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Pop Finance

Pop Finance: Investment Clubs and the New Investor Populism

Brooke Harrington
Copyright Date: 2008
Pages: 256
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  • Book Info
    Pop Finance
    Book Description:

    During the 1990s, the United States underwent a dramatic transformation: investing in stocks, once the province of a privileged elite, became a mass activity involving more than half of Americans.Pop Financefollows the trajectory of this new market populism via the rise of investment clubs, through which millions of people across the socioeconomic spectrum became investors for the first time. As sociologist Brooke Harrington shows, these new investors pour billions of dollars annually into the U.S. stock market and hold significant positions in some of the nation's largest firms. Drawing upon Harrington's long-term observation of investment clubs, along with in-depth interviews and extensive survey data,Pop Financeis the first book to examine the origins and impact of this mass engagement in investing.

    One of Harrington's most intriguing findings is that gender-based differences in investing can create a "diversity premium"--groups of men and women together are more profitable than single-sex groups. In examining the sources of this effect, she delves into the interpersonal dynamics that distinguish effective decision-making groups from their dysfunctional counterparts.

    In addition, Harrington shows that most Americans approach investing not only to make a profit but also to make a statement. In effect, portfolios have become like consumer products, serving both utilitarian and social ends. This ties into the growth of socially responsible investing and shareholder activism--matters relevant not only to social scientists but also to corporate leaders, policymakers, and the millions of Americans planning for retirement.

    eISBN: 978-1-4008-2457-1
    Subjects: Sociology, Economics, Finance

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. Acknowledgments
    (pp. ix-xiv)
  4. SECTION ONE Investment Clubs and the “Ownership Society”
    (pp. 1-10)

    At the close of the twentieth century, an unprecedented 53 percent of American adults held investments in the stock market. Who were these people, and what was their economic and social impact? The rise of market populism was so swift that no one really knows. This book attempts to shed light on that phenomenon, which attracted enormous participation and interest in the U.S. stock market over the course of one remarkable decade.

    A report by the U.S. Congress called it “an explosion in stock ownership.”² TheNew York Timesproclaimed a new era of “shareholder democracy,”³ andNewsweekcalled it...

  5. 1 Stock Market Populism—Investment Clubs and Economic History
    (pp. 11-36)

    Much that can be said about the spirit of the 1990s in America can be encapsulated in the publication of three books in rapid succession between May and September 1999:Dow 36,000;Dow 40,000; andDow 100,000. Issued by three different publishers, and written by three different sets of authors, each book vied to be the most optimistic about the upward trajectory of U.S. stocks. Though we might now wish to shelve these books in the science fiction section of the library, at the time their ideas were treated quite seriously and discussed earnestly in almost every public news forum...

  6. 2 Investment Clubs as Markets in Microcosm
    (pp. 37-72)

    It has been said that fads appear irrational only to those who are not caught up in them.² If so, it is worth asking what the stock market bubble of the 1990s looked like to the millions of individual investors who participated in it. The question is worth pursuing, not only because the perspective of nonprofessional investors has been neglected in past research, but because so much of whathasbeen written has focused on the irrationality of these individuals.

    This chapter will attempt to enlarge this perspective by arguing for what Daniel Kahneman, winner of the 2002 Nobel Prize...

  7. SECTION TWO Cash and Social Currency: Performance in Investment Clubs
    (pp. 73-82)

    What does it mean to speak of performance in an industry where an estimated 75 percent of professional investment managers fail to outperform the benchmark Standard & Poor’s 500 index? From a purely profit-oriented point of view, research in economics and finance suggests that most investors would be better off putting their money in no-load index funds rather than paying a professional to manage their money. This goes for investment clubs as well as individual investors.

    Allowing for the problems of bounded rationality discussed in the previous chapter—and the very real possibility that without investment clubs, many Americans would...

  8. 3 Group Composition and the Business Case for Diversity
    (pp. 83-112)

    The significance of group composition for portfolio performance in investment clubs emerged from the outset of the study, with the evidence from NAIC’s archives showing that groups composed of men and women together earned significantly and consistently higher returns than same-sex groups. My subsequent exploration of this phenomenon, through both qualitative and quantitative methods, revealed that the performance difference was driven by a more complex set of compositional factors than gender alone. In fact, several different types or dimensions of diversity interacted to produce the “diversity premium.”

    While in everyday usage, the term diversity is usually applied to readily observable...

  9. 4 Getting Ahead versus Getting Along—Decision Making in Investment Clubs
    (pp. 113-142)

    The previous chapter showed how a broad and varied information pool contributes to the “diversity premium” in investment clubs. This chapter will now turn to the question of group processes: specifically, how groups use (or fail to use) information held by their members. Group processes require separate consideration as part of the “diversity premium” because in investment clubs, as in all work groups and teams, the presence of a resource like information does not tell us much about whether and how it will be used. Instead, group processes act as a kind of master switch for the expression of diversity,...

  10. SECTION THREE Aftermath and Implications
    (pp. 144-148)

    The creation story of contemporary economic sociology begins in the 1950s, when sociologist Talcott Parsons made a verbal treaty with the economists whose offices adjoined his in Harvard’s Littauer Hall—a division of epistemological territory in which sociologists got “values” and economists got “value”; economists got “the market” while sociologists got the social relationships in which markets are embedded.² But within a generation, sociologists began to chafe at these boundaries, leading to breakthrough work that encroached on economists’ reserved areas of inquiry by proposing alternative,sociologicalaccounts of markets and value. For example, Harrison White asserted that markets are not...

  11. 5 Reflections on Investing in the 1990s
    (pp. 149-174)

    In reconnecting with the participants in my observational sample, the most surprising finding was that all of them were still investing. Though they recognized that much had changed since the 1990s, many said they had no choice but to keep buying stocks. As Troy of Valley Gay Men’s Investment Club put it, “Where else are we going to put our money? In the mattress?” Among the groups that remained intact as of 2004, their patterns of investment decision-making were similar to those I had observed in 1999. For example, the members of Portfolio Associates continued to bicker amicably after amassing...

  12. 6 Implications and Conclusions
    (pp. 175-198)

    What do you call a voluntary association whose members make monthly contributions to a collective enterprise designed to build their financial independence? The World Bank calls it “microfinance”—a grassroots form of economic development commonly employed in countries whose infrastructure of financial and social institutions is not sufficient to meet the needs of the population. Across Southeast Asia and Africa, one of the most popular forms of microcredit is rotating credit associations, whose members typically contribute a small sum of cash every month to a “purse,” which one member receives in full at each meeting in order to finance a...

  13. Notes
    (pp. 199-214)
  14. References
    (pp. 215-230)
  15. Index
    (pp. 231-242)