Pension fund assets are not only invested on the basis of figures and data, but also on the basis of stories. Analysts want to make financial products accessible to investors. This is problematic, says economic anthropologist Stefan Leins.
SRF News: You say that in the financial industry, stories have greater power than numbers and data, as the Credit Suisse case just showed. What do you mean?
Stefan Leins: You have to be more precise. Stories need to be based on numbers too. Conversely, numbers also need a story – they have to be integrated into a narrative in order to make them accessible to investors or journalists. What is striking is that the best analysts have always been good storytellers.
You studied ethnology and then worked for a major bank as a financial analyst for two years. What did you notice?
I started with the expectation that the department would primarily do calculations. But when I was introduced to the subject, people talked about feelings – they said you had to develop a feel for the market.
You have to develop a feeling for the market, it said.
And if a company was reporting bad numbers, a new marketing strategy or a new CEO could give analysts a boost. And already the beginning of a story was told. The big question was always: What is the story?
Is it bad?
Not that alone. However, it becomes problematic when pension fund assets and investments in general are invested primarily on the basis of stories and not on the basis of analyses.
How do financial analysts work?
I have seen them as people with a great thirst for knowledge – after all, they want to understand market developments. The tragedy is that they constantly fail if they limit themselves to arithmetic alone – this means that accurate forecasts cannot be made.
Accurate forecasts cannot be made with calculations alone.
I think that’s one reason why analysts avoid stories in order to find a way of dealing with their failure and to give their actions a meaning.
Legend:
Monk was a capuchin monkey (icon image).
Keystone/Thomas Delley
At the beginning of the noughties, the “Chicago Sun Times” invited the financial analyst Adam Monk once a year to give its readership investment tips. Monk was always chauffeured to the editorial office, where he was shown the Wall Street Journal and opened the pages with the stock prices. Monk looked at the numbers with small, alert eyes and finally marked the five titles that, according to his task, will be the most successful in the current year. He was extraordinarily accurate: between 2003 and 2006 his investment tips achieved a profit of around 36 percent, only in 2005 it was 3 percent. And in the financial crisis year 2008, his titles lost significantly less than those of other financial managers. Monk was short, wrinkled, and hairy, and demanded no wages or bonuses. Monk was a capuchin monkey. And showed that with a lucky hand you can be successful on the stock market alone.
Stories and rumors are best conveyed via social media. Then CS and Finma’s claim that the bank collapsed because of social media is correct?
They certainly played a major role in the collapse of Credit Suisse. But when, after so many scandals, those responsible claim that social media is to blame, that’s cheeky.
When, after so many scandals, those responsible for CS claim that social media are to blame for the downfall, that’s an insolence.
These can only transport stories that have a basis: people believed that the bank was badly run because of the many scandals. In this situation, if someone tweets that a large investment bank is about to go bankrupt, then social media can act like a fire accelerator.
Could the CS have saved itself with a counter-story?
In the days before the Federal Council announced that UBS would take over CS, it was probably too late. But in the autumn, when CS prices fell, one could have thought about coining a counter-narrative.
Has this ever happened?
Yes, a good example is the rescue of the euro in 2012. The then President of the European Central Bank, Mario Draghi, said that everything would be done to save the euro – whatever it takes (“whatever it takes”). That was a strong signal to the markets.
Janine Hosp conducted the interview.