How the Medallion Fund Literally Printed Money Over the Last 30 years
How the Medallion Fund Literally Printed Money
We all know that the secret to building wealth is to accumulate assets and avoid liabilities. The tricky part is knowing in advance which asset gets us there faster and the relationship between risk and return. Welcome to the secretive world of Renaissance Technologies and the Medallion Fund.
What Is the Medallion Fund?
Simons and algebraist James Ax started a hedge fund and named it Medallion in honor of the math awards that they had won. The Medallion Fund used mathematical models to explore correlations from which they could profit.
Performance Of Medallion Fund
The performance of the Medallion Fund has astounded everyone. If you had invested $1,000 in the Medallion Fund, after 30 years, you would now have $20 million (after fees). To put these numbers into perspective, a similar amount invested in the S&P 500 would be $20,000.
How Does Medallion Fund Work? 1. Data
Since the early days, Renaissance has been collecting and curating vast data archives of everything. From economic metrics to the weather to trading sentiment and a million other variables. he interaction between these data sets and the direction of the security movement forms the base of their secret sauce.
2. Strategy
Medallion’s strategy involves holding thousands of short-term positions, both long and short, at any given time. The fund makes high-frequency trades but has also held positions for up to one or two weeks.
3. Algorithmic Trading
The Medallion Fund has employed mathematical models to analyze and execute trades, many of them automated. The firm uses computer-based models to predict price changes. These models are based on analyzing as much data as can be gathered.
4. Leverage
The trades are made using a lot of leverage, which amplifies the gains. The only challenge with using leverage in trading is to manage risks appropriately. I believe real estate is still the best way to obtain a leveraged return without margin calls.
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