(With a delay so as not to get shot. Previously.)
- The first time I gave my real name and company. Oh, but they’re wise to my game, and after 5 minutes, an operator gets on and informs me that “Ms. Levin, the administrators have requested that you be disconnected from this call.”
- I can tell this is a job for an alter ego, Elizabeth Spring, and so I call back having been reincarnated thusly. I’m listening and taking notes for the famous British banking concern…BCSH.
- Dr. Jim Simons and Dr. David Lippy, senior researcher on RIEF in the hizzous.
- [I love this man] Simons: I’m going to start on background. And when I say “background,” I mean background. I’m going back thirty years.
- In the 1980s we started to develop some computer driven models.
- In 1988 we formed the Medallion fund.
- By 2002 Medallion had reached a very high level. Funds were returned to outside investors. During the following three years we remained at that size, leaving the fund at about 98 percent employee owned.
- We have a capacity issue as we have such short holding periods.
- We realized we too as employees would get capped out, and in 2003 created a new vehicle, a fund with no practical constraint that could manage both employees and outside investors, which would have a holding period of not simply days and weeks but for quarters and years. It needed to be able to manage 50 to 100 billion, have beta but not exceed 40 percent, have two-thirds the volatility of the S&P and meaningfully outperform it, with no particular tracking expectations.
- And so we created RIEF. And it was good.
- This was just the sort of fund I myself wanted to invest in, and I did. My family group is currently the fund’s largest investor.
- To summarize comparisons with Medallion, Medallion is highly levered, RIEF is not; Medallion is very fast trading, RIEF is very slow trading; they’re barely correlated.
- March 1 through yesterday, we’re down 32.9 percent (relative to the S&P 500)
- That’s a heckuva big move, and it’s worth asking how it happened.
Lippy takes the mic
- High volatility stocks have outperformed low volatility stocks to an extreme
- We are not indignant about making short term predictions
- What has been happening looks historically aberrant
- All we did was give up last year’s gains….so don’t worry. (Summary of entire call: What’s your fucking problem? We were up 20% last year.)
- This kind of thing [junk rally] can’t go on indefinitely (otherwise, RUN)
Simons: It’s time for questions from the audience. Whoever’s controlling this, arrange for that miracle.
Q: Do you adjust for overfitting?
A: Yes. Dumbass.
Q: If you were so short low quality stocks, why didn’t you make a killing in the Feb-March downturn? Don’t you look for oversold indicators?
A: Oversold, overbought is meaningless from a practical perspective. [Coughs...God I need a cigarette]. I wish I had an answer. It’s more easily wondered than answered.
Q: Missed it
A: Simons (for real) Says: This period has been totally bananas.
Q: Can you comment on redemption activity in May and June?
A: May was small, we don’t have numbers for June yet (nothing has come in). I wouldn’t be surprised if there were redemptions, people reacting negatively to these bad months and some such.
Q: Does the junk rally need to end for the fund to start improving?
A: Our predictive signals tend to favor non-junk. If our shorts continue to out perform our longs we will not do well (laughs).
Q: We have this period of underperformance…have you ever experienced the same magnitude of overperformance?
A: If you normalize by volatility, yes. These things tend to be pretty symmetric.
Q: In terms of people taking their money out…would you consider closing the fund?
A: We would only close RIEF if I decided to pull my money out because the damn thing wasn’t working, and we found it to be a nuisance. But we’re nowhere near that. One of my partners sitting next to me wants me to tell you that.
No more questions.
Simons: Thanks for coming, and you can be sure we’re doing our damndest to make your investments worthwhile.