Valuation as a personal opinion

 Outside the financial industry, the concept of the investor has many meanings that are partly disconnected from each other. The word investor can be used in the press to designate the financial industry in general. It can also be used to talk about people who own a house or some financial contract like a stock or a bond, either directly or via an investment fund. Its moral and political meanings vary in each case, as do the lines of reasoning for valuation and investment attributed to it. The definition of the investor in the procedures carried out by employees in the financial industry proposes yet other uses of the term.

The way in which financial procedures define the investor is part of a history that has endowed this figure with specific features. Historians have shown how the meanings of the figure of the investor changed considerably during the nineteenth century in the United States. While it was used to designate an individual who was close to being a socially and morally irresponsible gambler, it gradually came to designate a person, mainly male and white, who had money and used scientific tools to invest in order to take care of his family. Being an investor thus became a social duty. With the development of pension funds and their institutionalization as part of the intergenerational relations in the United States—notably with the passage of the Employee Retirement Income Security Act of 1974—the meaning of investor changed again. It was used to designate rights and duties for a segment of society that was the center of a political project, the “American middle class.” This group was supposed to be represented by the financial industry.

It is through this process that the figure of the investor became the product of a relation of representation. The theory of the principal-agent relation—in particular, in combination with the legal entity of the trust establishes that the legal owners of money are investors because they entrust their money to experts in valuation and investment in the financial industry and that these professionals are investors because they work with their clients’ money. During the twentieth century, financial theory was progressively formalized and unified in academic writing. When the financial industry was given this role of representation of the interests of the middle classes qua investors, the duties of the financial industry were defined as the application of financial theory itself. It is in this circulation of people and ideas among regulatory, academic, and professional social spaces that the figure of the investor came to be stabilized as a gaze and actor of valuation and investment procedures in the financial industry.

The figure of a thought leadership investor plays a fundamental role in the definition of financial value as something that has a truth that market prices could reveal. All formulas of valuation and investment are defined from the perspective of this agent, considered free to form his own opinion about an asset’s value and exclusively interested in maximizing his income. From the point of view of financial regulation, this figure is also central, since efficient markets are supposed to be composed of a multitude of investors. Regulations concerning bonus systems and legal liabilities aimed to preserve the principal-agent relation, for instance, are established to protect the interests of this figure of the investor. In this setting, this agent’s investment and valuation capacities and interests are defined in the terms of financial theory.

The figure of the investor is thus defined by the methods with which it is supposed to be equipped. This echoes what Miller and Rose say about the forms of agency that are given efficacy by the reproduction of bureaucratic procedures in vast organizational settings. This investor is not a particular person. It is a theoretical figure, variously defined, distributed in all the acts of valuation and investment where it is presupposed as the agent. As such, it is the organizing gaze for valuation and investment procedures across jurisdictions and across types of companies in the financial industry at large. Outside the financial industry, its meanings can vary, but there is great consistency worldwide concerning its definition in valuation and investment procedures within the financial industry. This is possible only because this figure is part of the organizational rules within and across companies, where it is combined with concerns about salaries, bonuses, profit, and prestige that are formalized in labor and commercial contracts.

In financial theory, the role of the figure of the investor in the definition of value is to look for all available information on the asset. This information is then compared with the listed price in order to assess whether this price is the result of informational efficiency. The individual capacity to apply the methods of valuation is a central feature of the definitions of the different professional tasks around which valuation and investment are organized in the financial industry. In this process, financial professionals establish a direct link between the personal character of their valuation abilities and the figure of the individual investor, defined as the independent source of an opinion about value. What are organizationally recognized as their personal capabilities are thus made to correspond with the independent character of the figure of the investor whose gaze pervades and is defined by the formalized valuation and investment procedures that these employees must apply.

Studying traders, Zaloom shows that if they are ever able to act according to the theoretical definition of the figure of the investor, it is because there is a vast array of procedural rules and sanctions they have to follow to keep their jobs. This procedural character of the individual figure of the investor is central in the everyday practices of valuation and investment. As I show in the case of Brokers Inc. and Acme, professional rules were organized so as to ensure the application of the figure of the investor—not only by mobilizing financial theory but also by showcasing the enactment of the figure in a personality. To give a reality to the gaze of the investor and to the truth of value that the investor would be able to utter, fund managers, salespeople, financial analysts, and traders at Brokers Inc. and Acme were all required to express what was officially designated as a “personal opinion” about value. Applying the methods defined as the actions of an investor had to be the product of what people termed a “personality” endowed with “convictions” and “sincerity.”

The tasks of salespeople, financial analysts, traders, and fund managers imply different forms of expertise, which all mobilized the same financial theory but combined the definitions of value differently. And, in turn, each employee was expected to conduct this valuation by adding his personal analysis and interpretation, combining the lines of reasoning proposed by financial theory with other information or interpretation about what could affect the value of listed companies. Complementarities and conflicts among employees concerned the possible truth of the value uttered by each of them and the place of this truth in professional hierarchies. Professional recognition by peers that procedures have been respected was thus the confirmation that the valuation achieved was indeed the act of a maximizing investor. Sanctions imposed for the breach of these rules were aimed at asserting that the sole aim of establishing a personal opinion is to determine the truth of value. This directly connected the moral and political meanings of the figure of the investor established in financial theory with its application. Enacted sincerity was the marker that valuation was indeed done with the freedom and independence that market efficiency needs for prices to serve as signals for a socially optimal allocation of resources.

Personal opinion was considered the legitimate starting point in establishing a hierarchy in the access to monetary resources, between investors and other takeholders within companies and among financial assets. However, the employees I observed did this with different forms of commitment that depended on their relation to their work and to its place in their lives in general. As I show, for employees at Brokers Inc., the personal character of the search for the truth of value was connected to the way in which they understood their own social identities, within and outside their professional lives.