My article ‘Elephants can’t gallop’: performativity, knowledge and power in the market for lay-investing was published in Journal of Marketing Management earlier this year. The JMM team have been kind enough to remind everyone with a tweet – thank you! – so in return, here is an extract from my book A Richer Life. It is a discussion of private investors taken from chapter 4 Making Economic Man and it sums up the key themes of my JMM paper. If you want the Foucault-inspired analysis in full, you can find the article here.
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‘Margaret Thatcher did not only sell off housing stock. She also turned thousands of individuals into shareholders through a series of massive privatizations. The wave of deregulation that she brought in to break up the sleepy monopolies of the City, known at the time as the ‘Big Bang’ of October 1986, opened London up to the brashness of Wall Street. It also made it possible for the ‘man in the street’ to buy and sell shares. In a few short years, Thatcher created the private investor.
In the United Kingdom, privatization was fronted by the iconic ‘Tell Sid’ advertising campaign, a pre-social-media take on a viral advertising message: a postman is knocked off his bicycle by an Everyman character, fresh from the pub, who says, ‘I’m glad you’re here, this will interest you . . . these British Gas shares, they come out in November . . . If you see Sid, tell him.’ The postman relays the message to an elderly lady, with the additional flourish, ‘They’re really easy to do . . . if you see Sid, tell him.’ The name Sid was well chosen, with its connotations of lower-middle-class solidity, the same staunch Thatcher supporter who had bought his own home not so long before, and at the weekend polished his beloved Ford Sierra to a perfect shine.
Private investors have always puzzled people who know about finance. They don’t seem to do very well in the market, systematically underperforming the various benchmarks. In all fairness, most professional investors underperform the benchmarks as well, but that is an aside: private investors get dismissed as dumb, or reckless, or worse. Habits such as overconfidence drive returns down (men are much worse offenders than women here, and it costs them an additional 1.4 per cent a year in lost revenues).14 But they persist in investing. Why?
As a doctoral student I set out to explore this riddle, one of which I had some personal experience. I had worked briefly as a stocks and shares journalist during the Internet boom years and ensuing bust; I had ended up on the board of a small quoted company that specialized in providing information on other small companies. It also specialized in spending shareholders’ money more quickly than it made profits, and I walked the plank after just a few months at the helm. Nonetheless, that period gave me an insight into the world of the private investor: not dumb, not stupid, possessed of a solid pot of capital that had usually been acquired through a successful career somewhere else. Yet they were still investing in small companies like the one I worked for and the others I knew; two-bit outfits where good ideas and dreams could rapidly sour to losses and disappointment in the cold reality of commerce.
So I spent time with a clipboard, I conducted interviews and hung round investor shows. I discovered – and I’m pleased to say that others doing similar research in the United States and Australia at the same time drew similar conclusions – that private investors live their investing lives in a panopticon-like, self-contained world that directs and manages their investing habits. The same techniques, artefacts and devices that make it possible for individuals to participate in stock markets configure them in a particular manner, for better, or for worse; what it is to be a ‘private investor’ is inseparable from the world that they inhabit.
Their story was nearly always the same. People became investors because they were fed up with the poor performance and fat fees of the ‘so-called professionals’. They sought to take responsibility for their own financial destiny, pulling their savings and investments, sometimes even their pension pots, out of mutual funds and embarking on a journey of financial self-education. Their projects are a manifestation of Thatcher’s enterprise culture, which, in the words of the eminent sociologist Nikolas Rose, ‘links up a seductive ethics of the self, a powerful critique of contemporary institutional and political reality, and an apparently coherent design for the radical transformation of contemporary social arrangements’.1 And so they venture to go it alone. Once the step has been taken, they are sustained by a pervasive narrative of ‘us against them’, of outsmarting the financiers with their ‘hundreds and hundreds of highly paid investment analysts . . .’1
Learning to invest is no easy matter. Before embarking on a career in finance one is expected to go to business school and learn the basics of asset pricing and portfolio management, but no such arrangements exist for private investors. Instead, you must educate yourself by attending investment shows, reading magazines or books, browsing online and chatting to others in the same position. Investment websites are thriving communities of chatter where individuals can share ideas, discuss strategies, celebrate success or commiserate over failure; the relationships formed with electronic others often do more to sustain investment practice than the real-world attachments they build up in shows and seminars. In this way investors learn how the market works and how they should understand it, and at the same time they purchase mechanisms for making the market visible and tractable. They may be ‘chartists’ who chase Fibonacci numbers through the financial market, or ‘fundamental’ investors hunting down hidden value in the smaller company markets; in either case they pay fees, subscriptions and commissions, and in return have the burden of market calculation lifted from them, enabling them to participate in the market.
As one might expect, there is nothing extraordinary about the technologies of governance that surround private investors. Some of them purchase computer programs that will analyse investment opportunities or draw elaborate graphs of share price movements, while others subscribe to tip sheets and magazines. Still others visit shows and speak to the management of firms seeking investment. Nevertheless, these mundane technologies, programs and artefacts enforce very particular ways of behaving in the market. Calculation is embedded in each of these devices, and serves to configure the investor who uses them in a specific way. Subject to this technology of self-entrepreneurship, they become not just economic men and women, but specialized economic men and women, positioned to offer maximum advantage to their curators – not the investors themselves but the owners of the technology that they use.
For example, one investor, whom I shall call Terry, told me about the magic numbers that he believed shaped the seemingly random movements of prices:
Fibonacci ratios exist everywhere, they exist in art, they exist in the human body. If you measure the distance from your shoulder to your ankles, and then you measure the distance of your arm you’ll see that that is a Fibonacci ratio, I think it’s about 1.618, or .618, or your arm is a ratio of your body.
How does one discover such a complex code among the noise of stock market prices? It is, of course, invisible to the naked eye and the investor who wishes to find Fibonacci ratios must spend plenty of real money in the course of his pursuit. When I spoke to him, Terry had already spent thousands of pounds on training CDs, charting software and attending courses, and had invested most of his spare time for nine months on testing out new methods, with the hope of becoming a full-time investor in the near future. When one method disappointed he simply moved on to another, claiming that his system was not yet quite perfect and ignoring the other equally plausible explanation: that there are no magic numbers in the stock market, or at least, none magic enough.
The institution that surrounds private investors is so total that they are unable to see beyond it. The promise of the self-reliant, entrepreneurial future hangs in front of them, and combines with the sense that it really is their responsibility to improve their lot, to provide for themselves in old age, to take charge of their destiny and shape it accordingly.
Another told me in all seriousness that while he invested successfully in dividend-paying multinational corporations on behalf of his mother and his sister, his own investment activities in smaller, high-risk companies had ‘always been a disaster’. When I pushed him as to why he kept on with this investing he replied that if he could just erase emotion, if he could act rationally, then it should be a good way of making money.
Private investors are outgunned on all sides by sheer calculative power: trapped between the professional investors with huge reserves of capital and ‘all those PhDs’ on the one side, and the investment service firms who will charge fees whether they win or lose on the other. Why do they continue in the market? Mental accounting, such as separating gains and losses, for example, and simple self-deceit carry a fair share of blame. I often heard statements such as ‘excluding the bad ones, I did quite well’, or ‘the professionals had manipulated the market’, or ‘the very day I was intending to take profits, it collapsed’. More pernicious, though, was an underlying sense that the golden egg lay just round the corner, that success was only a few tweaks to the system or minor adjustments to strategy away, that it was the investor’s fault for getting emotional, or attached to a share. The possibility of riches and success, or the idea of working on a laptop from a poolside at your tropical retreat, are strong enough to blind investors to the grinding reality of financial loss. The more exotic the product, the higher the risk, the stronger this motif of eventual breakthrough and escape became. Only in one instance did I hear an investor express any doubt in the possibility of making money from one particular branch of investment activity. And so, he told me as he sipped thoughtfully on his beer, he was becoming a chartist instead.
Interviewing people can be difficult. The dispassionate social scientist is not allowed to interfere, even when the pleasant man you are talking to tells you he is moving his pension fund into a spread-betting portfolio. And if I had rebuked him, he would probably have replied that professional fund managers had eaten up so much of his money already, he would rather lose the rest himself. I would have struggled to answer that. Private investors find themselves in a panopticon much more insidious than that of the fishermen; their aspirations, energies and personal savings tied into a system in which it seems they lose whichever way they try. There are some decent firms in the investment service sector, and I’ve worked for one of them, but no amount of decency can diminish the fact that there is a huge structural problem: individuals, failed by mainstream finance, are forced to fend for themselves in an unfriendly market where they become the prey of those very same financial institutions. Moreover, this arrangement is offered to us as part of a social settlement where we are expected to consider ourselves liberated and empowered in making arrangements for our own old age.’
Philip Roscoe 