An ability to see why other peoples’ perceptions are distorted is at the heart of Soros’s success. He learned it to survive as a young refugee
The Soroses of the future ‘are graduating from camps outside Calais,
on human trafficking boats and at crossing points into the US.’
Photograph: Vincenzo Pinto/AFP/Getty Images
The business magnate and philanthropist George Soros is an anomaly. Since the 1950s he has earned billions as a market trader thanks to a prodigious gift for guessing correctly where markets – currency, stocks, bonds – would go.
How did he do it? Here is how I, as a neuroscientist, understand his gift. Soros’s talent lies in an ability to see shades of grey when it comes to probabilities of risk and opportunity. Spotting whether future market prices move up or down should be no better than chance: any public knowledge that might be predictive of future prices, since it is available to all, should have been factored in. In theory, that is. In reality, traders face a “blooming, buzzing confusion” of potential clues but are blind to which are and are not predictive – until after the event. Hindsight is wonderfully clear. Successful traders are those who detect clues and patterns in that chaos before others. Not perfectly, but sufficiently so that when they buy and sell they do so with a better probability of success than other traders. This is what Soros has been able to do consistently for decades.
But seeing the probabilities of the future is not easy. Wrong expectations get in the way. The famous “checker shadow illusion”, created by Edward H Adelson in 1995, explains how our brain can prevent us making rational decisions. In Adelson’s illustration, square A and square B are exactly the same shade of grey. But our brain, expecting a shadow, adjusts our vision so that square A appears darker. Market traders live in a world where such squares of grey are analogous to the probabilities of how the market will move. Successful traders see how others’ perceptions are distorted while at the same time keeping their own perception free of bias. If you can see that squares A and B are the same even though everyone else sees them as different, you can make yourself very rich.
Soros is open about how he gained this gift: in interviews, he has said that he used his former London School of Economics tutor Karl Popper’s method of conjecture and refutation: putting forward a hypothesis about where the market will move, and then trying his best to refute it. It works like this: conjecture about where a market will go; trades go bad; theories turn out wrong; money gets lost. Then you examine what went amiss and you make new expectations. Repeat.
Another term for Popper’s method is “the school of hard knocks”, and one explanation for why Soros has been so consistently good as an investor is that he had the mixed blessing of having to enrol in that school at a very early age. His first class was in 1944 when, as a Jewish 14-year-old in Budapest, he assumed a false identity and went into hiding to escape Auschwitz. Back in the paleolithic age, when humans were hunter-gatherers, every adolescent grew up with an equivalent risk level. Survival depended upon having the right expectations, allowing one to spot risk without being blinded by wrong assumptions, never seeing squares A and B as different when they were actually the same.
These days it’s relatively rare to grow up with that kind of training in risk assessment. The Soroses of the future won’t be children of helicopter parents, with 24-7 protection against anything worse than a bad Ivy League grade and the $3,000-a-month allowances that Wall Street so loves. But they do exist. They are graduating from camps outside Calais, on human trafficking boats and at crossing points into the US. Refugees and migrants face constant threats – their daily survival is about expectations and getting them right. The numbers are staggering: 38,000 children under 17 from Central America crossed the Rio Grande in 2013. Seventeen million refugees, 232 million migrants exist worldwide. Most miss a formal education but all get enrolled in risk-survival school. Deported and treated as illegals, will one of them get the break to be the next George Soros?
Periods as a waiter, picking apples, washing dishes, selling and doing heavy lifting as a railway porter did not stop Soros. Indeed, before his famed attendance at the LSE, his CV included English classes for foreigners and attending the North West London Polytechnic in Kentish Town (one of the constituent parts that would become London Metropolitan University). But Soros, due to persistence in the face of setbacks, managed to get a start in a poorly paid trainee position in the City. Being given a chance to show his talents set him on a path to Wall Street.
Will today’s migrants get a similar break?