Partnering with Greatness: Lessons from Jim Simons and Beyond.
When you spread your bets in the S&P 500 or ETFs, you're understimating the power of partnering with great founders.
It's been a harrowing year for financial markets, bidding farewell to two finance titans. Jim Simons, revered as the quant king, passed on May 10, 2024, preceded by Charlie Munger on November 28, 2023. Both have left a colossal legacy in finance and philanthropy.
Beyond their monumental impact, they've unveiled a significant revelation: the Efficient Market Hypothesis (EMH) isn't entirely accurate. EMH posits that stock prices reflect all available information, trading at their fair market value. EMH proponents advocate for passive, low-cost investing. This philosophy has fueled the burgeoning ETF industry, currently valued at around $7.5 trillion and projected to reach $19.8 trillion by 2028.
If you had invested just $1,000 in Jim Simons' Medallion Fund in 1988, your investment would now exceed $42 million. In comparison, the same amount invested in the S&P 500 would yield approximately $40,000, while investing in Warren Buffett's and Charlie Munger's Berkshire Hathaway would have grown to about $152,000. Investing this $1,000 in Microsoft (MSFT) would now be worth approximately $1.7 million.
The message is clear: investing in Medallion wasn't just about investing; it was partnering with Jim Simons a visionary founder, much like partnering with Bill Gates at Microsoft, Larry Ellison at Oracle, Steve Jobs at Apple, or Warren Buffett and Charlie Munger at Berkshire Hathaway. When you spread your bets in the S&P 500 or ETFs, you're underestimating the power of partnering with great founders.
In the world, venture capital is more compelling,
Peter Thiel & Facebook (Meta)
In 2004, Sean Parker introduced Peter Thiel to Mark Zuckerberg, sparking a pivotal moment in tech history. Thiel, a PayPal co-founder, sensed Facebook's potential beyond college campuses. With a $500,000 investment, Thiel not only backed Zuckerberg's vision but also validated it in Silicon Valley's eyes. This support propelled Facebook's evolution into a global juggernaut, reshaping digital interaction. Thiel's audacious investment paid off handsomely; by 2012, his initial investment had ballooned into a monumental fortune. As of the latest update, Facebook's market cap surged to around $1 trillion, underscoring Thiel's foresight and the enduring power of tech investments.
Don Valentine and NVDIA (NVDA)
In NVIDIA's origin tale, co-founder Jensen Huang sought investment from his former boss, Wilfred Corrigan, who directed him to legendary investor Don Valentine at Sequoia Capital. Recalling the nerve-wracking encounter, Huang reminisced, "Don Valentine was there and he just scares you... I did a horrible job with the pitch, but thankfully he was already instructed to give me money." Valentine's parting words were unequivocal: "If you lose my money, I'll kill you."
John Muse and Mercado Libre (MELI)
During his time at Stanford, Marcos Calperin, an Argentinean student, conceived the idea of an e-commerce platform for Latin America. With the backing of an early investor, Calperin pitched his concept to Hicks Muse private equity founder John Muse, seizing the opportunity after a conference. Muse, along with heavyweights like Goldman Sachs and JP Morgan, bought into the vision, leading to the platform's 1999 launch. In 2001, eBay acquired a 19.5% stake, later selling its Brazilian operations to MercadoLibre. The company went public on NASDAQ in 2007 (MELI US), raising US$333 million at US$18 per share. Since then, its stock has surged 43-fold. eBay exited in 2016, and in 2019, MELI struck a partnership with PayPal, which injected US$750 million. CEO Calperin's fortune now stands at an estimated US$3.3 billion, holding a 9% stake.
But how do we recognize when we are partnering with a great founder?
Here is a clue, Jim Simons' five principles:
Do Something New; Don't Run with the Pack: If I am one of N people all working on the same problem, there is very little chance I will win. If I can think of a new problem in a new area, that will give me a chance.
Surround Yourself with the Smartest People You Can Find: When you see such a person, do all you can to get them on board. That extends your reach, and terrific people are usually fun to work with.
Be Guided by Beauty: This is obviously true in doing mathematics or writing poetry, but it is also true in fashioning an organization that is running extremely well and accomplishing its mission with excellence.
Don't Give Up Easily: Some things take much longer than one initially expects. If the goal is worth achieving, just stick with it.
Hope for Good Luck!
Guillermo Valencia A
Co-founder of Macrowise
Medellín, May 13th, 2024