's not, there's a, there's the game side of it, you know, the gambling side of it, which is kind of fun, but also there's real life impact. And there's so many industries. So you get to learn about every industry. I don't know. It's a fun industry I think, a fun profession.

Michael Hanson:

Journalism is such a hot button issue these days. And people talk about the state of journalism and all this kind of thing. What have you seen change for the better and the worst and how do you see your industry today?

Gregory Zuckerman:

Yeah, so it has changed. Our stories are shorter. Partly people's attention spans are shorter. So, we've had to cut out on our stories. My average story length when I started at the journal in 1996 was 1200 words. And I'd say the average story today is probably about 900 words. And, we call them leaders. It was like page one stories back then were about 3000, now they're about 2000 words. So, you know, as a percentage that's cut. I think there's more competition in a lot of ways, just sort of different vehicles out there, there’s more immediacy, obviously. Whereas you got tweets today, you've got online places. It was still competitive back then as well, but different types of stories. And we journalists, don't always get it right. Look at 2016. How many of us were caught flatfooted by the changes of this country? So, I'm always learning. There's so much I need to learn.  So, we're open to criticism, but there's different to criticism and calling us fake news all the time.

Michael Hanson:

Tell me just to just a few words about how do you develop a thick skin, or is that pretty de rigueur?

Gregory Zuckerman:

I enjoy criticism, if I haven't made a true mistake. We're all a little bit neurotic. We happen to be neurotic, journalists are neurotic. I’m an awful speller. And I used to go to sleep at night, scared to death that I misspelled the guy's name that I wrote about the next day, or they're a woman. And sometimes I did. And I used to lose sleep before stories that I'm just, that they're wrong. And the only reason I don’t today is because now we put them out online and I get immediate response. So, we used to, you know, the next day, pick up the paper and then get the calls. You know, It’s funny, people don't realize that you can write front-page stories for the Wall Street Journal frequently, but if you also frequently make mistakes, that that result in corrections, you can lose your job. So, you can have the greatest, sexy front-page story, but let's say it is one or two mistakes in that story, you're going to get spoken to.

Michael Hanson:

There’re so many parallels with actually just managing money for clients, because in fact, a lot of that applies. As I was doing some research about you for this interview though, I hadn't appreciated that you've written a couple of sports books and with your sons, is that correct? So, tell us about that.

Gregory Zuckerman:

A few years ago, my sons were younger and I was talking to my youngest son, Eli, who is a really good athlete and he was born with two fingers in his left hand, and so he's always got a difference. And frankly, he was a little bit insecure about his difference. And we started talking about athletes, sports stars who had their own differences. And he had the idea of, well, maybe we interviewed them. And I thought it was a great idea because I thought it could provide inspiration, not just for kids with physical differences. But what we tried to do is we found superstars in different sports who dealt with different challenges, setbacks, be it racism, poverty, abuse, physical abuse, sexual abuse, physical differences, sexism.

Gregory Zuckerman:

And we set out to talk to them and ask them how they dealt with their differences and setbacks and, and the idea being that we think that every kid, but every person, it's really, it's a book for young people from like eight to 14. But we think everybody's got some difference. Maybe you can't see it, but maybe it's on the inside. And we try to write books that are inspiring young people. And I'm thankful that, you know, we get emails and letters and we speak sometimes in inner city groups. We went to London and spoke to some kids. So yeah, we're really proud of those books.

Michael Hanson:

That is very cool. As I stumbled upon those, both of them you did, actually it really is all about inspiration and I was really taken by those. What's next for you? Are you thinking about a new book?

Gregory Zuckerman:

I'm always thinking about a new book. Most of my ideas don't pan out. I passed this one in, I literally stumbled upstairs from this basement and told my wife, I'm done. I am done, done, done no more books. I'm done. And I don't want to presume to understand how women feel, but I bet you it's a little bit like, for some anyway, childbirth. Where you're like, I'm done and then, you know, a few months later you're like, well, maybe. So, that's sort of how I feel. I'm still recovering from this one. But yeah, I would like to write, I've got a few ideas, but nothing I'm always open to good ideas and people want to reach out to me. I'd love to hear them. So, I've got an idea right now. I just don't know if it works yet. Like all of them, there are all kinds of reasons not to do it. And It's hard. It's really kind of hard.

Michael Hanson:

Yeah books are an amazing labor. Well, thanks so much. Gregory Zuckerman bestselling author, Wall Street Journal 23 years. Thanks so much for spending some time with us.

Gregory Zuckerman:

That was a lot of fun. Great to be here.

OUTRO

That was our conversation with Greg Zuckerman. Whether you believe quant is the best approach or not, these days investors need to know what it is—for no other reason than it gives you a sense of just how competitive markets truly are: these are some of the smartest people in the world competing in the markets. My hope is that listening to this podcast will give you pause the next time you think you’ve “figured out” what’s going to happen next. You’re competing with the likes of Renaissance and others like them. Thanks again to Greg for being with us.

Next episode we have Paul Morland in on November 18th to discuss his book: The Human Tide: How Population Shaped the Modern World. The investing public has always focused too much on short-term issues like stimulus packages and elections and not nearly enough on big, slow forces that play key roles in global economic outcomes. Global population change over time is worth knowing about, and we’ll discuss that and more next episode.

Lastly, you know what to do: wherever you may be hearing the Well-Read Investor, please comment, like and subscribe—it really does help us. And join us on twitter @wellreadpod, or Instagram @wellreadinvestorpod or visit our website wellreadinvestor.com.
 
Until then, here’s hoping all your reading profits your mind and your money. Take care.

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