by Stefan Leins*
Since the emergence of modern financial markets, financial analysts have played a critical role in producing visions of “the economy” and its future development. As experts, they analyze market developments and predict future scenarios that enable other financial market participants to speculate on the rise or fall of stock prices, the success or failure of particular investment products, and the growth or decline of entire national economies. The substance of the analysts’ valuation and forecasting practices is, however, heavily disputed among economists. In neoclassical economic theory, the assumption that markets are informationally efficient has challenged the legitimacy of the work of financial analysts since the establishment of the efficient market hypothesis as a central paradigm in the mid 1960s. Alternative schools of thoughts – such as new institutional or behavioral economics – have criticized this paradigm. However, they have also argued that the degree of uncertainty, which is inherent to financial markets, makes prediction impossible.
Empirically, this critique has been around even longer. In 1933, economist Alfred Cowles published an article that tested the attempt to forecast stock market prices. After having analyzed thousands of stock market predictions from 16 financial service agencies, Cowles came to the conclusion that “[s]tatistical tests of the best individual records failed to demonstrate that they exhibited skill, and indicated that they more probably were results of chance.” Such results have been confirmed repeatedly. In the UK in 2012, for example, Orlando, a ginger cat that tapped over the pages of the Financial Times to select stocks, outperformed a group of financial professionals.
The lack of justification of the forecasting practices financial analysts deploy brings up an important question: Why do financial analysts exist at all? How do they manage to maintain their role as experts in the market? And how they cope with the uncertainty and lack of theoretical and empirical foundations of their practices?
I spend two years in the financial analysis department of an internationally operating bank, where I was given research permission to follow the financial analysts’ work practices on a daily basis. In my book Stories of Capitalism: Inside the Role of Financial Analysts (University of Chicago Press, 2018), I illustrate how, in the absence of theoretical and empirical justifications, analysts base their work on what they refer to as “market feeling” – a technique that builds of affect, tacit knowledge, and experience – to make sense of market developments.
In the first weeks of my fieldwork, a financial analyst who coached me, told me how I could learn to do financial analysis. He advised me to take some time getting a “feeling” for how markets work. “This takes a lot of time,” he explained, “but basically, you just have to observe the market and read financial newspapers and the reports of other analysts.” The analyst then stared off into space, groping for words. After a while, he said, “You know, it’s not just about observing and reading, it’s about…” He did not finish his sentence since he could not put into words how one should develop that feeling for the market he was talking about. “You know, it’s about…,” he made a gesture as if he was touching a very smooth fabric to check whether it was made of silk. “That feeling,” he continued, “is what differentiates a good analyst from a bad one.”
Weeks later, another analyst allowed me to sit next to him when he valuated a company’s stock in order to come up with a forecast. To come up with a company’s “target price,” that is an estimated future price of a stock, this analyst first looked at the facts and figures presented in the company’s quarterly financial statements. After looking at the numbers depicted on the statement, he entered them into the bank’s internal computer program. He was, however, not happy with the target prices proposed to him by the models he used. He looked at them and then told me that the numbers support his overall feeling. Looking at the numbers a second time, he sighed, turned to me, and said, “You know what, I’ll take the most bullish target price and adjust the projections on the overall market development a little. After that, I’ll have a target price that truly reflects my feeling about the future development of this particularly promising stock.”
Combining such market feeling with calculative practices allows financial analysts to create persuasive narratives of the future of the market. These narratives become visible in the way analysts explain future market developments. Moreover, they are inscribed into the aesthetics of charts, tables, and figures analysts produce to visualize past, current and potential future market developments. Once these narratives are created, they are circulated among the banks’ stakeholders and clients. Sometimes, the narratives also become part of broader public discourse – often through the help of newspapers and TV stations that give financial analysts a platform to share their opinions on economic developments.
The establishment of such narratives is critical to modern financial markets, as they construct a sense of meaning in an environment that is governed by coincidence and characterized by a lack of regularity. Financial analysts thus produce images of the market as an institution that is not speculative and randomly developing, but accessible and understandable though the analysts’ expertise.
What does this tell us about the nature of capitalism in general? In “Millennial Capitalism: First Thoughts on a Second Coming,” Jean and John Comaroff argue that the production of visions of the future – which are sometimes reminiscent of techniques of divination as observed by anthropologists – are a characteristic feature of how capitalism in its neoliberal form materializes in everyday ethics and practices. Speculating on possible future developments, they state, is a new form of enchantment: It feeds on imaginaries of the future and on the notion that through the anticipation of the future, wealth can be created without effort. With this in mind, the forecasting practices deployed by analysts can be understood as a particular form of enchantment fostered by neoliberal capitalism. Rather than representing a disputable practice, the work of financial analysts is thus at the heart of today’s financial market economy and a characterizing feature of capitalism in its neoliberal form.
* Stefan Leins is a senior lecturer of social anthropology and cultural studies at the University of Zurich and a member of the research program Anthropology of the Economy at the London School of Economics and Political Science. His book Stories of Capitalism was published by the University of Chicago Press in 2018.