1 99:59:59,999 --> 99:59:59,999 Chris Anderson: You were something of a mathematical phenom. 2 99:59:59,999 --> 99:59:59,999 You had already taught at Harvard and MIT at a young age. 3 99:59:59,999 --> 99:59:59,999 And then the NSA came calling. 4 99:59:59,999 --> 99:59:59,999 What was that about? 5 99:59:59,999 --> 99:59:59,999 Jim Simons: Well the NSA -- that's the National Security Agency -- 6 99:59:59,999 --> 99:59:59,999 they didn't exactly come calling. 7 99:59:59,999 --> 99:59:59,999 They had an operation at Princeton where they hired mathematicians 8 99:59:59,999 --> 99:59:59,999 to attack secret codes and stuff like that. 9 99:59:59,999 --> 99:59:59,999 And I knew that existed. And they had a very good policy 10 99:59:59,999 --> 99:59:59,999 And they had a very good policy because you could do half your time 11 99:59:59,999 --> 99:59:59,999 at your own mathematics 12 99:59:59,999 --> 99:59:59,999 and at least half your time working on their stuff. 13 99:59:59,999 --> 99:59:59,999 And they paid a lot. So that was an irresistible pull. 14 99:59:59,999 --> 99:59:59,999 So, I went there. 15 99:59:59,999 --> 99:59:59,999 CA: So you were a code-cracker. 16 99:59:59,999 --> 99:59:59,999 JS: I was. 17 99:59:59,999 --> 99:59:59,999 CA: Until you got fired. 18 99:59:59,999 --> 99:59:59,999 JS: Well, I did get fired. Yes. 19 99:59:59,999 --> 99:59:59,999 CA: How come? 20 99:59:59,999 --> 99:59:59,999 JS: Well, how come? 21 99:59:59,999 --> 99:59:59,999 I got fired because, well the Vietnam War was on, 22 99:59:59,999 --> 99:59:59,999 and the boss of bosses in my organization was a big fan of the war 23 99:59:59,999 --> 99:59:59,999 and wrote a New York Times article, a magazine section cover story, 24 99:59:59,999 --> 99:59:59,999 about how we're going to win in Vietnam and so on. 25 99:59:59,999 --> 99:59:59,999 And I didn't like that war, I thought it was stupid 26 99:59:59,999 --> 99:59:59,999 and I wrote a letter to the Times, which they published, saying 27 99:59:59,999 --> 99:59:59,999 not everyone who works for Maxwell Taylor, if anyone remembers that name, 28 99:59:59,999 --> 99:59:59,999 agrees with his views. 29 99:59:59,999 --> 99:59:59,999 And I gave my own views. 30 99:59:59,999 --> 99:59:59,999 CA: Oh, OK. I can see that would -- 31 99:59:59,999 --> 99:59:59,999 JS: Which were different from General Taylor's. 32 99:59:59,999 --> 99:59:59,999 But in the end nobody said anything. 33 99:59:59,999 --> 99:59:59,999 But then, I was 29 years old at this time and some kid came around 34 99:59:59,999 --> 99:59:59,999 and said he was a stringer from Newsweek magazine 35 99:59:59,999 --> 99:59:59,999 and he wanted to interview me and ask what I was doing about my views. 36 99:59:59,999 --> 99:59:59,999 And I told him, I said, "I'm doing mostly mathematics now, 37 99:59:59,999 --> 99:59:59,999 and when the war is over then I'll do mostly their stuff." 38 99:59:59,999 --> 99:59:59,999 Then I did the only intelligent thing I'd done that day -- 39 99:59:59,999 --> 99:59:59,999 I told my local boss that I gave that interview. 40 99:59:59,999 --> 99:59:59,999 And he said, "What'd you say?" 41 99:59:59,999 --> 99:59:59,999 And I told him what I said. 42 99:59:59,999 --> 99:59:59,999 And then he said, "I've got to call Taylor." 43 99:59:59,999 --> 99:59:59,999 He calls Taylor; that took 10 minutes. 44 99:59:59,999 --> 99:59:59,999 I was fired five minutes after that. 45 99:59:59,999 --> 99:59:59,999 But it wasn't bad. 46 99:59:59,999 --> 99:59:59,999 CA: It wasn't bad, because you went on to Stony Brook 47 99:59:59,999 --> 99:59:59,999 and stepped up your mathematical career. 48 99:59:59,999 --> 99:59:59,999 You started working with this man here. Who is this? 49 99:59:59,999 --> 99:59:59,999 JS: Oh, [Shiing-Shen] Chern. 50 99:59:59,999 --> 99:59:59,999 Chern was one of the great mathematicians of the century. 51 99:59:59,999 --> 99:59:59,999 I had known him when I was a graduate student at Berkeley. 52 99:59:59,999 --> 99:59:59,999 And I had some ideas, 53 99:59:59,999 --> 99:59:59,999 and I brought them to him and he liked them. 54 99:59:59,999 --> 99:59:59,999 Together, we did this work which you can easily see up there. 55 99:59:59,999 --> 99:59:59,999 There it is. 56 99:59:59,999 --> 99:59:59,999 CA: It led to you publishing a famous paper together. 57 99:59:59,999 --> 99:59:59,999 Can you explain at all what that work was? 58 99:59:59,999 --> 99:59:59,999 JS: No. 59 99:59:59,999 --> 99:59:59,999 (Laughter) 60 99:59:59,999 --> 99:59:59,999 JS: I mean, I could explain it to somebody. 61 99:59:59,999 --> 99:59:59,999 CA: How about explaining this? 62 99:59:59,999 --> 99:59:59,999 (Laughter) 63 99:59:59,999 --> 99:59:59,999 JS: But not many. Not many people. 64 99:59:59,999 --> 99:59:59,999 CA: I think you told me it had something to do with spheres, 65 99:59:59,999 --> 99:59:59,999 so let's start here. 66 99:59:59,999 --> 99:59:59,999 JS: Well, it did. But I'll say about that work -- 67 99:59:59,999 --> 99:59:59,999 it did have something to do with that, but before we get to that -- 68 99:59:59,999 --> 99:59:59,999 that work was good mathematics. 69 99:59:59,999 --> 99:59:59,999 I was very happy with it; so was Chern. 70 99:59:59,999 --> 99:59:59,999 It even started a little subfield that's now flourishing. 71 99:59:59,999 --> 99:59:59,999 But, more interestingly, it happened to apply to physics, 72 99:59:59,999 --> 99:59:59,999 something we knew nothing about -- at least I knew nothing about physics, 73 99:59:59,999 --> 99:59:59,999 and I don't think Chern knew a heck of a lot. 74 99:59:59,999 --> 99:59:59,999 And about 10 years after the paper came out, 75 99:59:59,999 --> 99:59:59,999 a guy named Ed Witten in Princeton started applying it to string theory 76 99:59:59,999 --> 99:59:59,999 and people in Russia started applying it to what's called "condensed matter." 77 99:59:59,999 --> 99:59:59,999 Today, those things in there called Chern-Simons invariants 78 99:59:59,999 --> 99:59:59,999 have spread through a lot of physics. 79 99:59:59,999 --> 99:59:59,999 And it was amazing. 80 99:59:59,999 --> 99:59:59,999 We didn't know any physics. 81 99:59:59,999 --> 99:59:59,999 It never occurred to me that it would be applied to physics. 82 99:59:59,999 --> 99:59:59,999 But that's the thing about mathematics -- you never know where it's going to go. 83 99:59:59,999 --> 99:59:59,999 CA: This is so incredible. 84 99:59:59,999 --> 99:59:59,999 So, we've been talking about how evolution shapes human minds 85 99:59:59,999 --> 99:59:59,999 that may or may not perceive the truth. 86 99:59:59,999 --> 99:59:59,999 Somehow, you come up with a mathematical theory, 87 99:59:59,999 --> 99:59:59,999 not knowing any physics, 88 99:59:59,999 --> 99:59:59,999 discover two decades later that it's being applied 89 99:59:59,999 --> 99:59:59,999 to profoundly describe he actual physical world. 90 99:59:59,999 --> 99:59:59,999 How can that happen? 91 99:59:59,999 --> 99:59:59,999 JS: God knows. 92 99:59:59,999 --> 99:59:59,999 (Laughter) 93 99:59:59,999 --> 99:59:59,999 But there's a famous physicist named [Eugene] Wigner, 94 99:59:59,999 --> 99:59:59,999 and he wrote an essay on the unreasonable effectiveness of mathematics. 95 99:59:59,999 --> 99:59:59,999 Somehow, this mathematics, 96 99:59:59,999 --> 99:59:59,999 which is rooted in the real world in some sense -- we learn to count, 97 99:59:59,999 --> 99:59:59,999 measure, everyone would do that -- and then it flourishes on its own. 98 99:59:59,999 --> 99:59:59,999 But so often it comes back to save the day. 99 99:59:59,999 --> 99:59:59,999 General relativity is an example. 100 99:59:59,999 --> 99:59:59,999 [Hermann] Minkowski had this geometry, and Einstein realized, 101 99:59:59,999 --> 99:59:59,999 "Hey, it's the very thing in which I can cast General Relativity." 102 99:59:59,999 --> 99:59:59,999 So, you never know. It is a mystery. 103 99:59:59,999 --> 99:59:59,999 It is a mystery. 104 99:59:59,999 --> 99:59:59,999 CA: So, here's a mathematical piece of ingenuity. 105 99:59:59,999 --> 99:59:59,999 Tell us about this. 106 99:59:59,999 --> 99:59:59,999 JS: Well, that's a ball -- it's a sphere, and it has a lattice around it -- 107 99:59:59,999 --> 99:59:59,999 you know, those squares. 108 99:59:59,999 --> 99:59:59,999 What I'm going to show here was originally observed by [Leonhard] Euler, 109 99:59:59,999 --> 99:59:59,999 the great mathematician, in the 1700's. 110 99:59:59,999 --> 99:59:59,999 And it gradually grew to be a very important field in mathematics: 111 99:59:59,999 --> 99:59:59,999 algebraic topology, geometry. 112 99:59:59,999 --> 99:59:59,999 That paper up there had its roots in this. 113 99:59:59,999 --> 99:59:59,999 So, here's this thing: 114 99:59:59,999 --> 99:59:59,999 it has eight vertices, 12 edges, six faces. 115 99:59:59,999 --> 99:59:59,999 And if you look at the difference -- 116 99:59:59,999 --> 99:59:59,999 vertices minus edges plus faces -- you get two. 117 99:59:59,999 --> 99:59:59,999 OK, well, two? That's a good number. 118 99:59:59,999 --> 99:59:59,999 Here's a different way of doing it -- these are triangles covering -- 119 99:59:59,999 --> 99:59:59,999 this has 12 vertices and 30 edges and 20 faces, 20 tiles. 120 99:59:59,999 --> 99:59:59,999 And vertices minus edges plus faces still equals two. 121 99:59:59,999 --> 99:59:59,999 And in fact you could do this any which way, 122 99:59:59,999 --> 99:59:59,999 cover this thing with all kinds of polygons and triangles 123 99:59:59,999 --> 99:59:59,999 and mix them up. 124 99:59:59,999 --> 99:59:59,999 And you take vertices minus edges plus faces -- you'll get two. 125 99:59:59,999 --> 99:59:59,999 Here's a different shape. This is a torus, the surface of a donut, 126 99:59:59,999 --> 99:59:59,999 16 vertices covered by these rectangles, 127 99:59:59,999 --> 99:59:59,999 32 edges, 16 faces, vertices minus edges comes out 0. 128 99:59:59,999 --> 99:59:59,999 It'll always come out 0. 129 99:59:59,999 --> 99:59:59,999 Every time you cover a torus with squares or triangles 130 99:59:59,999 --> 99:59:59,999 or anything like that, you're going to get 0. 131 99:59:59,999 --> 99:59:59,999 So, this is called the Euler characteristic. 132 99:59:59,999 --> 99:59:59,999 And it's what's called a topological invariant. 133 99:59:59,999 --> 99:59:59,999 It's pretty amazing, 134 99:59:59,999 --> 99:59:59,999 no matter how you do it you'll always get the same answer. 135 99:59:59,999 --> 99:59:59,999 So that was the first sort of thrust, from the mid-1700s, 136 99:59:59,999 --> 99:59:59,999 into a subject which is now called algebraic topology. 137 99:59:59,999 --> 99:59:59,999 CA: And your own work took an idea like this 138 99:59:59,999 --> 99:59:59,999 and moved it into higher-dimensional theory, 139 99:59:59,999 --> 99:59:59,999 higher-dimensional objects, and found new invariants? 140 99:59:59,999 --> 99:59:59,999 JS: Yes. Well, there were already higher-dimensional invariants: 141 99:59:59,999 --> 99:59:59,999 Pontryagin classes -- actually, there were Chern classes. 142 99:59:59,999 --> 99:59:59,999 There were a bunch of these types of invariants. 143 99:59:59,999 --> 99:59:59,999 I was struggling to work on one of them and model it sort of combinatorially 144 99:59:59,999 --> 99:59:59,999 instead of the way it was typically done, 145 99:59:59,999 --> 99:59:59,999 and that led to this work and we uncovered some new things. 146 99:59:59,999 --> 99:59:59,999 But if it wasn't for Mr. Euler -- who wrote almost 70 volumes of mathematics 147 99:59:59,999 --> 99:59:59,999 and had 13 children 148 99:59:59,999 --> 99:59:59,999 who he apparently would dandle on his knee as he was writing -- 149 99:59:59,999 --> 99:59:59,999 if it wasn't for Mr. Euler, there wouldn't perhaps be these invariants. 150 99:59:59,999 --> 99:59:59,999 CA: OK, so that's at least given us a flavor of that amazing mind in there. 151 99:59:59,999 --> 99:59:59,999 Let's talk about Renaissance. 152 99:59:59,999 --> 99:59:59,999 Because you took that amazing mind and having been a code-cracker at the NSA, 153 99:59:59,999 --> 99:59:59,999 you started to become a code-cracker in the financial industry. 154 99:59:59,999 --> 99:59:59,999 I think you probably didn't buy efficient market theory. 155 99:59:59,999 --> 99:59:59,999 Somehow you found a way of creating astonishing returns over two decades. 156 99:59:59,999 --> 99:59:59,999 The way it's been explained to me, 157 99:59:59,999 --> 99:59:59,999 what's remarkable about what you did wasn't just the size of the returns, 158 99:59:59,999 --> 99:59:59,999 it's that you took them with surprisingly low volatility and risk 159 99:59:59,999 --> 99:59:59,999 compared with other hedge funds. So how on earth did you do this, Jim? 160 99:59:59,999 --> 99:59:59,999 JS: I did it by assembling a wonderful group of people. 161 99:59:59,999 --> 99:59:59,999 When I started doing trading, I had gotten a little tired of mathematics. 162 99:59:59,999 --> 99:59:59,999 I was in my late 30s. I had a little money. 163 99:59:59,999 --> 99:59:59,999 I started trading and it went very well. 164 99:59:59,999 --> 99:59:59,999 I made quite a lot of money with pure luck. 165 99:59:59,999 --> 99:59:59,999 I mean, I think it was pure luck. 166 99:59:59,999 --> 99:59:59,999 It certainly wasn't mathematical modeling. 167 99:59:59,999 --> 99:59:59,999 But in looking at the data, after a while I realized: 168 99:59:59,999 --> 99:59:59,999 it looks like there's some structure here. 169 99:59:59,999 --> 99:59:59,999 And I hired a few mathematicians, and we started making some models -- 170 99:59:59,999 --> 99:59:59,999 just the kind of thing we did back at IDA [Institute for Defense Analyses]. 171 99:59:59,999 --> 99:59:59,999 You design an algorithm, you test it out on a computer. 172 99:59:59,999 --> 99:59:59,999 Does it work? Doesn't it work? And so on. 173 99:59:59,999 --> 99:59:59,999 CA: Can we take a look at this? 174 99:59:59,999 --> 99:59:59,999 Because here's a typical graph of some commodity. 175 99:59:59,999 --> 99:59:59,999 I look at that, and I say, "That's just a random, up-and-down walk -- 176 99:59:59,999 --> 99:59:59,999 maybe a slight upward trend over that whole period of time." 177 99:59:59,999 --> 99:59:59,999 How on earth could you trade, 178 99:59:59,999 --> 99:59:59,999 looking at that and see something that wasn't just random? 179 99:59:59,999 --> 99:59:59,999 JS: In the old days -- this is kind of a graph from the old days, 180 99:59:59,999 --> 99:59:59,999 commodities or currencies had a tendency to trend. 181 99:59:59,999 --> 99:59:59,999 Not necessarily the very light trend you see here, but trending in periods. 182 99:59:59,999 --> 99:59:59,999 And if you decided, "OK, I'm going to predict today, by the average move 183 99:59:59,999 --> 99:59:59,999 in the past 20 days -- there's 20 days -- 184 99:59:59,999 --> 99:59:59,999 maybe that would be a good prediction, and I'd make some money. 185 99:59:59,999 --> 99:59:59,999 And in fact, years ago such a system would work -- 186 99:59:59,999 --> 99:59:59,999 not beautifully, but it would work. 187 99:59:59,999 --> 99:59:59,999 You'd make money, you'd lose money, 188 99:59:59,999 --> 99:59:59,999 you'd make money. 189 99:59:59,999 --> 99:59:59,999 But this is a year's worth of days, 190 99:59:59,999 --> 99:59:59,999 and you'd make a little money during that period.