Summary

• In case you missed it, Millennials are the new force in the stock market.
• While not the biggest piece of money in the stock market, they are the most important money in the stock market.
• “The Reddit Army” and Robinhood investors are just the tip of the iceberg when it comes to Millennial money coming into stocks.
• Millennials are putting more money into stocks than any other generation right now due to their size and earning power.
• The Millennials are quickly moving the needle towards investing in sustainability and technology, don’t get left behind.

I have been talking to my clients and subscribers about the importance of the Millennial generation to both the stock and housing markets since about 2012.

2012 was the year that the Millennials started serious household formation after getting delayed by the Boomer led Great Recession. Don’t be offended Boomers, you had a great run, but the Financial Crisis was the pivot to the next generational wave – even if nobody quite knew it at the time. 

As I look around, my Millennial friends, whom I have quite a few through baseball, poker and business, are having children, buying homes and investing money. A lot of money. 

In fact, as of this year, the Millennials are investing more than the Baby Boomers. That means their tastes in stocks matter. If they don’t bid something up, it’s probably not going to get bid up. If they hate it, it’s probably not going to rise in price either and might get destroyed by an Ape.

What’s In A Generational Name?

There are currently 5 generations of investors in the stock and real estate markets in America. They are: 

• The Silent Generation: born on dating 1925-1945.
• Baby Boomers: born on dating 1946-1964.
• Gen X aka Latchkey kids: born on dating 1965-1980.
• Gen Y aka Millennials: born on dating 1981-1996.
• Gen Z – I call them SnapGramTok – born on dating 1997-2012ish.

While there is minor debate about the demarcation born dates, it’s a minor issue. What’s more important is that generational identity is an easy way to breakout where the money is. What we can learn about, though their actions and views on life and the world, is that each group uses, views, reacts to and invests money a little differently.

For example, I have two children. My son was born in 1994 and is pretty firmly a Millennial in broad attitudes and behavior. He’s single and not too motivated to jump into “household formation” just yet. He didn’t have a smartphone until he was in high school and got a lot of “go out and play” from me growing up.

He’s invested and traded a crypto or two while finding his way in the world with a couple of pretty interesting skills: he’s a rare multi-lingual American and might have Vegas residency type talent as an illusionist and mentalist. My experience has been that there are a lot of highly talented Millennials working on taking some of those retiring Boomer gigs. That fits since the Millennials and Boomers are similar size and linked in so many ways.

My daughter was born in 1997, and I had presumed she was a Millennial until recently. But, now it is clear to me she is a SnapGramTok kid. She’s had a smartphone since I think 6th grade. There were times as a teen I thought it was attached to her hand. She can text really fast. 

She owns a salon in downtown Milwaukee and gets a lot of clients via social media exposure. She’s extremely entrepreneurial. She definitely has a “run through walls” streak and a has a few bumps to prove it. She’s maturing quickly though as grandkid #2 prepares for entry into the world. I’m seeing a lot of teens and early 20s starting businesses. I think they are the entrepreneurial rebirth this country needs. 

I am a Gen X or latchkey kid (although less latchkey then many as my grandparents would come over to babysit after school many days). My formative years were spent waiting for the street lights to turn on so I knew it was time to wander through the neighborhood on the way home. My generation is small and feels ignored (sad face). We’re pragmatists, many of us with a quiet chip on our shoulder, have made our bones and starting to influence in subtle ways as stock, real estate and angel investors. We’re a bridge between those mega Boomer and Millennial generations.  

We also gained the most wealth as a percentage of prior wealth the past 6 quarters according to the Federal Reserve, clocking in at a 51% wealth upgrade. This is a combination of higher earning power from getting some of those Boomer jobs and others having pretty successful businesses. Gen X is also saving a larger percentage and pundits shouldn’t expect the money to get spent for at least another decade when some of us start to retire.

That leaves the Boomers as the last generation I’ll mention here. We know them well, not a lot for me to cover that a million books haven’t covered already. They Boomers are my parents. Creative, aspirational, adventurous (see the mid 1960s to disco), fun, successful and emotional. That last thing made them pretty mediocre investors (ex-my dad who made a few counter trend asset allocation shifts over the years to do pretty well). 

A recent study by MIT suggested that older, married, male investors were the most likely to “freak out” and sell off investments in a downturn. Here’s a quick Bloomberg article if you want more.

I bring this up because a year ago on these pages I wondered Will Young Traders Flip The Option Switch To Cause A Crash? In my members articles and YouTube webinars, I have been talking about how Millennial traders and hedge funds could scare he begeezers out of Boomer investors and cause them to take permanent losses by selling “at (or near) the bottom.” 

My pretty simple thesis is that Millennials will learn to use puts to push stocks down, the same way they use calls to spin stocks up. If you have been watching the number of retail put trades lately and reading Reddit, you know they are learning fast.

So, my question to Boomers is, will you make the mistakes you made in 2000 and 2008 by panicking, selling low and then blaming others or the system for losses. Or, will you do something more introspective and make the correct counter trend asset allocation changes ahead of time? #okBoomer, your move. 

Big Money Millennials

Millennials have become big earners and that’s a big deal for markets. That means their behavior matters. A lot. 

In fact, Millennials are doing really well all of sudden, after getting smacked early career by the Boomer Financial Crisis. 

The gains have mostly gone to women, who tend to have stronger hands when investing than testosterone traders. 

Last year The Economist foreshadowed that Wall Street will soon have to take millennial investors seriously and they were right. As of right now, the Millennials net inflows into the stock market are about the same as the Boomers – who are at the front edge of a slow withdrawal process. 

Cathy Wood says: “I do believe that both crypto and the equity markets are going to be powered by millennials…” I agree with her.  

What’s more, Millennials are inheriting around $2 Trillion per year according to Tom Lee’s FundStrat. Says Lee: “Bull market until 2038? This is a possible base case. … If demographics are destiny, US stocks will do very well…” 

I have long expected a major bull market in the 2030s. Folks who see my charts know that. But, I also expect a Fed taper driven reversion to mean on valuations in the broad stock market at some point. It’ll be a correction to buy. But what to buy? 

I expect a bifurcation of winners and losers to become a lot more apparent in coming years. Mostly driven by secular trends and the tastes of younger investors. This is not weird, it’s a repeat of the Boomer wave. An echo wave.

What The Millennials Love

I’ll make this simple. If you want to make money in the next couple decades, invest with the Millennials, not against them. This is what they like: 

• Technology – year really broad there, but think AI, IoT, AR, VR, platform companies and niche products…
• DiFi & crypto
• Clean Energy
• Space
• Biotech
• Streaming
• Online gambling

There’s more, but that’s top of the head.

What The Millennials Hate

Easy enough, they don’t like dirty, greedy or intolerant (by their definition). They will destroy those companies in time. 

• Fossil fuels and everything related
• Dirty industry
• Banks
• Wireline
• Old staples brands
• Department stores
• Cereal (weird but true, though sometimes they eat it for dinner)

There’s more, but it’ll probably be subjective as we go. For example, don’t get invested in companies that get caught up in scandals that sniff of “old boys club,” homophobia or are anti-ESG.

Apes Are The New Occupy Wall Street

There is a recent article in the Financial Times that asks: Is the army of lockdown traders here to stay? (free account every investor should have is required). 

It’s an important question. As I’ve discussed for about 2 years now, the Reddit Army is real. They are the Apes I talked about in this webinar: 

Certain Millennials, many in fact, are using the stock market to impose their views and will on the world. They are putting their money where their mouth is. And, as I mentioned above, getting good at it. 

They are using basic supply and demand math to manipulate certain stocks. Is that legal? Who knows. Is hedge funds quietly manipulating stocks legal? No. But who is going to enforce it in a gray information world.

The Millennials have spun some stocks up far above what historical fundamentals suggest are rational valuations in some cases. In the case of GameStop (GME), last January, they caused a Steve Cohn backed hedge fund to fall to the brink of insolvency by pushing back on their short trade. That’s pretty heavy fire power to cause a multi-billion dollar hedge fund to almost go under.

The point I am making is that if you fight with the Millennials, you’re probably going to lose the war, even if you win a battle here and there. 

Investment Quick Thoughts

I think what is pretty self-evident is that as go the Millennials, so goes the markets. That’s good and bad, just like it was with the Boomers. There will be speculative manias and epic meltdowns. It’ll be different, but the same, as well as, probably bigger and more extreme. 

Our job as investors is to figure out where the trends will lead. We need to find the secular decliners and sell them on any rallies, i.e. most oil stocks and  disruption vulnerable banks. We need to find the secular risers and buy them on any corrections, i.e. semiconductors, fintech, IoT, clean energy and various AI driven platform technology. 

To that end, I created my 2020s Investment Barbell: 

I’m currently holding extra cash again. If there’s ever another stock market correction (yeah, I joke), I’ll get back to about 80% on the left side of that barbell and about 20% on the right. I suppose, if you are in love with crypto, then you could conceivably go 60/40, just remember, that love, sovereigns and central banks can be fickle. 

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.