Demographics as Destiny
Nobody is born knowing anything. As a consequence, each generation tends to learn the same lessons as the prior ones, but under some different circumstances.
Millennials just learned that the stock market doesn’t always go up. It mostly goes up, but that “mostly” smooths over some rather rough stretches.
As the most recent generation to reach adulthood, millennials have been characterized mostly by how they’re different from prior generations. In debt earlier. Marrying later. Allergic to suburbs and in love with city life.
But the pandemic changed a lot of that, and millennials finally started acting the way prior generations did. There’s probably no better example than the rush to buy houses. With crowded cities looking less appealing and mortgage rates at all time lows, millennials bought houses in suburbs in droves. Years worth of demand played out in a few months.
And just as prior generations fell into investment manias, millennials are no longer an exception here either. For several years millennials bought cryptocurrencies, NFTs, meme stocks, speculative tech stocks and call options. 2022 has been a rude awakening for this cohort. And even though Dock Street didn’t get into the latest crazes, we did get caught up in the collateral damage.
As owners of very profitable companies, we have large allocations to tech stocks. That’s the sector with the strongest profit margins and the best ability to scale in the Internet age. We remain undeterred in this strategy.
Millennials, and other speculators, bought too many assets that produce nothing in the way of profits. Those assets need to be marked down to prices that reflect the risk they pose for investors. No one knows where we are in that process, we only know that it will end at some point.