People born after World War II, or between 1946 and 1964, are known as baby boomers and as such credited for most of the economic growth in the United States in the last decades. Their habits and views are still highly appreciated by policymakers. However, a recent survey shows that boomers are the most bearish investors today, outpacing generations that followed.
In sharp contrast, millennials are bullish, albeit not in the same proportion as bearish boomers. A quick comparison of the data above reflects that, on average, younger generations are more bullish than older ones. In the stock market, this translates into optimism versus pessimism. It seems optimism wins.
What is interesting is that millennials have been a part of two economic crises. Unlike the previous generations, they faced the 2008 Great Financial Crisis and now the coronavirus pandemic. They both created high unemployment and challenging conditions, and yet millennials remain optimistic.
Again, an optimistic view is always reflected in the stock market. A quick look at the trading activity of one of the most popular brokerage houses in America shows a sharp rise in the last twelve months. The more the stock market dropped, the more active retail traders were. Considering the sharp rebound we have seen in equities in April (one of the best months in decades), the optimists (i.e., millennials) are mainly responsible for it.
It may be just the enthusiasm and courage of younger people that push this market up. In any case, the dramatic increase in the trading activity, coupled with the stock market rebound, implies that the general public is invested on the long side.
Behavioral finance teaches us such concepts as the wisdom of crowds. In trading, you want to avoid crowds, especially retailers, for a simple reason – they are rarely right.
Which leads us back to baby boomers. Is it experience that keeps them on the bearish side?
Last week, one of the greatest investors of all time, Stanley Druckenmiller said that risk/reward in equities is as bad now as he is seen in his entire career. He, and other high-profile investors, are not shy in making their bearish view public.
Yet, the market recovered from recent lows and maintains a bullish trajectory. So as baby boomers are challenged by the new risk-takers. The question now is who is going to prevail in the long term?