by Andrew Lynn
The Swansong of a Onetime Trader
Paulson’s great trade brought great benefits – to him. For the rest of us it’s another matter entirely. Some lost their jobs. Some lost their homes. Everybody paid – and will pay – more tax. It sticks in the gullet. Our contrarian is, after all, no role model. Some consider the Paulson and other ‘short-sellers’ to be little more than financial birds of prey swooping in to feed off the difficulties of the weak and the vulnerable.
But is that quite right?
Financial trades are voluntary agreements. Those who took the opposite side of Paulson’s trades were happy to accept his ongoing payments while the housing market held up; when the market collapsed, it was time for Paulson to cash in. You can’t blame the insured because they make a claim on the insurer.
Paulson has often been puzzled by the faith that we have put in mortgages and the new-fangled securities that sprang out of them. ‘It was obvious that a lot of the stuff … was practically worthless at the time of issuance,’ he says. Paulson still finds it ‘perplexing’ that the banks could not see this danger and that so many were prepared to place unconditional trust in Wall Street.8
So what would have happened if there had been more people with Paulson’s cast of mind in positions where they could have made a difference? What if the complexity of his thought – so to speak – had been prevalent throughout the political and financial community in the years leading to the financial crisis? Would that really have led to widespread predatory lending? Or would it have meant that lending was done with more respect for the real value of the property securing the loans?
One of the other large-scale buyers of CDS protection was a young American called Andrew Lahde. Lahde, who profited from his trades to the tune of $100 million for his clients and $10 million for himself, voiced his exasperation in an open letter penned in late October 2008.9 It was his swansong to the world of financial trading that had made him a rich man:
October 27, 2008
Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are unfolding. Instead I am writing to say goodbye. […]
I was in this game for the money. The low-hanging fruit, i.e., idiots whose parents paid for prep school, Yale, and then Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns, and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America. […]
I will let others try to amass nine, ten, or eleven-figure net worths. Meanwhile, their lives suck.
Bitter it does sound. But is there not some sense in blaming – if blame there must be – not the likes of Paulson and Lahde but those who took the other sides of their trades?
Don’t Be Boring: Crop Rotation
All men are boring.
Boredom is the root of all evil.
The gods were bored so they created man; Adam was bored because he was alone, so Eve was created; Adam and Eve then found that they were bored as a couple, so Cain and Abel were given life, but with the inevitable result that the entire family was now bored; at last, whole populations came into being – to find nothing but boredom awaiting them. It was out of that boredom that was hatched the idea of building a tower so high it reached the sky – the legendary Tower of Babel – but that idea is itself the height of boredom. The Romans had it right; to stay the inevitable decline of their civilization, they had the good sense to give the people what they wanted, which was nothing more than what they needed to keep them fed and to keep away the boredom – bread and circuses.
At least that’s what nineteenth-century Danish philosopher Søren Kierkegaard had to say about it.10 In his monumental work Either/Or, Kierkegaard marvels at the inconsistency of man, who when choosing a nursemaid for his children would quite obviously take into consideration her ability to keep the children entertained, yet are willing to tolerate the most insufferable bores in both private and public life. ‘Were one to demand divorce on the on the grounds that one’s wife was boring, or a king’s abdication because he was boring to look at, or a priest thrown out of the land because he was boring to listen to, or a cabinet minister dismissed, or a life-sentence for a journalist because they were dreadfully boring, it would be impossible to get one’s way.’ The prevalence of boredom can only create opportunities for all kinds of mischief. ‘What wonder,’ thinks Kierkegaard, ‘that the world is regressing.’
Kierkegaard came up with his own solution to this boredom and called it ‘crop rotation’. The metaphor is an agricultural one: just as farmers rotate crops by changing the method of cultivation and type of grain on a given patch of land, so we as humans should change our way of looking at things so as ‘to look at things you saw before, from another point of view’. This is to be contrasted to the ‘vulgar’ method of change, which consists merely of endless variation: endless travel from place to place, endless consumption of different cuisines, endless replacement of one thing with another. No – what is required is to cultivate intensive rather than extensive change, to change one’s method of perception, understanding, and behaviour, not merely to change the external things with which one comes into contact. In fact, external limitations can be helpful in this process as they make inventiveness a necessity: ‘The more you limit yourself, the more resourceful you become. A prisoner in solitary confinement for life is most resourceful, a spider can cause him much amusement.’
We are to enjoy all pleasures in moderation and never bind ourselves too strongly to the past. We are also to avoid the bonds of friendship, of marriage, and of professional or vocational responsibility, because they all limit an individual’s freedom. The prohibition is not absolute: what is to be avoided is not friendship or love per se, but friendship and love in as much as they are binding obligations that prevent free action or impose customary rules on behaviour. Professional responsibility too is dangerous because the positions and titles that promotion brings tie you into a role over which you have little control.
Avoiding boredom, ultimately, comes down to appreciating the arbitrariness of things; the eye with which we look at reality must constantly change. We might choose to see the middle of a play or read the third part of a book. Or we might decide to follow with our eyes a drop of sweat as it runs down the face of a boring companion. This is what is meant by arbitrariness – focusing on the accidental, non-essential characteristics of any experience. To do so is to break with habitual modes of conscious apprehension and in doing so to reformulate one’s entire experience of life.
Bull thinking, contrarianism, complexity, arbitrariness – these are all variations on a theme, different ways of putting into words the idea that we ought to strive to see and think differently. It’s a world away from our usual concerns with IQ, EQ, SATs, GMATs, and suchlike. It’s something we don’t routinely measure, and if we did we would probably get it wrong. What the likes of Simonton and Suedfeld show in their research – and what the likes of Paulson and Lahde show in their worldly success – is that it matters. And if seeing and thinking differently not only helps us to live more successfully but also with more gusto and joie de vivre, what objection could we have to that?
6
Enlarging Expertise
The Nature of Genius
In 1988, Arthur Jensen, an academic from the University of California, Berkeley, arrived at Stanford University to observe a remarkable demonstration.1
Jensen had come to watch a woman named Shakuntala Devi. Born in Bangalore, India, in 1940 to a father who worked as a circus acrobat and magician, Devi had started out as a travelling stage performer. She had been invited to Berkeley, however, to show off her skills as a calculating
prodigy.
Jensen already knew something of Devi’s facility with numbers. An early article in the New York Times reported that Devi had added four numbers (25,842,278 111,201,721 370,247,830 55,511,315) and multiplied the result by another (9,878) to get the correct answer (5,559,369,456,432) in twenty seconds or less. A year after that, Devi had appeared at Southern Methodist University to show off some more. This time she extracted the 23rd root of a 201-digit number in just fifty seconds. (To give some idea of just how difficult that calculation is, Devi’s answer had to be confirmed by calculations done on a U.S. Bureau of Standards computer that had been specially programmed to cope with it.) By the early eighties, Devi had sealed her place in history by making an entry in the Guinness Book of World Records. Her achievement this time? She had correctly multiplied two 13-digit numbers picked at random by the Computer Department of Imperial College, London. Those two numbers were 7,686,369,774,870 and 2,465,099,745,779. Multiply them and you get 18,947,668,177,995,426,462,773,730. The calculation took Devi just twenty-eight seconds.
It wasn’t just idle curiosity that brought Jensen to Stanford that day to watch Devi at work. He wanted to see whether her astonishing skills could be substantiated in front of an audience of mathematicians, engineers, and computer experts. And – if so – he wanted to see whether he could persuade her to participate in some tests of his own.
Questions from those attending the demonstration – many of whom were armed with electronic calculators and printouts of problems they had submitted previously to the University’s mainframe computer – were written on the blackboard by volunteers. Jensen copied the problems from the blackboard as they were written out; his trusty wife held a stopwatch to measure the solution times.
The psychology professor from Berkeley was not to be disappointed. For the entire performance, every single solution was presented in less than one minute (and most in a matter of seconds). For solutions involving really large numbers, Devi would write the answer on the blackboard; smaller numbers she would simply read out. Most of the problems were solved even before Jensen had a chance to write them down in his notebook.
When Jensen’s turn came, he was ready. He had prepared two problems: ‘What is the cube root of 61,629,875?’ and ‘What is the 7th root of 170,859,375?’ The two problems were presented on separate cards because Jensen had (quite reasonably) anticipated that Devi would want to solve them one by one. But Devi was better than Jensen could ever have expected. She held up the two cards side by side and glanced at them briefly. ‘The answer to the first is 395 and to the second is 15, right?’ She had solved the two immensely difficult calculations not only immediately but also simultaneously.
Devi’s real specialty, in fact, turned out to be roots. To ‘warm up’ she requested cube root problems, which she answered in an average time of six seconds. Ridiculously large numbers might slow her down: she did the 7th root of 455,762,531,836,562,695,930,666,032,734,375 in a painfully slow (for her) time of forty seconds. Irrational roots she just didn’t like: the 9th root of 743,895,212 wasn’t something that Devi wanted to be troubled with, it being the irrational number 9.676616492. (Devi dismissed it as a ‘wrong number’.) With these exceptions, the correct number just ‘falls out’ for her.
* * *
When we come across people with truly exceptional abilities – people like Shakuntala Devi – we naturally conclude that we have discovered something like ‘genius’.
That works for us in a couple of ways. It gives recognition where recognition is due: there’s no doubt that people like Devi truly are in possession of something special, and it would be plain ungenerous to attempt to deny that. And it inspires us by showing what humans are – at their best – capable of achieving.
All the same, isn’t there something else lurking behind the term ‘genius’? When we take someone with some exceptional talent – be it a Mozart, a Shakespeare, or a Devi – and we label that someone a ‘genius’, don’t we in some way also seek to relieve ourselves from any responsibility to reach similar heights? If another person is someone just like us but better, we struggle to emulate that person. But if that person is a genius – if that person is so far beyond us that they essentially fall into a category of their own – then we let it go. We forget about it: why fight an unwinnable war?
* * *
There could be no doubt that Shakuntala Devi was a truly remarkable woman. But – and this is the crux – wouldn’t she be, perhaps, a bit odd? Wouldn’t she be in some way fundamentally different from the rest of us?
Jensen thought not. Devi was, he said, alert, extroverted, affable, and articulate. She had excellent English and could speak several other languages. Among strangers she was at ease, outgoing, and self-assured, as well as being an engaging conversationalist. There was nothing out of the ordinary in her family circumstances, either, and none of her relatives had ever shown any unusual mathematical talent. A battery of elementary cognitive tests confirmed his assessment: Devi’s general performance and reaction times were unexceptional. She was a completely normal woman with a completely exceptional talent – an enigma wrapped in a mystery.
The fact that Devi’s abilities fell within the normal range – added to the fact that she appeared to be an otherwise ‘normal’ person – raises the possibility that she was a normal person. Could it be that she was great at what she did not because she was intrinsically brilliant but instead because she just happened to be approaching it in the right way? And – if so – wouldn’t it tell us something really valuable if we knew (even in broad terms) what that right way actually was?
Life Span Productivity and Deliberate Practice
In recent years the explanation for high performance has tended to focus on what can best be termed ‘grind’ – sheer number of hours spent. Malcolm Gladwell, famously, has popularized what, in its earliest form, has been called the ‘ten-year rule’. The ten-year rule is a principle that governs the acquisition of expertise, and it tells us one very simple truth: you can’t become an expert in less than ten years. (Gladwell’s version is more refined than this and specifies 10,000 hours rather than ten years – but we’ll come back to that later.)
Let’s start with chess. It has been shown that the time taken between learning the rules of chess and attaining international chess master status is 11.7 years for those who learn chess late, and still longer for those who learn it early. Even the very best of the best – prodigies such as Bobby Fischer and Salo Flohr – only managed beat the ten-year rule by less than a year.
Now consider music. Musicians who learn early have a definite head start, but even they cannot beat the ten-year rule: for those who begin at the age of six years or younger, it takes an average of 16.5 years before they create an eminent work, and for those who start later it takes just over twenty.
For scientists and poets the same basic rule seems to apply – no great achievements until at least ten years have been spent in the field. That’s what E. A. Raskin found when he studied the 120 most important scientists and 123 most famous poets and authors of the nineteenth century. The average age at which poets and authors published their first work, he discovered, was 24.2 – but the average age at which they produced their greatest work was 34.3. For scientists, the average age at which they published their first work was 25.2, and the average age at which they produced their greatest work was 35.4. The numbers are uncanny: in each case it is just a month or two over the ten-year mark before true achievements are realized.
* * *
For the more precise version of the ten-year rule, however, we’ve got to look at the more recent research carried out by psychologist K. Anders Ericsson and his colleagues. Ericsson studied three groups of violinists from the Music Academy of West Berlin (Hochschule der Kuenste). The first group comprised the ‘best violinists’ – they had been nominated by their professors as those having the potential for careers as international soloists. The second group was composed of the ‘good violinists’, also nom
inated as such by their professors and matched for age and sex against the best violinists. The final group consisted of the ‘music teachers’ from the academy’s department of musical education (which had lower admissions standards). While very accomplished by any standard, the music teachers would be unlikely to make careers as successful international soloists.2
In most respects the membership of these three groups was similar. Each group was composed of seven women and three men. The mean age of the young violinists was just over twenty-three years. They had, on average, started lessons when they were eight and decided to become musicians around about the age of fifteen. By the age of twenty-three, all the violinists had spent at least ten years practicing the violin.
So why were the ‘best’ violinists measurably better than the ‘good’ violinists, and why were the ‘good’ violinists measurably better than the music teachers? After all, they have all reached their ten-year mark. Doesn’t this throw into question the ten-year rule?
Yes and no, it turns out – because although the ten-year rule may not always work when describing a precise ‘ten years’, it does work well as an approximation for 10,000 hours. The best violinists in Ericsson’s study practised on average 3.5 hours per day and 24.3 hours per week. The weekly average of 24.3 hours multiplied by the 52 weeks of the year makes an average annual total of 1263.6 hours. The music teachers, on the other hand, practised an average of 1.3 hours per day – which would come to an average annual total of only about 475 hours. Remember that this would be cumulative year-on-year and you have at least one good explanation of the different levels of performance. At this rate, only the best students could break through the 10,000-hour barrier before they reached twenty.