Millennials to the Rescue
If we are to listen to Bill Smead, a generation of millennials might just save the economy, and by implication, the stock markets resume a rising trend. That’s right. This super-caffeinated, Starbucks drinking, highly educated generation is fast approaching - middle age, that time where one is prompted to stay clear of all the worldly distractions and make that decision to save and invest for their future of old age. Born between 1981 to 1996, the first millennials are now about to reach the age of 40, while the last of that generation is almost done with college.
And just how different millennials are from the previous generations – for starters, most of them were born and bred under better circumstances compared to say the baby boomers. They also have enjoyed overall better education, albeit under the expense of burgeoning student debt.
Bill Smead, the founder of the Seattle based investment firm Smead Capital, strongly believes that ‘millennials won’t do things differently than their parents and grandparents.’ He further argues that the only difference between the millennial generation and the previous generations is that –most millennials are better educated having graduated from college and started later having families for themselves.
Most millennials are tech-savvy – and we shall see most of them patronizing technology-oriented companies which might push momentum in an otherwise uneventful stock market. On top of your FAANG stocks [Facebook, Amazon, Apple, Netflix, and Google], Smead is also bullish that millennials will likely go for well-loved companies of their generation such as Home Depot, Disney and American Express. AMEX may seem an odd choice given the rapid advancement in Fintech and the Crypto world, but for now, Visa & Mastercard only process transactions, whereas Amex lends money at up to 9% [currently] on credit card loans outstanding.
Some of the major takeaways from Bill Smead’s interview are as follows:
- 1. The stock market remains cheap, according to the legendary fund manager. When Bill Smead started his investment business in 1980, and when compared to now, the value of the S&P 500 is at its cheapest today, he maintains. We can only surmise that these companies today are stable and have a consistent cash flow of revenues compared to 40 years ago when these businesses were still at their concept stage.
- 2. Technology stocks will have a comeback thanks to a generation of millennials who look into tech-focused companies. These are apps and platforms that have always been ingrained in the millennial consciousness such as Facebook, Uber, Netflix, and so on, as technologies continue to advance with the advent of AI.
- 3. As these millennials age, there will be specific spending and saving patterns that are going to develop. It is obvious that aging will prompt a generation to save for their future as governments increasingly decrease their involvement to provide for state pensions and welfare – either through insurance or investments in the stock market. These are the sweet spots for the US economy.
- 4. Studies show that millennials have been hard hit by the financial crisis, live longer with their parents, and are slower when it comes to starting their own families. Living with parent’s saves them rent and mortgage costs. Starting a family late saves them the hassles of raising one. So there, we can see some shift of these expected expenses being thrown to investing. They don’t even need to buy a new house. They might as well inherit from mom and dad.