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Quant Genius Billionaire Jim Simons’ Top 10 Stock Picks

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·12 min read
In this article:
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In this article we take a look at billionaire Jim Simons' top 10 stock picks. You can skip our detailed analysis of Simons' investment strategy and go to Billionaire Jim Simons' Top 5 Stock Picks.

James Harris Simons is an American billionaire, award-winning mathematician and hedge fund manager who founded Renaissance Technologies in 1982. As of the end of 2020, the New York-based hedge fund has over $165 billion worth of discretionary assets under management and over $92 billion in managed 13F securities.

Jim Simons is a quant investor, who uses mathematical models and statistical analysis to predict the markets and analyze stock movements.

The Man Who Solved the Market: Jim Simons' Investment Philosophy

Jim Simons’ investing strategy has helped his hedge funds post sterling gains for decades. According to data compiled by Bloomberg, Jim Simons’ secretive Medallion Fund — closed for outsiders — posted a whopping $55 billion in profit over the last 28 years, about $10 billion more profitable than hedge funds of giants like Ray Dalio and George Soros. In his famous book titled “The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution,” Gregory Zuckerman explained how the former code breaker and math genius Jim Simons devised his techniques to use data-driven approaches to beat the market and predict the future. Zuckerman says that Simons’ algorithms incorporate data from as far back as the 1700s, processing even the smallest changes and fluctuations in the markets.

From Mopping Floors to Breaking Codes

Son of a shoe businessman, Simons worked at a garden supply store and mopped floors as a teenager before getting admission into MIT for a bachelor's degree in mathematics. Simons completed his PhD in mathematics at the University of California, Berkeley. In his thesis, he gave a new proof for Berger's classification of the holonomy groups of Riemannian manifolds. In 1976 he received the AMS Oswald Veblen Prize in Geometry. Simons’ cryptography helped the National Security Agency break codes during the cold war era. In 1973, IBM asked the math genius to analyze and break block cipher Lucifer.

The 82-year-old elusive billionaire, who is known to hate limelight and public attention, spent decades in academia, teaching math at Massachusetts Institute of Technology and Harvard University, before joining Stony Brook University.

Simons then left academia to start investing. Here's how he described his journey in an interview:

"I did it by assembling a wonderful group of people. When I started doing trading, I had gotten a little tired of mathematics. I was in my late 30s, I had a little money. I started trading and it went very well. I made quite a lot of money with pure luck. It certainly wasn't mathematics modelling. In looking at the data, after a while, I realized: it looks like there's some structure here. And I hired a few mathematicians, and we started making some models, just the kind if thing that we did back at IDA (Institute for Defense Analyses). You design an algorithm, you test it out on a computer. In the old days, commodities or currencies had a tendency to trend. Not necessarily the very light trend but trending in periods. And if you decided, 'Okay, I'm going to predict today', by the average move in the past 20 days, maybe that would be a good prediction, and I'd make some money. In fact, years ago, such a system would work, not beautifully, but it would work. You'd make money, you'd lose money, you'd make money. But this is a year's worth of days, and you'd make a little money during that period. It's a very vestigial system.

Trend following would have been great in the '60s, and it was sort of okay in the '70s. By the '80s, it wasn't... We stayed ahead of the pack by finding other approaches. Shorter-term approaches to some extent. The real thing was to gather a tremendous amount of data, and we had to get it by hand in the early days. We went down to the Federal Reserve and copied interest rates histories and stuff like that, because it did not exist on computers. We got a lot of data, and very smart people. That was the key.

I did not really know how to hire people to do fundamental trading. I had hired a few, some made money, some did not make money. I could not make a business out of that. But I did know how to hire scientists, because I have some taste in that department. So that's what we did. Gradually, these models got better, and better, and better, and better.

In a certain sense, what we did was machine learning. You look at a lot of data, and you try to simulate different predictive schemes, until you get better and better at it. It does not necessarily feed back on itself the way we did things. But it worked."

Billionaire Jim Simons' Top 10 Stock Picks
Billionaire Jim Simons' Top 10 Stock Picks

Jim Simons of Renaissance Technologies

Jim Simons on the Hedge Fund Industry

During a 2019 event, Simons said the following about the hedge fund industry.

"I think in the last three to four years, hedge funds have not done especially well. We've done dandy, but the hedge fund industry as a whole has not done so wonderfully. The stock market has been on a roll, going up as everybody knows, and price-earnings ratios have grown. So an awful lot of the wealth that's been created in the last five or six years has not been created by the hedge funds.

People would ask me, What's a hedge fund? And I'd say, One and twenty. Which means, it's 2% fixed fee and 20% profits. Hedge funds are all different kinds of creatures. We charged the highest fees in the world at one time. Five and forty-four. So 5% flat, 44% in the upside. We made good returns. People got very mad: How can you charge such high fees? I said, "Okay. You can withdraw."

What Simons said sheds light on a broader problem the hedge fund industry is facing. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 88 percentage points since March 2017. Between March 2017 and February 5th 2021 our monthly newsletter’s stock picks returned 187.5%, vs. 75.8% for the SPY. Our stock picks outperformed the market by more than 111 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

In January 2021, Jim Simons stepped down as chairman of Renaissance Technologies.

Now, let's start our list of billionaire Jim Simons' top 10 stock picks.

10. Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX)

Value: $845,135,000 Percent of Jim Simons’ 13F Portfolio: 0.91% Number of Hedge Fund Holders: 53

Massachusetts-based Vertex ranks 10th on the list of billionaire Jim Simons’ top 10 stock picks. The company makes drugs based on “rational design” strategy which involves making treatments based on the structures and functions of target molecules. The stock is down about 7% over the last 12 months.

FDA recently approved the company’s request to start clinical trials of VX-880, a pancreatic islet cell therapy to treat Type 1 Diabetes (T1D). In January, FDA also accepted an sNDA from the company for Trikafta, a treatment for children with cystic fibrosis with a certain genetic mutation.

As of the end of the fourth quarter, 53 hedge funds in Insider Monkey’s database of 887 funds held stakes in VRTX, compared to 55 funds in the third quarter. Jim Simons' Renaissance Technologies is the company’s most significant stakeholder, with 3.6 million shares worth $845.1 million.

In their Q4 2020 Investor Letter, Baron Health Care Fund highlighted a few stocks and Vertex Pharmaceuticals Inc (NASDAQ:VRTX) is one of them.

Here is what Baron Health Care Fund said:

"Vertex Pharmaceutical Incorporated is a pharmaceutical company best known for its commercial products targeting cystic fibrosis. Share weakness in the quarter was due to the negative initial readout of a pipeline asset targeting alpha one antitrypsin disease, an inherited disorder that increases the chance of lung and liver disease. Given Vertex’s best-in-class growth profile and cash flow and upcoming catalyst flow, we retain long-term conviction in the name.”

9. Target Corporation (NYSE: TGT)

Value: $943,670,000 Percent of Jim Simons’ 13F Portfolio: 1.02% Number of Hedge Fund Holders: 78

Target is one of the biggest general merchandise and clothing retailers in the world. Target shares have gained over 63% in the last 12 months. The stock recently rallied after investment firm Guggenheim upgraded Target to Buy from Neutral with a price target of $200. The firm said that it’s hard for it to imagine a scenario where Target would fail to grow its sales in 2021. The firm noted that the company has a strong long-term growth outlook, which would offset the short-term volatility and challenges.

Hedge funds are loading up on Target, as Insider Monkey’s data shows that 78 hedge funds held stakes in the company as of the end of 2020, compared to 57 funds at the end of September 2020.

8. Monster Beverage Corporation (NASDAQ: MNST)

Value: $946,039,000 Percent of Jim Simons’ 13F Portfolio: 1.02% Number of Hedge Fund Holders: 44

Coca-Cola-owned Monster ranks 8th on the list of billionaire Jim Simons’ top 10 stock picks. Argus Research recently gave bullish comments about Monster Beverage stock, saying that the company has a strong growth opportunity despite the short-term challenges which are expected to impact Q1 sales. Argus analyst John Staszak said that Monster has an excellent track record and its balance sheet is “clean.” The firm also increased its price target for the stock to $100. Monster shares are up 37% over the last 12 months.

As of the end of the fourth quarter, there were 44 hedge funds in Insider Monkey’s database that held stakes in MNST, compared to 50 funds in the third quarter. Renaissance Technologies is the company’s biggest stakeholder, with 10.2 million shares worth $946 million.

7. Atlassian Corporation Plc (NASDAQ: TEAM)

Value: $1,016,170,000 Percent of Jim Simons’ 13F Portfolio: 1.1% Number of Hedge Fund Holders: 69

Australia-based Atlassian is among billionaire Jim Simons’ top 10 stock picks. The company is behind software development, code sharing and collaborative development tools like Code Barrel, Bitbucket, Halp, Trello and OpsGenie. The company in February acquired Cloud-based BI and data analytics company Chartio for an undisclosed amount. In January the stock jumped after the company posted a 23% rise in its fiscal Q2 revenue.

As of the end of the fourth quarter, 69 hedge funds in Insider Monkey’s database of 887 funds held stakes in Atlassian Corp., compared to 48 funds in the third quarter. Renaissance Technologies is the company’s biggest stakeholder, with 4.3 million shares worth $1 billion.

In one of their investor letters, Artisan Mid Cap Fund highlighted a few stocks and Atlassian Corp Plc (NASDAQ:TEAM) is one of them.

Here is what Artisan Mid Cap Fund said:

"Atlassian, a leading provider of innovative, customizable team collaboration software tools for organizations of all sizes, is delivering strong subscription growth. Shares have benefited as the company’s business model is relatively defensive in the current environment— asset-light, a salesperson-free distribution model, a 90% recurring revenue base, excellent cash conversion and an ability to move the growth needle from smaller deal wins. We expect the fundamental outlook to remain favorable as low-cost, cloud-based collaboration tools will likely remain in high demand as teams around the world adapt to the current remote working conditions.”

6. Palo Alto Networks, Inc. (NYSE: PANW)

Value: $1,084,909,000 Percent of Jim Simons’ 13F Portfolio: 1.17% Number of Hedge Fund Holders:

Palo Alto Networks ranks 6th on the list of billionaire Jim Simons’ top 10 stock picks. The company sells cyber security products like threat analysis software, firewalls and vulnerability analysis tools. Wedbush recently gave bullish comments about Palo Alto Networks and several other tech stocks, rejecting the market’s recent fears over the latest decline in tech stocks. The firm said that the tech “party” is just getting started, as the world comes back to normal following the coronavirus vaccines. Wedbush believes tech stocks in cyber security, ecommerce, Cloud and 5G domains will gain value in the future.

According to our database, the number of PANW’s long hedge funds positions increased at the end of the fourth quarter of 2020. 61 funds hold a Palo Alto Networks position compared to 59 funds in the third quarter. The company’s most significant stakeholder is Jim Simons' Renaissance Technologies, with 3.05 million shares worth $1.08 billion.

In one of their investor letters, Diamond Hill Capital highlighted a few stocks and Palo Alto Networks Inc (NYSE:PANW) is one of them.

Here is what Diamond Hill Capital stated:

"Shares of information technology security company Palo Alto Networks, Inc. declined with the broad market during the quarter, and we initiated a position at a very compelling valuation. The firm sells critical products and services, has a significant net cash balance, generates a substantial amount of recurring revenue, and we expect cash generation to be fairly resilient going forward.”

Click to continue reading and see Billionaire Jim Simons' Top 5 Stock Picks.

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Disclosure: None. Billionaire Jim Simons' Top 10 Stock Picks is originally published on Insider Monkey.