Elwyn Berlekamp can probably be considered a Super Quant, given that his purchase of a majority interest in Axcom eventually became the Medallion Fund run by Jim Simons and appears to have developed at least part of the trading strategy there. Berlekamp had Claude Shannon as an advisor, and is known for his work in information theory and combinatorial game theory. Berlekamp also reviewed William Poundstone's Fortune's Formula for American Scientist (see my review here) and was John Kelly's research assistant. In the review, he stated:
No one who has made a legitimate fortune in the markets believes the efficient-market hypothesis. And conversely, no one who believes the efficient-market hypothesis has ever made a large fortune investing in the financial markets, unless she began with a moderately large fortune. Of the stories presented in Fortune's Formula, the case of Ed Thorp presents the greatest challenge to the efficient-market hypothesis. Poundstone devotes only a single paragraph to the even stronger cases of Ken Griffin, D. E. Shaw and Jim Simons, presumably because financial wizards as successful as these have always been unwilling to discuss their formulas in public.
Berlekamp began information-theoretic studies of commodity and financial futures. In 1989, Berlekamp purchased a majority interest in Axcom. After the firm's futures trading algorithms were rewritten, Axcom's flagship fund had a return (in 1990) of 55%, net of all management fees and transaction costs.
According to Berlekamp's home page, the fund had quite a run between 1990 and 2001, delivering what look to be about 46% annual returns (before fees) at a very consistent level after Berlekamp sold out, with continuous tweaks to the algorithms. Berlekamp states:
This fund has almost no correlation with any of the stock indices. Although the volume of trading is quite high, the volatility is surprisingly low. When the return/risk ratio of this fund is quantified by Sharp ratios, this fund is seen to have achieved an enviable sequence of record-breaking successes.
There's some speculation that Berlekamp's and thus Simon's algorithms may employ the Kelly Formula, but I haven't found anything to confirm. Since Simons runs what has been called the most successful hedge fund ever, I'm surprised that Poundstone (Fortune's Formula) never at least mentioned the Kelly-Berlekamp-Simons connection.
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