The are many theories of how to play the stock market, some will make you money, some will not, but generally the consistency of making money on the markets without being an insider has been and is very hard. Some theories work better than others for a few years, but then they lose money or give back most of the money in a very short time. Still new theories and strategies will come forth.

In an book called The Man who Solve the Market – How Jim Simons launched the Quant Revolution, by Gregory Zuckerman, published by Portfolio Books by Penguin Random House, NY, 2019, the author gives a history of Renaissance Technologies. Their track record between 1988 to 2018 an average of 39.1% annual returns.

The head of Renaissance Technologies is Jim Simons and he started off as a math wizard working for universities and the government. During WW II, Mr. Simons was part of the group trying to decode the German communication and make life easier for the allies. Part of the solution was to look for patterns.

Eventually, Mr. Simons helped an University build up a strong Math department and this was good to learn management skills including recruiting.

In the world of math departments, they are dependent on university budgets, but some want to make more money and use their math skills in other areas of the economy. Mr. Simons wanted more money and he started in the commodities field because it was easier to gather data and understand what goes into commodity trading.

Eventually, he examined stocks, lost money and started gathering streams of information to find a small pattern that tended to repeat itself. Understanding the patterns and stock trading repeating itself eventually means making small amounts of money on thousands of trades.

In the book, the algorithms were not perfect and lead to losses and understanding the bottlenecks of the programs. Once it was sorted out, the profits came again.

The reality is it still possible to make small amounts of money on many trades but it took the continual declining of buying and selling commissions; it took programming great amounts of information for the machines to learn; and patterns tend to change as everyone sees the same patterns. It is a credit to Renaissance for leading the quant revolution, and with AI in the future for more people, perhaps we will see how Renaissance reacts to higher levels of computing.

Linking to dividend paying stocks, Mr. Simons did not really care what he owned, as long as the patterns make money. If you want a 39% consistent return, you have to take considerable risk and be fortunate more than you are not. If you want a consistent return by not losing money and getting paid along the way, dividend investing is a great method to do. In the book, when Renaissance was making billions, everyone in the firm was wealthy, do they still work hard or do they want different things in life when the money flowed into their bank accounts? With dividends investing the balance tends to be better.

There are more questions than answers, till the next time – to raising questions.